Markets Live: BHP's worst ever loss

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Markets Live: BHP's worst ever loss

Summary

  • BHP Billiton slides to a $US6.4 billion net loss and cuts dividend dramatically
  • Challenger shares hit record high after the wealth manager reports a 10% profit rise
  • RBA minutes: central bank worried about inflation and the dollar, but not house prices
  • The booming real-estate market drives Mirvac's profit above the $1 billion-mark
  • Brokers are calling it a day on JB Hi-Fi, saying the retailer's share rally looks stretched

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That's it for Markets Live today.

Thanks for reading and your comments.

See you all again tomorrow morning from 9.

Resources were the sole bright spot in a rather downbeat session on the ASX, with banks selling off as another batch of profit reports failed to lift the mood.

The ASX 200 ended down 8 points or 0.1 per cent to 5532, and bar a positive early start spent most of the day in the red.

The big four lenders eased lower, ranging between a 0.1 per cent fall for ANZ and a 0.6 per cent drop for NAB. Telstra fell 1 per cent and Transurban 1.3 per cent.

BHP added 0.4 per cent ahead of its profit result, which is dropping as we write. Rio climbed 0.9 per cent and Fortescue 1.8 per cent. Energy stocks were also higher after oil jumped overnight, even though crude eased through the day. Woodside added 1 per cent and Santos 2.5 per cent.

Among reporting companies, Domino's reported a solid result that failed to reach investors' lofty expectations, and the stock ended down 3.7 per cent. G8 Education plunged by close to 30 per cent at one point following its earnings report, but ended a comparatively mild 12 per cent down.

Among other reporting companies:

- Challenger climbed as much as 7 per cent but ended 1.5 per cent higher
- GPT dropped 2.3 per cent
- Mirvac gained 3.3 per cent
- InvoCare fell 4.3 per cent

Winners and losers in the ASX 200 today.

Winners and losers in the ASX 200 today.Credit: Bloomberg

BHP Billiton has slumped to its worst result since it was formed in 2001, after a year in which sliding commodity prices and declining production coincided with a fatal and costly dam disaster in Brazil.

BHP posted an underlying attributable profit for the 2016 financial year of $US1.21 billion, which was better than the $US1.09 billion that analysts had expected. Revenue slid 31 per cent to $US30.9 billion.

The company slumped to a $US6.38 billion net loss, after a long list of impairments, charges and exceptional items were included.

Writedowns on the carrying value of the US shale division and costs associated with Samarco dam disaster, which killed at least 19 people in November, were among the biggest contributors to the exceptional items tally.

Shareholders will shoulder some of the burden, with dividends shrinking dramatically under BHP's new dividend policy which states that at least 50 per cent of underlying profits will be paid to shareholders every six months.

That formula has delivered total dividends for the year of US30¢; well below last year's $US1.24 return to shareholders.

The result is a far cry from the previous year's underlying profit of $US6.4 billion.

BHP reported a net profit of $US6.7 billion ($8.4 billion), below analyst expectations of a $US7 billion.

BHP reported a net profit of $US6.7 billion ($8.4 billion), below analyst expectations of a $US7 billion.Credit: Jessica Shapiro

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The British pound remains under pressure, sliding steadily on concerns that the economic fallout from Britain's decision to leave the European Union will keep the Bank of England stuck with an easier monetary policy indefinitely.

Sterling was effectively flat at $US1.2881 after slipping 0.3 per cent overnight in the wake of data showing prices of British homes for sale falling by their most in nine months in August.

Against the Aussie, the pound has slid to its lowest in nearly three years, dropping to $1.6785, lower even than in the immediate aftermath of the Brexit referendum in June.

"The pound is likely to keep slipping towards $US1.2798 (the 31-year low it hit in June) as the UK economy faces the risk of a downturn and amid the prospect of further easing by the BoE," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, who forecasts the pound to reach $US1.2000 by the year's end.

"Although unlikely, the British economy will have to avoid a recession for the pound to bottom out. But indicators now being released after the Brexit vote point towards a recession and the need for more monetary easing."

Investors will look to the British consumer prices data due later in the session for immediate incentives.

The pound is trading at a three-year low against the Aussie.

The pound is trading at a three-year low against the Aussie.

Blue chips haven't had a great run of late, with the biggest 20 stocks underperforming the broader market in the past financial year by the biggest margin since 1989.

The soggy performance has led to numerous self-managed super funds as well as professional investors selling down their holdings in blue chips.

