Donald Trump's hyped $US1.5 trillion infrastructure plan embraces elements of Australia's model of paying federal incentives to states to build projects, but it faces a major roadblock in the US Congress due to ballooning government debt.
President Trump, a billionaire real estate developer, unveiled his official infrastructure proposal on Tuesday Australian time. It includes limited federal funding and a promise to streamline permits and environmental approvals for projects.
"We're going to get the roads in great shape," he said, surrounded by state governors and mayors at the White House.
"We're going to have a lot of public private [partnerships] and that way it gets done on time [and] on budget."
But he appeared to tamp down expectations, saying infrastructure was not as important as the recent $US1.5 trillion tax cuts or boost to military spending.
Goldman Sachs said there was "low odds of enactment" this year.
The plan was released the same day as a broader $US4.4 trillion White House budget proposal that would add hundreds of billions more to the government's debt and gives up on an earlier goal of achieving a long-term budget surplus.
The yield on the 10-year Treasury bond hit a fresh four-year high of 2.89 per cent, after President Trump's budget director, Mick Mulvaney, warned interest rates could "spike" due to higher government spending.
St Barbara shares climbed 5.2 per cent today in a broadly stronger mining sector.
Macquarie analysts lifted their view on the stock to outperform from neutral, saying that a site visit to Gwalia in Western Australia has made them more positive on the stock in the long term.
"Our visit highlighted to us the potential for a more sizable production expansion post the Gwalia Extension Project than we had originally forecast. This is largely due to the vent upgrade should allow a large lift in ore tonnes feeding an underutilised mill," the analysts said.
"Our revised outlook for Gwalia has led to a 16 per cent lift in our target price to $4.40 and recommendation upgrade," they added. .
The market is holding onto gains at lunchtime, with miners the strongest performers.
The S&P/ASX 200 index is up 26 points, or 0.5 per cent, at 5846 while the All Ordinaries is up 29 points, or 0.5 per cent, at 5949 while the Australian dollar is at US78.60¢.
Shares started on a firm note following an advance in the US and European markets on Monday, where investors recovered a bit of poise after last week's savage sell off.
As stocks recovered the US dollar weakened, helping to drive an advance for metal prices, with copper moving off a two-month low to climb 1.1 per cent on the LME.
Miners advancing on Tuesday included BHP, up 1.1 per cent, RIo Tinto, up 1.6 per cent, Newcrest Mining, up 1.2 per cent, and Pilbara Minerals, up 8.8 per cent.
Banks were also higher, although the gains weren't as notable, with CBA up 0.5 per cent and NAB up 0.4 per cent.
Earnings were also in focus, with Cochlear down 1.2 per cent but Boral and Challenger recovering from early lows to trade down 0.5 per cent and 0.3 per cent respectively.
Australia's booming office sector and strong commercial real estate market has delivered diversified property giant GPT a $1.27 billion after tax profit.
Chief executive Bob Johnston said all parts of the business made a strong contribution to the result, delivering like-for-like income growth of 4.4 per cent and a total return of 15.2 per cent for the year.
Income growth from tenants and heated competition among property investors delivered the group a $717.7 million lift in the valuation of its portfolio.
The group's $1.269 billion after-tax profit increased by 10.1 per cent on the previous corresponding period.
"The Office portfolio continues to benefit from its high exposure to the Sydney and Melbourne markets, which saw strong valuation gains and effective rent growth during the year," Mr Johnston said.
GPT signed 189,500 square metres of leases during the year, bringing occupancy across its portfolio to 95.2 per cent at the end of year.
The Retail portfolio maintained occupancy at 99.6 per cent and recorded a valuation gain of $281.4 million.
Here's SMH columnist Elizabeth Knight on JB Hi-Fi: Shares were up 1.1 per cent at $26.14 today after falling 8 per cent the previous day.
Just the spectre of Amazon can eat into retail earnings performance, even before it shows evidence of stealing customers.
