G.F.C. Meltdown Coming? – ConspiracyOz

Markets Live: It’s the pits for miners

Jens Meyer

www.smh.com.au

September 29, 2015

5:10pm: That’s all for today, and there’s a small sigh of relief sounding through.

Thanks everyone for reading this blog and posting your many comments.

We’ll be back tomorrow, from 9am, to a hopefully slightly less dramatic session.

5:07pm: Amid all the carnage, the Aussie dollar has been holding up remarkably well around US70¢ , prompting one analyst to describe it “a vampire that just refuses to die”.

The local currency was trading at US69.51¢, down just 0.5 per cent on a day where anything linked to commodities was sold off on equity markets.

The Aussie has wobbled above or just below US70¢ despite analysts racing to downgrade their end of year expectations.

The average forecasts are now US65¢ by the end of 2016 and some economists are saying it could fall as far as towards US50¢ in the same period.

Saxo Capital Markets Asia macro strategist Kay Van-Petersen said it was inevitable the dollar would fall and likened its ongoing support to a movie vampire that’s hard to kill.

“It’s been a very stubborn currency. I called it the vampire that didn’t want to die. It just kept coming back up and one day it had to keel over, and that’s starting now.”

Van-Petersen said the Australian dollar had most likely been buoyed by the yield on Australian 10-year bonds while other sovereign assets plunged but said it was now beginning to fall as the yield dropped in line with others. The dollar has dropped alongside, shedding more than 15 per cent.

“The headwinds are down for the Australian dollar and it’s probably going to get to US60¢ to US65¢.”

Here’s more

The Australian dollar is proving very hard to kill

The Australian dollar is proving very hard to kill

4:37pm: The dust has settled on the local market, and the sight ain’t pretty: the ASX200 lost a whopping 3.8 per cent today, or more than $50 billion in market value.The benchmark index closed at the day’s low of 4918.4 and is now down around 18 per cent from this year’s highs in April.

Miners led the plunge after shares in UK-listed mining and trading company Glencore fell almost 30 per cent, closing at a record low, after analysts suggested the stock could be nearly worthless.

Glencore shares have been under pressure over concerns it is not doing enough to cut its debt to withstand a prolonged fall in global metals prices.

The plunge in Glencore sparked panic selling in the materials and energy sectors, down 5 per cent and 6.7 per cent respectively, but all other sectors were also deep in the red.

“It’s not just commodities, it’s across the board … the banks are down as well,” said Morgans senior dealer Luke McElwaine. “You know it’s a big day when BHP is down 6 per cent. It’s not often you see numbers like that from these big stocks. 

“It’s a combination of Glencore’s rout, Wall Street being down and making up for the fact that we were up on Monday.

“I’m not sure we’ve learnt anything new that’s justified a big sell-off like this but it’s just that sentiment is so bad.”

BHP tumbled 6.7 per cent to a seven-year low of $21.61, while Rio dropped 4.6 per cent to a two-year low of $46.52.

The big banks all fell around 3.6 per cent each, while Telstra slumped 4.4 per cent to $5.49.

Just five stocks posted gains on the ASX200, including Slater and Gordon which rose 3.2 per cent ahead of tomorrow’s deadline to publish its audited financial statements.

Here are today’s biggest percentage winners and losers among the top 200 stocks:

 

4:20pm: Amid all the turmoil, one group of investors has been hit particularly hard – the mums and dads. 

Commsec has a “Mums and Dads Index” which covers dividend paying stocks of companies whose share registers are packed with small shareholders, and it’s done a lot less well than the broader market recently. A lot less well.

The Index consists of Telstra, CBA, Woolworths, Qantas, AMP, Tabcorp, Suncorp, IAG and Wesfarmers. The index measures “total” returns, which includes dividends.

During  the past year to September 11, the broader market has lost about 4 per cent while the Mums and Dads Index has lost about 5 per cent.

Woolworths, IAG, Suncorp, and Wesfarmers all produced negative total returns. CBA produced a total return of zero over the past year.

The losses prompt the question of whether, after years of generally outperforming the market,

4:12pm: Looks like European traders are now contributing to the bloodbath, hitting the sell button on Aussie stocks as they man the screens.

The ASX has taken another little dive to fall below the recent intraday low it hit following the ‘Black Monday’ selloff one month ago.

The benchmark index has slipped to 4925.6, around 3 points lower than a month ago, and taking it to a fresh two-year low.