But Forager Funds chief investment officer Steve Johnson reckons these investors could be pulling out of the market heavyweights at the worst possible time.

"Lots of small and mid-cap stocks are starting to look relatively expensive," Johnson writes in a blog post, adding that people seem to be forgetting one of the key benefits of owning big defensive companies.

"When the economy hits the skids, these stocks are the safe haven to which everyone flocks. When unemployment is rising and discretionary spending gets slashed, people keep buying groceries and keep paying their phone bills.

"That is easy to forget after 23 years without a recession. And it's easy to feel like you are missing out when small cap investors are posting double digit returns. But these stocks are called staples for a reason, and there will come a day when investors appreciate it."

There's a case to be made for blue chips.

There's a case to be made for blue chips.Credit: Long Ha

The big three electricity retailers are charging as much as triple the rate for power in deregulated markets compared with the ACT, costing consumers hundreds of dollars a year, according to a study by energy economist Bruce Mountain.

The report, commissioned by the GetUp! group, analysed how much AGL, EnergyAustralia and Origin Energy were charging customers for the retail component of bills. It found South Australian customers, for instance, were paying about twice as much for the retailing component as it cost to generate the electricity itself.

Taking a snapshot of offers on the market, Mr Mountain found NSW households would typically cop an annual retail charge of about $444, $485 in Victoria and about $650 in SA. By contrast, ACT household could expect to pay about $225 in their regulated market.

"Once deregulation occurs, prices rise substantially," Mr Mountain said, adding NSW prices from the big retailers had jumped 10-15 per cent since caps were lifted in July 2015.

The share of retail charges of total bills was also high in comparison with other deregulated markets such as Britain's. Consumers could expect to pay triple the amount in dollar terms, with the share about twice that of Britain's 18 per cent.

The report's release comes days before Josh Frydenberg​, the new federal Environment and Energy Minister, calls state and territory counterparts to Canberra on Friday to discuss how to ensure energy markets "remain strong and stable".

The gathering was called in the wake of sharp spikes in wholesale electricity prices, particularly in South Australia in May and June, that have been blamed on a combination of limited competition among suppliers, higher renewable energy penetration and poorly timed maintenance on a key power link to Victoria.

Read more.

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Has wages growth finally bottomed? NAB sees tentative signs of a turnaround, saying both the NAB survey and the average salary advertised on SEEK's website have lifted in recent months.

"The rise has been driven by NSW and Victoria, the strongest labour markets in recent times," the bank's economists say in a note ahead of tomorrow's second-quarter wage price index.

NAB says its and SEEK's latest data suggest the low point for wages growth may well have been reached, but admits it is too early for that to show up in this week's wages indicators.

Spare capacity in the labour market seems to have been an important part of the RBA's recent decision to lower the cash rate further, NAB notes.

"The linkage is low wages growth - which reflects this spare capacity - and which, as a key determinant of prices, impacts on the RBA's outlook for inflation."

The Sydney property boom has supercharged returns from a $439 million investment portfolio backed by pre-paid funeral funds, enabling Australia's biggest funeral homes operator InvoCare to shower its shareholders with higher dividends.

But things were a little slower than anticipated in the company's core business of running funeral homes and crematoriums across Australia, New Zealand and Singapore, where death rates slowed across the market for the firm which runs brands such as White Lady Funerals, Simplicity Funerals and Tobin Brothers.

Overall, net profit after tax was up 51 per cent to $27.8 million for the opening six months of calendar 2016.

InvoCare will pay a fully-franked interim dividend of 17¢ per share on October 7, up from 15.75¢ a year earlier.

But the share price took a tumble on Tuesday morning as chief executive Martin Earp said that market share had slipped marginally. The stock is down 4 per cent at $13.98.

Mr Earp partly attributed the lower number of deaths across the market to better flu vaccines and a mild Autumn. InvoCare shares were at $12.90 a year ago.

"We tend to be a little bit busier in winter than we are in summer," he told The Australian Financial Review.

InvoCare, which has 33 per cent of the Australian funerals and crematorium market, has made solid headway in expanding its pre-paid funerals operations, which have the twin benefits of locking in future customers and also swelling the amount of funds under management in an investment portfolio which is now worth $439 million.

Importantly, the growth in pre-paid funerals is accelerating much faster than the levels of redemptions when people die and cash them in. New pre-paid funeral contracts are running 21 per cent ahead of redemptions, and this has increased from 15 per cent a year ago.

Mr Earp said the trend towards more people opting for pre-paid funerals was being driven by the Baby Boomers generation not wanting to leave the costs to be a burden on other family members.