Witness JB Hi-Fi - the market darling of the retail industry that managed to spook investors despite robust earnings growth in the first half of the financial year.
Retailing in Australia is a hazardous game. Performance needs to be perfect and any cracks are elevated to tectonic faults, while disappointments are forensically scrutinised.
Over the past week alone, we have witnessed Wesfarmers' disastrous foray into the UK home improvement market, and the calamitous spiral in the performance of Myer, whose deteriorating balance sheet is heading towards a nasty collision with its lenders.
It is understandable that investors in retail stocks are skittish.
Despite JB Hi-Fi delivering a better than expected increase in its half-year earnings of 21 per cent, investors and the analysts homed in on the weak spots and the reasons to remove some of the froth from the company's shares, which had been rising against the tide of others in the industry.
It was certainly a welcome relief for the the white-knuckled short sellers who had been waiting for cracks to emerge in the company's performance.
And there were a few negatives in Monday's profit announcement - enough that the share price responded with a 7.5 per cent fall within the first three hours of trade.
This is a company that is highly reluctant to cede market share and whose recent focus has been on shoring up its defences against the Amazon invasion (which to date has been more about establishing a beachhead than a meaningful onslaught).
Business conditions started the year close to a record high and sentiment rebounded strongly in January led by the construction and mining industries.
While National Australia Bank's monthly business survey predates last week's financial market turmoil, it shows that in the real world businesses continue to enjoy some of the post profitable sales and employment conditions ever recorded.
The bank's business confidence index jumped 6 points to 19 points in January, which is materially above the long-run average of 5 points, while sentiment firmed 2 points to 12 points, the highest level since April 2017.
"The rise in confidence may reflect the improved global economic backdrop, but it is important to note that the survey was conducted before the current turbulence in international financial markets," said NAB chief economist Alan Oster.
By state, conditions are solid around the country, led by Tasmania, Queensland, and Victoria. Similarly, the business confidence index for WA is above its reported level of business.
The figures support the Reserve Bank's view that an upswing in business investment will help the economy gather speed in 2018 and 2019, eventually bringing unemployment down to a level at which wages growth will start to rise.
Chances of a rate hike by October of this year eased further on Tuesday and now stand at 28 per cent, according to interest rate futures market pricing.
The dollar was little changed, trading at US78.56¢ compared to US78.51¢ before the release of the survey.
Three of the big four banks will start rolling out a near real-time payment system from Tuesday, as the biggest overhaul of payments infrastructure in two decades is launched to the public.
Commonwealth Bank, Westpac and National Australia Bank said that from Tuesday, they would start offering customers the ability to make money transfers that will settle within less than a minute, compared with today, where it can take up to three days for funds to arrive.
The new system also allows customers to transfer money to an external account without entering a BSB or account number.
ANZ Bank, however, is not launching the service to its customers yet, saying it is continuing with "rigorous testing" of the new system, to ensure customers got the "best possible and safest experience."
ANZ would announce how it will rollout the fast payment system to its customers in the coming weeks, a spokesman said.
Macquarie is making a bold dive into Danish telecoms, writes Reuters correspondent Neil Unmack.
Teaming up with local pension funds to buy TDC for 40.3 billion Danish crowns ($8.5 billion) is a long-term bet on ultrafast broadband, rather than a foray into classic private equity-style cost cutting.
Macquarie's bid, which had to be raised to 50.25 Danish crowns a share from the 47 crowns originally reported by Danish newspaper Borsen, doesn't fit the traditional buyout playbook.
Cost-cutting looks hard since TDC has already been through the private-equity machine. Its 2005 acquisition by Apax, Blackstone and Permira was the largest of its time.
Even now, as a publicly listed company, its EBITDA margin, which is above 40 per cent, surpasses that of Sweden's Telia or Norway'sTelenor. And TDC's business is now mostly focused in Denmark, reducing the scope for selling off assets.
Macquarie's plan hinges on investment.