The late falls will trigger fears that the recent selloff isn’t over yet and the ASX might even drop into a bear market over the next sessions.

It’s currently down about 18 per cent from its recent highs in April, so would

3:58pm: The market is punishing Glencore way too hard, says Citi, after the commodity group plunged 30 per cent overnight, sparking a selloff in resources stocks.

The company doesn’t have a stressed balance sheet, has the ability to sell assets to stem the rout and its stock is a “buy”, the US bank says.

And if the stock extends losses, management should simply take it private.

“The markets response is overdone,” Citi said. “In the event the equity market continues to express its unwillingness to value the business fairly, the company management should take the company private, whereby restructuring measures can be taken easily and quickly.”

Glencore has hired Citi and Credit Suisse to sell a minority stake in its agricultural business, a person familiar with the situation told Bloomberg last week.

“The group is not limited to just selling a minority stake and if the need be, the entire agricultural-marketing business could be sold, which we value at about $US10.5 billion,” Citi said in a report on Monday. “The level of interest is likely to be high.”

Tough call: Glencore is a 'buy', Citi says.

Tough call: Glencore is a ‘buy’, Citi says. Photo: Bloomberg

3:43pm: The bears are really sinking their teeth into the market now, pulling the ASX down another notch. The ASX200 has dropped 3.3 per cent to 4945.6, shaving around $45 billion off the market’s value.

In a classic share market panic investors are bailing out of resource stocks following further pressure on London-listed commodity house Glencore,” says CMC chief markets strategist Michael McCarthy.

“Hyperbole is in overdrive as commentators call it the ‘resources sector Lehman Brothers moment’, apparently blithely unaware that a Glencore failure would be positive for its competitors.”

Resources and energy stocks are by far the worst performers on the ASX today, falling 4.7 per cent and 6.2 per cent respectively.

“Given the sector has shed more than 22 per cent already this year, and competitors with strong balance sheets like BHP are likely to benefit from any Glencore failure, some may see this as an overreaction,” McCarthy says.

A trigger for the latest round of selling this afternoon may be that US futures have fallen into the red, indicating more losses at the start of trade on Wall Street. Dow futures are now down 0.3 per cent after earlier trading higher.

Losses around the region have also accelerated, with the Nikkei down 4 per cent and the Shanghai Composite losing nearly 2 per cent.

Panic selling has hit resources stocks.

Panic selling has hit resources stocks. Photo: Greg Newington

3:12pm: Mining stocks have never mattered less on the ASX.

Commodity producers and the companies that service them now make up less than 14 per cent of the benchmark S&P/ASX 200, the smallest share in data going back to 2002.

In 2008, material shares comprised almost one-third of the gauge.

BHP Billiton’s market value is now about $6.5 billion less than that of CBA, which is currently $121 billion. At its peak seven years ago, the Big Australian was more than $200 billion bigger.

“We are staying away at this stage,” said Angus Gluskie, a managing director at White Funds Management. “They are cyclical assets and in the peak period, the percentage of the market that they made up was inflated. Now we’re coming back to the other extreme and somewhere in the middle is probably the longer-term average.”

Financial firms make up the largest share of the local stockmarket, accounting for 47 per cent after a steady rise since 2008. Financials make up 21 per cent of the MSCI World Index and materials firms 4.4 per cent.

3:08pm: Self-managed super funds are on track for their biggest losses since 2011 due to an overexposure to Australian equities, Credit Suisse says.

SMSFs – or selfies – lost $19 billion in the June quarter, according to the research, and are set to lose a further $21 billion in the September quarter.

Furthermore, they are starting to slip in market share. Selfies controlled 30 per cent of market share of Australian superannuation assets 12 months ago, a figure which has since declined to 29 per cent, or $590 billion.

That loss has “almost exclusively” been to industry funds, with retail funds holding steady.

“We believe much of the reason why selfies are losing market share is because of their relatively poor recent performance,” said Credit Suisse.

Selfies had 40 per cent of their assets in Australian equities in June 2014 and little in international equities. By contrast, industry funds had 24 per cent in Australian equities and 26 per cent in global stocks.

“The average selfies member would have endured a draw-down of about $18,000 in the June quarter and a further $20,000 in the current quarter – maybe enough to fund that extravagent safari in the Kalahari,” Credit Suisse said.

However, Credit Suisse said that selfies would “stand their ground, for now” and plough new funds into Australian equities.