"Our research shows that as the Baby Boomers work their way through to old age there is a desire by that generation to take control," Mr Earp said.

InvoCare is enjoying an acceleration of growth in pre-paid funerals.

InvoCare is enjoying an acceleration of growth in pre-paid funerals.Credit: Rohan Thomson

Double-digit returns in emerging market corporate debt have spurred a record buying spree, forcing yields to 13-month lows and raising the risk that an external shock, potentially from the US or Chinese economies, might produce a dramatic exit.

Dollar debt issued by firms from riskier and less developed countries has been among the year's best performing assets, yielding more than 11 per cent, according to JPMorgan's emerging market (EM) corporate debt index, the CEMBI Broad.

The average yield has fallen 150 basis points (bps) this year to about 5.2 per cent, dropping more than both EM sovereign debt and developed-country corporate debt yields, which have been falling due to Western central bank bond-buying schemes.

Investment-grade US corporate debt yields average 3.3 per cent, equivalent sterling-denominated bonds yield 1.8 per cent while euro-denominated equivalents are even lower.

In the past six weeks, investors have pumped a $US18 billion into emerging debt funds, a record run, Bank of America Merrill Lynch data shows. A significant part of this will have flowed into corporate bonds, analysts say.

Investors attribute much of this exuberance to funds that do not normally invest in emerging markets, "tourists" or "cross-over" investors, who have ventured in solely for yield.

PineBridge Investments' emerging corporate debt analyst John Bates sees this factor as a risk.

Developments, such as a change in US interest rate expectations or concerns over the Chinese economy, can put such investors to flight, because unlike dedicated EM debt managers they are less used to the sector's volatility, he said.

"These are tourists with very fat pockets. Typically EM is a small allocation within a big pension fund or asset allocator, so if you get a big fund dipping into that pool, and then removing that money there could be some very severe repercussions," Bates said.

EM corporate bond markets may be seeing an "investment balloon effect", he said. "This hunt for yields is driving spreads tighter, and it is pretty indiscriminate, and even heavier the further down the credit spectrum you go."

But for global investors, saddled with more than $US10 trillion of negative-yielding developed markets bonds, the average 340 basis-point premium the CEMBI pays over US Treasuries may be too much of a lure.

Global investors have pumped a record $US18 billion into emerging debt funds over the past six weeks.

Global investors have pumped a record $US18 billion into emerging debt funds over the past six weeks.Credit: Bloomberg

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The positive momentum sweeping the sharemarket in recent weeks has sent the number of stocks trading above a key technical level to its highest point in almost seven years, and analysts believe it signals a move higher for the local index.

According to Bloomberg, 84 per cent of stocks on the S&P/ASX 200 are trading higher than their 200-day moving averages, that is, the share prices of around 168 to the top 200 stocks are sitting above their average daily price since late January.

The high percentage of stocks above the average indicates the rally has been broad-based, "a very encouraging sign", Rivkin Securities global investment analyst James Woods said.

"The rally looks sustainable, the number of stocks above the 200-day are quite significant, it's not just large caps driving the index, it's a broadly driven rally," he said.

But can it last? Saxo Capital Markets sales trader James Kim said the banking sector provided clues, being the biggest sector on the Index by weight. All four of the big banks have provided either a profit result or trading update, and while ANZ and NAB were sitting above the 200-day moving average, Westpac was below and CBA was trading at or just below, and expected to slip when it trades ex-dividend on Wednesday.

"Obviously CBA goes ex-dividend overnight which would push it naturally below the 200 DMA; the market will be seeing whether it can reclaim that mark," Kim said.

He said more than being driven by earnings results, which have been relatively benign so far, the index was being driven by consolidation of its technical levels.

Woods outlined two scenarios for the index over the next two weeks: one is a continuation of the rally to push higher, potentially with the Index closing back above 5600, or a temporary pullback in a longer period of consolidation.

"The 50-day moving average is around 5369, that's just below the top of the support range of 5400 and 5300 for a pull back, and we continue to favour a pull back," he said.

The chart is showing however the index is in a "significant support zone" meaning a corrective pullback could present a good buying opportunity, he said.

Kim said the 5600 mark would be the first test for the market's move higher. "Above that, you are looking at whole numbers – 5700, 5800 and ultimately testing the 6000 level," he said.

Rather than looking stretched, analysts say the high percentage of stocks above the 200-day MA is a positive sign for the Index.

Rather than looking stretched, analysts say the high percentage of stocks above the 200-day MA is a positive sign for the Index.

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