It wants to pump funds into the new broadband networks that are needed for customers' TV shows and data, particularly in areas that are currently not served.
Financial engineering may also play a role. The network will be separated from the retail business and, as an asset with predictable cashflows, can be financed with higher levels of borrowing than TDC currently uses, which is less than 3 times EBITDA.
Wall Street's three major indexes rebounded on Monday with broad-based gains as investors regained some confidence after US equities' biggest weekly drop in two years, but strategists stopped short of calling an end to the market pullback.
The announcement of President Donald Trump's budget, including an infrastructure spending plan, helped sectors such as S&P materials and industrials.
But the bigger factor was likely the S&P's test and rebound from a key technical level on Friday when it briefly fell 11.8 per cent from its January 26 record and below its 200-day moving average during that session, according to strategists.
"Investors probably were mulling things over the weekend and concluded that the economy is fairly strong, earnings are holding up, so there's no particular reason to panic or sell. So some money probably came back into the market," said John Carey, portfolio manager at Amundi Pioneer Asset Management in Boston.
The Dow Jones Industrial Average rose 410.37 points, or 1.7 per cent, to 24,601.27, the S&P 500 gained 36.45 points, or 1.39 per cent, to 2,656 and the Nasdaq Composite added 107.47 points, or 1.56 per cent, to 6,981.96.
Michael Purves, chief global strategist at Weeden & Co in New York, said Monday's move showed "big, fast, money saying, 'Wait a second, buy this dip.'"
The Australian share market gained ground on Tuesday, as indicated by futures trading.
The S&P/ASX 200 index rose 17 points, or 0.3 per cent, to 5838 while the All Ordinaries rose 19 points, or 0.3 per cent, to 5938 and the Australian dollar traded at US78.61¢.
US stocks found some upward momentum overnight, with investors buying in after last week's correction.
Miners were advancing in early trading in Australia, with BHP up 1.1 per cent and Rio Tinto shares climbed 2.1 per cent while South32 advanced 1.7 per cent.
Banks were recovering a bit of ground after yesterday's banking commission-related losses, with CBA up 0.7 per cent and NAB higher by 0.5 per cent.
Cochlear shares dropped 3.2 per cent and Boral shares slid 3.1 per cent while Challenger dropped 3.4 per cent after reporting earnings.
Transurban managed to gain after updating investors on profits, with shares in the toll road operator up 1 per cent.
Challenger says its first-half normalised net profit rose 5.7 per to $207.9 million from $196.6 million a year earlier, and says it is on track to meet full-year guidance.
But the ASX-listed wealth management company said its net profit in the six months ended December 31 fell 3 per cent to $195.4 million from $201.5 million in the year-earlier period, on the back of a "negative" investment experience of $13 million.
Revenue surged 19.9 per cent to $1.13 billion, and the company said was paying an interim dividend of 17.5¢ a share, payable on March 27 to shareholders of record on February 28.
Challenger said it was was well-positioned to reach its full-year underlying net profit before tax guidance of between $545 million and $565 million, representing growth of between eight and 12 per cent.
Normalised pre-tax return on equity (ROE) was 16.8 per cent, due to the temporary impact of new capital after MS&AD, the parent company of Mitsui Sumitomo Primary Life Insurance Company (MS Primary) , said in August it would pay $500 million for 6.4 per cent Challenger stake with plan to take this holding up to 10 per cent within 12 months.
Normalised pre-tax ROE is expected to increase as the benefits from the new capital are generated said Challenger.
Cochlear, the hearing implant maker, has underlined its confidence in the outlook by hiking its interim dividend 8 per cent despite a flat half-year profit.
Net profit in the six months ended December 31 fell 1 per cent to $110.8 million as revenue rose 7 per cent to $649.6 million.
The Sydney-based maker of Cochlear hearing implants said the result would have been up 1 per cent at constant currencies - the Australian dollar crept up against the US dollar, the currency for the largest market - and about 5 per cent higher without a $5.5 million charge attributable to the US company tax cut.