One of the main reasons for this is history. Selfies demand for Australian equities had remained strong after previous losses, such as the global financial crisis and the Euro crisis of 2011-12.

Secondly, Australian equities offered good yields.

Self-managed super funds, or selfies, have endured hefty losses over the past quarters - but that's deemed unlikely to turn them off stocks.

Self-managed super funds, or selfies, have endured hefty losses over the past quarters – but that’s deemed unlikely to turn them off stocks. Photo: Michel O’Sullivan

2:39pm: Loss-making apartment sales rose to 12.6 per cent in the June quarter, in a further sign of moderating conditions in the housing market, CoreLogic RP Data figures show.

The proportion of standalone houses sold at a gross loss compared to their original purchase price rose was 7.7 per cent, unchanged from last quarter, and 12.6 per cent of all units sold at a loss, slightly worse than 12.5 per cent in the March quarter.

For all homes, the figure was 9.1 per cent of all transactions in the three months to June, up from 8.9 per cent in the March quarter and December’s 8.6 per cent, the research company’s latest Pain & Gain report shows.

While the national proportion of loss-making sales was little changed from March for both houses and apartments, patchy regional differences highlighted the now-familiar story of strong real estate markets in the eastern-state capitals while those in resource-dependent regions continued to suffer.

However, in the still-strong Sydney market, loss-making house sales fell to 2.2 per cent of all transactions from 2.7 per cent in March and the figure for apartments tightened to 1.8 per cent from 1.9 per cent.

“With housing finance data having showed a surge in housing investment over recent years, investors should pay attention to these figures,” the report cautioned.

“When it comes time to re-sell a property owner occupier stock is much more likely to turn a gross profit than investment stock. This is most likely due to the fact that investment is more prevalent in the unit market than detached houses.”

More apartments are selling at a loss - except in Sydney.

More apartments are selling at a loss – except in Sydney. Photo: James Brickwood

2:05pm: So far there’s no afternoon rebound for stocks, as the ASX200 flirts with the day’s low, down a whopping 2.9 per cent, or 147 points, at 4966, which has shaved more than $40 billion off the market’s value.

If the market were to end at this level, it would be the lowest close in more than two years. One month ago the benchmark index slipped as far as 4928.3 in intraday trade before recovering strongly the same session.

Or you can look at it this way:

2:05pm: So far there’s no afternoon rebound for stocks, as the ASX200 flirts with the day’s low, down a whopping 2.9 per cent, or 147 points, at 4966, which has shaved more than $40 billion off the market’s value.

If the market were to end at this level, it would be the lowest close in more than two years. One month ago the benchmark index slipped as far as 4928.3 in intraday trade before recovering strongly the same session.

Or you can look at it this way:

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“The market is on edge, and the bad news keeps coming,” said Margie Patel, a money manager for Wells Capital Management, referring to growing worries about the financial health of Glencore, after the commodities group’s share price tumbled nearly 30 per cent overnight. “When you have this much bad news and you aren’t near any inflection point to speak of, it just begets more sellers, even when prices are low.”

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1:53pm: Fears of an impending global recession are overblown, say the researchers at an economics insights group, because the US and European economies are looking increasingly resilient, despite China’s slowing.

Earlier this month, Citigroup’s top economist Willem Buiter said there was a “high and rapidly rising risk” of recession as the global economy slows sharply next year and this could evolve into a recession as policymakers would likely move to slowly to avert the crisis.

“This is the classical recipe for a recession in capitalist market economies,” Buiter said. “This time is unlikely to be different for China. Policy options to prevent a recession exist but are, in our view, unlikely to be exercised in time.”

However, Lombard Street Research director for Australia and New Zealand Matthew Williamson said this position was far too gloomy as major economies proved more resilient despite the significant decline in emerging markets.

“For a global recession in 2016, we would need to see a much more extreme deterioration in investor sentiment. While possible, that is not a likely outcome,” Williamson said.

“We expect a slow-burn emerging market crisis rather than a 90s-style crash. While the shock to global GDP is potentially large, certainly larger than in 1998, the impact on the US and Europe looks manageable. Direct trade and financial links are still fairly modest, while lower oil/import prices should provide crucial support to consumers.”

Those who are forecasting a global recession do not argue the big advanced economies such as the United States and those in the euro area would enter their own, but rather the combined force of China and associated emerging markets entering recession would drag enough on larger economies to slow global growth significantly.

Emerging markets now make up between 40 to 60 per cent of world GDP. But they have been hit hard by the slump in commodity prices. Also concerning for many emerging markets, such as South Korea and Taiwan, is that their major trading partner is China, which will slow.

“The most serious risk comes from China but we do not think China’s weakness poses a threat to wider global stability, not least because the country’s credit bubble has been funded by domestic savers rather than international lenders, which distinguishes it from the US subprime crisis,” Williamson said.

Lombard thinks predictions of a global recession in 2016 are too gloomy.

1:42pm: Also in the mining world, OceanaGold’s takeover of Toronto Stock Exchange-listed Romarco Minerals has been approved by shareholders of both companies, in a move expected to create the market’s lowest-cost gold producer.

The resolution to approve the arrangement was passed by nearly 80 per cent of Romarco shareholders votes and 99 per cent of Oceanagold shareholder votes. The takeover is expected to be completed by October 1.

The deal includes Romarco’s flagship Haile Gold Project, which is under construction in South Carolina and is one of the gold sector’s highest grade open pit development projects.

1:28pm: Glencore plunge is good news for at least two big investors: hedge funds Lansdowne Partners and Passport Capital have been betting shares of the miner and commodity trader would fall.

London-based Lansdowne has the largest short position on Glencore, whose shares slid 29 per cent overnight, followed by Passport, Bloomberg data show.

Hedge funds short shares by borrowing stock and selling it on the market with the aim of buying shares back at a lower price and pocketing the difference.

A tweet by Gianclaudio Torlizzi, founder of the consulting and market intelligence company T-Commodity, said he had been told by a bewildered Glencore director the company was “under hedge fund attack”.

Lansdowne has 117.7 million Glencore shares on loan, or about 0.8 per cent of the total stock outstanding, and last increased that position on August 27, the data show.

Passport Capital increased its short position on Glencore on September 2 to 106 million shares. Founded in 2000 by John Burbank, Passport manages $4.1 billion.

At least two hedge funds have made a mozza shorting Glencore.

At least two hedge funds have made a mozza shorting Glencore. Photo: Urs Flueeler

1:00pm: Time for a midday recap: local shares have joined a global rout, losing more than $35 billion in a savage selloff led by the miners, amid persistent worries about China’s slowing economy as well as sliding metals and oil prices.

The ASX is hovering at the day’s lows, down 2.7 per cent and on track for its biggest percentage loss since ‘Black Monday’, August 24, when fears about a hard landing in China sparked massive global losses.

Today’s drop was sparked by hefty overnight losses in commodity trader Glencore, which lost nearly 30 per cent on growing concerns over its debt pile.

The local market has breached the 5000-points support level on four occasions over the past month only to see a strong rebound.

“We wouldn’t be surprised to see the (index) print 4700 before it finds any real support, now that 5000 has given way,” said Chris Conway, head of research, Australian Stock Report. “The worry is that the rout is not yet done.”

The index is now down nearly 9 per cent in the September quarter, on track for its worst quarterly performance since 2011. For the month, it is down 4.4 per cent, after slipping 8.6 per cent in August – its poorest monthly show since the global financial crisis.

Miners have fallen sharply with BHP Billiton down 6 per cent and Rio Tinto skidding 4.5 per cent, taking both stocks to multi-year lows.

Energy stocks have also been hit hard, with Santos down 7.3 per cent, Oil Search 3.8 per cent lower and Woodside 3.6 per cent worse off.

Three of the big four banks have dropped more than 2 per cent, while Commonwealth Bank is 1.8 per cent lower.

“There is nowhere to hide … with every sector under intense pressure,” said Conway.

“The miners are bearing the full force of investors’ ire. However, amid worries about global growth emanating out of China, the massive slump in Glencore overnight and news filtering through that hedge funds around the globe are dumping commodities risk.”

Poll: The ASX faces a ‘brutal day’ – but how bad will it get?

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Poll closes in 18 hours.

Disclaimer:

12:46pm: One commodity that has been holding up surprisingly well in the markets turmoil of the past months is iron ore.

The bulk commodity slopped just 0.2 per cent overnight to $US56.86 a tonne and is trading at pretty much the same level it was at two months ago.

But that may be about to change, Citi warns, predicting new supply from Gina Rinehart’s Roy Hill iron ore mine will contribute to a slump below $US40 a tonne next year.

The project in the Pilbara is poised to start shipments in October, and its expansion toward annual output of 55 million tonnes will probably have a large impact on prices, analysts including Ivan Szpakowski said in a report.