Cochlear said it would pay a $1.40 interim dividend, up from $1.30 in the year-earlier period. The dividend is payable on April 12 to shareholders of record on March 20.
It reaffirmed full year profit guidance of $240 million-$250 million, an increase of 7 per cent - 12 per cent on last year's net profit, and said sales of its new iPhone compatible sound processor, the Nucleus 7, started well after being launched half way through the period.
"Positive momentum continues across the developed markets with the significant investments made in product development and market growth initiatives over the previous few years expected to underpin growth in full year 2018," said chief executive Dig Howitt.
Transurban's interim net profit almost quadrupled to $331 million as the tollroad company benefited from higher revenues in its road development and tolling businesses.
Net profits for the six months to June rose 280 per cent from $88 million a year earlier, aided by favourable movements in net finance costs and non-cash income tax benefits.
Transurban's proportionate earnings before interest, taxation, depreciation and amortisation (EBITDA) - which measure income relative to its ownership stakes in its toll road assets - rose 11.6 per cent to $911 million.
Group proportional EBITDA margins rose to 75.4 per cent from 74.7 per cent a year earlier.
Transurban makes its highest profit margins in Melbourne, where margins run at 88.5 per cent, and Sydney, where margins run at 81.2 per cent.
Group toll revenues rose 9.6 per cent to $1.13 billion, while construction revenues jumped 69 per cent to $462 million.
Toll revenue increases were driven by both traffic growth and higher toll fares.
Average daily traffic growth across all of Transurban's roads in Australia and the US rose 1.4 per cent, although some roads disrupted by construction works.
Reserve Bank of Australia assistant governor Luci Ellis says a long-awaited pick-up in wages growth is likely to be "gradual" because employers are reluctant to raise pay packets for fear of becoming uncompetitive.
While Dr Ellis expressed renewed confidence that falling unemployment would eventually lift wages - removing a key danger to economic growth of sub-par consumer spending - structural changes and increased retail sector competition mean it won't happen in a hurry.
"Our forecasts are for wage growth to pick up from here, but not immediately and then only gradually," Dr Ellis told a conference in Sydney on Tuesday.
A lack of wages growth is the economy's chief bugbear, with weak income growth weighing on households struggling to pay one of the world's highest debt burdens.
Dr Ellis, who heads the Reserve Bank's economic forecasting division, says that business surveys show there are some signs that the labour market is tightening as skilled workers become increasingly difficult to find.
However, so far businesses haven't responded by paying people more to ensure they stay, or poaching them from elsewhere.
"Instead, we hear that firms are increasingly using other creative ways to attract and keep staff without paying across-the-board wage rises.
"These include everything from hiring bonuses, to offering extra hours, to increasing perks and workplace conditions."
Dr Ellis says companies are behaving this way because of the "competitive landscape".
Building materials maker Boral said half-yearly net profit rose 13 per cent as it received the first earnings contribution of newly-bought US concrete ingredients maker Headwaters Inc.
Net profit came in at $173 million for the six months to Dec. 31, the company said on Tuesday, compared with $153.4 million last year, slightly missing a Deutsche Bank estimate of $187.4 million.
The company said Headwaters acquisition resulted in savings of $18 million in the first half, adding that the company now expects to exceed the expected $30-35 million savings from the deal to be accrued in full-year results.
Boral doubled its US presence last year with the $1.8 billion purchase of Headwaters, maker of concrete ingredient fly ash, at a time when building and engineering firms jostle for a spot in a vast capital works program promised by President Donald Trump.
On a proforma basis, Boral's North America segment core earnings grew 4.0 per cent to $144 million, including a full period contribution from Headwaters, amid a recovery in the US housing market.
Boral expects continued growth across all businesses in fiscal 2018, including a significant lift in earnings from Boral North America, Chief Executive Officer Mike Kane said.
The company said Boral Australia, the company's biggest segment, is expected to report a high single-digit growth in core earnings for the full-year, on increased infrastructure and non-residential activity.