Surging production will combine with steel-output cuts in China to push prices below $US40 in the first half, Citi said.

Despite the relative calm on recent months, iron ore has still retreated 20 per cent this year on rising low-cost output and faltering demand growth in China, and the addition of the new cargoes from Roy Hill to the global seaborne market may add to oversupply.

Roy Hill Holdings chief executive officer Barry Fitzgerald told reporters in China last week the project is on target to achieve full capacity over 15 months.

Citigroup described the new mine in its report as an “impending whale” that would ship almost all of its output to China.

Meanwhile, iron ore futures in Dalian are down 3 per cent today, indicating some further weakness in the bulk commodity’s spot price when it’s set later today.

Gina Rinehart's Roy Hill mine is due to start shipping iron ore in October.

Gina Rinehart’s Roy Hill mine is due to start shipping iron ore in October. Photo: Getty Images

12:10pm: The real worry about Glencore’s overnight plunge is that there was no specific negative news flow that might justify the belting, the AFR’s Matthew Stevens writes:

Glencore’s problem is the same today as it was when (CEO Ivan) Glasenberg stunned the market in early September with a humiliating back-flip that involved an emergency $US2.5 billion equity raising and confirmation a $US10.2 billion savings program that started with immediate cutbacks in copper production.

Glasenberg’s people are sitting on $US50 billion of debt and the market has pretty much no confidence at all that the company can afford that pile of other people’s money or that the initiatives announced to reduce it will generate any material improvement in the company’s circumstances.

Glencore’s fate rests firmly with the hedge funds that have made such a lot of money shorting the stock for a year or so and so far Glasenberg has been unable to offer the market the quality of response that might loosen that death-grip.

The result is a plummeting share price and news waves of rumours that some of Glencore’s long-only investors are now looking to “get out at any price”.

Here’s more ($)

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Over at the ABC, Ian Verrender writes that Glencore could be the resource sector’s Lehman Brothers moment:

While Rio has been hammered in the global commodities rout, Glencore faces oblivion.

Overnight, it lost almost one third of its value, taking total losses for the year to around 80 per cent as it desperately attempts to purchase the one commodity that no longer is available; time.

And waiting in the wings is Glasenberg’s old nemesis, Mick Davis.

Here’s more

Is this the resource sector's Lehman moment?Glencore chief Ivan Glasenberg faces pressure from all sides.

12:01pm: Most of the region’s markets have now opened, and it’s really a sea of red:

  • Japan (Nikkei): -3.4%
  • Hong Kong: -3.6% (with Glencore’s HK shares down 28%)
  • Shanghai: -1.2%
  • ASX200: -2.7%
  • Singapore: -1.7%

11:47am: Two of the bull market’s biggest cheerleaders are reining in their enthusiasm as US stocks head back to their lows from an August selloff.

RBC Capital Markets’s Jonathan Golub and Canaccord Genuity Securities’s Tony Dwyer, who were among 21 strategists with the highest year-end forecasts for the S&P 500 Index, cut their estimates by as much as 9.7 per cent.

The two add to a chorus of souring sentiment amid concerns over global growth and selloffs in commodities and biotechnology companies.

A total of eight strategists surveyed by Bloomberg have sliced their year-end forecasts for the benchmark since August 10. Strategists now predict the S&P 500 will reach 2176 at the end of 2015, down from an average estimate of 2233 in early August, a 2.6 per cent decline.

While that still suggests a 16 per cent gain from now until the end of the year, it may be a high hurdle as stocks struggle to regain ground after the first correction in almost four years. Equities are also about to enter an earnings season in which profits are forecast to drop 6.5 per cent.

“Commodity weakness (oil) and slower global growth have pressured corporate earnings in 2015,” Golub wrote in a Monday note. “Our constructive outlook is predicated upon our belief that economic activity will remain slower for longer, resulting in an extended business cycle.”

After years of resilience from US companies, cuts to profit estimates outnumber increases by the most in three years, based on an index tracking the changes compiled by Citigroup.

Meanwhile, CNNMoney’s ‘Fear and Greed’ index, based on seven market indicators, points to extreme fear among investors (see chart).

Of course, for contrarian investors who buy stocks when everyone else sells, this is another bullish omen.

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11:37am: Next Tuesday the Reserve Bank board will meet to decide on interest rates and while calls for more easing have been growing, Capital Economics reckons the central bank will keep its powder dry – this time around.

“Concerns over the health of China’s economy and the fall in domestic equity prices are unlikely to prompt the RBA to cut interest rates from 2.0 per cent … on Tuesday,”  Australia economist Paul Dales writes in a note to clients.

“That said, over the coming months we expect it will become clear that the RBA’s current GDP growth forecast for 2016 is too optimistic.” 

Capital Economics predicts economic growth won’t pick up next year and remain stuck at just 2 per cent, well below the central bank’s forecast of around 2.5 per cent.

“As such, we are sticking with our long-held view that interest rates will eventually fall to 1.5 per cent, with cuts coming come back onto the agenda either late this year or early next year.”

While Dales’ prediction of two more cuts is on the bearish side of economist forecasts – with most of his peers still assuming the RBA will stay on hold and that its next move will be up – financial markets are similarly gloomy, pricing in one cut by April next year and a 24 per cent chance of two cuts by July. 

Meanwhile, Dales reckons the dollar has further to fall, predicting the Aussie will hit 65 US cents by the end of this year and 60 US cents in 2016.

The RBA isn't done with rate cuts, Capital Economics say.

The RBA isn’t done with rate cuts, Capital Economics say. Photo: Louie Douvis

11:23am: In between the mayhem, some corporate news: Bradken chairman Nick Greiner will step down from his post and retire from the company’s board in November.

The former NSW premier plans to retire when the mining services company hosts its annual meeting for shareholders on November 10.

Chairman of drilling services company AJ Lucas and independent Bradken director, Phil Arnall, will replace Greiner, who has been Bradken’s chairman since it listed on the stock market in 2004.

Nick Greiner will step down as Bradken chairman.

Nick Greiner will step down as Bradken chairman. Photo: Daniel Munoz

11:02am: Continuing the global growth theme, the International Monetary Fund has warned that Australians might have to get used to slower growth rates as commodity price weakness persists and investment outside mining struggles to pick up the slack.

The IMF, in its latest World Economic Outlook series, says the sharp decline in many metal and energy prices over the past few years will shave about 1 percentage point off gross domestic product growth rates between 2015 and 2017 in commodity-reliant emerging markets.

According to its formula, growth rates in Australia could slip to 1.8 per cent over the next three years, from 2.8 per cent between 2012 and last year.

However, reforms designed to smooth out the peaks and troughs of previous commodity booms means developed economies such as Australia should not suffer as much, the IMF says.

At the end of June, Australia’s economic growth was running at 2 per cent, down from 2.5 per cent at the end of the first quarter.

Some indicators point to a further slowing in the growth rate, with the most bearish investment bank economists warning that Australia could struggle to reach 2 per cent growth this year.

US investment banking giant Goldman Sachs rates the chances of a recession at one in three.

However, HSBC senior economist Paul Bloxham argued on Monday that the depreciation of the Australian dollar was helping services exports compensate for the mining infrastructure downturn, while greater volumes of coal and iron ore were partly offsetting heavy price falls.

Here’s more

Commodities dependent economies face slower growth, the IMF has warned.

Commodities dependent economies face slower growth, the IMF has warned. Photo: Bloomberg

10:51am: The Glencore gloom is spreading to other bourses across the region, despite few being as mining-heavy as the ASX, but it’s really global growth worries that are weighing on investor sentiment.

Japan’s Nikkei index has slumped 2.7 per cent in early trade and futures on the FTSE China A50 Index are down 1.4 per cent. But US futures are flat, indicating that investors don’t expect Wall Street to fall at the open later today.

Global and regional markets have been whipsawed over the past months as anxiety over China’s economy, which has been stumbling despite stimulus efforts, bubbles under the surface.

Glencore is the latest victim of the slowdown in Asia’s largest economy, with the commodity trader’s value cut by about a third amid stock losses Monday.

Amid the turmoil, the US Federal Reserve has been ramping up its rhetoric in favour of a 2015 rate hike, a move that will likely hit demand for emerging-market investments as their economies struggle.

10:32am: It’s fitting on a day like this that last week’s jump in consumer confidence following Malcolm Turnbull’s ascension to the nation’s top job has proved to be short lived.

The ANZ/Roy Morgan weekly consumer confidence index fell 3.4 per cent last week, after jumping 8.7 per cent the previous week in reaction to Turnbull winning the Liberal leadership and becoming prime minister.

ANZ chief economist Warren Hogan said the reversal in confidence was not surprising after the previous week’s record bounce.