Boral declared an interim dividend of 12.5 cent per share, up from 12 cents per share declared in the year-ago period.
Total revenue rose to A$2.94 billion from A$2.09 billion last year, Boral said.
- Reuters
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Here's IG Markets' Chris Weston on key market developments:
Aussie SPI futures are sitting up 22 points from 16:10pm yesterday so this should support the ASX 200 for a gain of 0.4% on the open this morning.
Based purely on their respective ADRs (American Depository Receipts) BHP should open +0.9% higher, while CBA should lift by some 0.3%.
The headlines overnight have centred on Donald Trump's budget and infrastructure plans, although there is also talk that Theresa May could signal an agreement around Northern Ireland and the customs border this week.
Certainly, the economic forecasts disclosed as part of the Trump budget have been a talking point, where we won't actually see a balanced budget for 10 years.
The fact the 10-year Treasury sits unchanged on the day at 2.85% shows a market that is unnerved by these numbers and one questions if the plan here actually eventuates as proposed.
That said, the deficit is only going to be headwind for the US bond market.
It is a growing concern and on current projections clearly something has to change, especially if the future costs to roll the maturing debt over is becoming ever more costly.
It is a worry for the USD too in the years ahead and while FX traders are not selling USD's on deficit concerns today, it will be an ever-growing headwind in the years ahead.
Wall Street shares found some upward momentum with investors buying after last week's correction.
The S&P 500 Index extended gains in late trading in New York as the 10-year yield fell back from the four-year high hit earlier on Monday. The Nasdaq Composite Index and Dow Jones Industrial Average turned positive for the year.
"There is a 'macro floor' - in that the run of macro data is still strong," said Inigo Fraser-Jenkins, who leads Sanford C. Bernstein's global quantitative strategy team. "What we do not have is a valuation floor."
Currently, the S&P 500's earnings yield is around 6 per cent, 3.1 percentage points more than the 10-year note. The post-crisis average has been 4 points.
The S&P 500 retook its 100-day moving average, a technical indicator that it crashed through last week. Morgan Stanley chief US equity strategist Michael Wilson is telling clients to buy the dip, as peers at Goldman Sachs and JPMorgan recently have advised.
The yield on the US 10-year Treasury note was little changed at 2.85 per cent after rising to a four-year high and then reversing.
All the overnight market action in numbers:
- SPI futures up 33 points or 0.6% to 5774 at 8.10am AEDT
- AUD +0.5% to 78.53 US cents
- On Wall St: Dow +1.7%, S&P 500 +1.4%, Nasdaq +1.6%
- VIX -9.9% to 26.18
- In New York, BHP +2.3% Rio +2.8%
- In Europe: Stoxx 50 +1.3%, FTSE +1.2%, CAC +1.2%, DAX +1.5%
- Spot gold +0.6% to $US1324.18 an ounce
- Brent crude -0.1% to $US62.70 a barrel
- US oil +0.2% to $US59.34 a barrel
- Iron ore -0.3% to $US76.24 a tonne
- Dalian iron ore +0.3% to 523.5 yuan
- LME aluminium +0.1% to $US2124 a tonne
- LME copper +1.1% to $US6831 a tonne
- 10-year bond yield: US 2.85%, Germany 0.75%, Australia 2.91%
On the economic agenda today:
- NAB January business confidence, business conditions
- UK CPI Jan y/y prev 3.0%
- US NFIB Small Business Optimism Jan
Stocks to watch:
- Ansell Downgraded to Underperform at Credit Suisse
- AWE Upgraded to Equal-weight at Morgan Stanley
- Cimic Upgraded to Neutral at Credit Suisse
- CYBG Upgraded to Hold at Investec
- Monadelphous Rated New Underperform at Credit Suisse
Good morning and welcome to the Markets Live blog for Tuesday.
Your editor today is Sarah Turner.
This blog is not intended as investment advice.
Fairfax Media with wires.
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