“While Turnbull’s appointment was greeted with considerable optimism, the challenges facing Australian households remain front of mind and make it difficult to sustain a lift in confidence,” he said.

Hogan said the new administration needed to focus on getting the budget in order and presenting a longer-term plan for the economy, including outlining a reform agenda.

“While pursuing these objectives will put the Australian economy on a solid footing in the medium term, it may come at the cost of growth in the short term,” he said.

“Hence, even if business and consumer confidence can build over the coming weeks, we doubt it will be enough to move the dial on the economy.”

ANZ is predicting the RBA will need to cut rates two more times, taking the cash rate to 1.5 pe cent, to boost the economy.

The Turnbull boost to confidence has proved short-lived.

10:18am: The bloodbath is even worse than expected, pushing the ASX200 below 5000 points in early trade.

The benchmark index has dropped 2.3 per cent to 4997.9, shaving roughly $35 billion off the market’s value, while the All Ords is down 2.2 per cent at 5034.

The rout is being led by the miners following hefty overnight losses in the wake of fears around the future of commodities trader Glencore, whose shares slumped 30 per cent in London.

Locally, BHP shares have slumped 5.6 per cent to a new seven-year low of $21.82. Rio has lost 4.9 per cent and Fortescue is down 5 per cent.

But no sector is being spared in the early selloff, with the big banks all dropping around 1.3 per cent.

Just two shares in the ASX200 are posting gains: Pacific Brands, up 1.5 per cent, and Altium, plus 0.4 per cent.

BHP shares hit a seven-year low in early trade.

BHP shares hit a seven-year low in early trade. Photo: Jessica Shapiro

10:10am: Meanwhile, in corporate news, weak sales and crunched margins have caused troubled adventure wear retailer Kathmandu’s full year profit to fall 51.7 per cent.

Net profit after tax fell from $NZ42.2 million in 2014 to $NZ20.4 million while earnings before interest and tax plunged 48 per cent to $NZ33.3 million.

Same-store sales fell 1.9 per cent to $NZ409 million in the 12 months ending August 2, while total sales grew 3.7 per cent thanks to 10 new stores. Same-store sales were particularly weak in Australia, falling 2.7 per cent.

Profit before one-off costs fell 47 per cent, even worse than consensus forecasts of a 43 per cent drop.

The company said soft customer sentiment, excess inventory and a hike in the cost of goods caused by weakened foreign exchange rates all contributed to the profit drop.

Interestingly, Kathmandu’s ASX listed shares are up 2.4 per cent at $1.30 in opening trade, while the NSX-listed stock is down 3.55 per cent at $1.36.

Kathmandu's same-store sales were particularly weak in Australia.

Kathmandu’s same-store sales were particularly weak in Australia. Photo: Stephen Russell

10:03am: The local sharemarket faces a ‘brutal day’, with miners likely to face the brunt of the selling. But how bad will it get?

Poll: The ASX faces a ‘brutal day’ – but how bad will it get?

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Poll closes in 18 hours.

Disclaimer:

9:59am: Was last night the tipping point for Glencore? IG’s Evan Lucas asks in his morning note:

  • The attention on Glencore is palpable. Never in its history have so many negative market moves been heaped upon it.
  • Its rumoured reverse takeover of Rio Tinto at the start of the year is now seen as extreme debt risk considering the state of its balance sheet today – a blessing in disguise that the deal wasn’t done.
  • Glencore raised $US2.5 billion in an equity placement last week. The reactions from the analytical world is that this amount will do little to cover the collapsing thermal coal prices, let alone the rout in industrial metals as taking as a whole. Analysts see thermal coal prices impacting Glencore’s EBITDA by 15% to 18% alone.
  • What’s more, its trading desk business must be under huge pressure as margin calls on its commodity positions are constantly triggered in this collapsing environment. The impact here is a little more clouded but no doubt taking place.
  • The credit default swaps (CDS) lit up on Glencore’s woes, jumping 50% to its highest level on record. Comparing BHP’s, Rio’s and Glencore CDS, the risk in commodity producers has been climbing all year on the commodity market slump – but was last night the tipping point?
  • The issue for Glencore is its recent announcement on balance sheet management through asset sales. However, deals of this magnitude take considerable time. In ‘market time’, asset sales move at snail’s pace.
  • The speed at which the CDS market is moving, coupled with the fact that commodity markets are wiping huge waves of value off assets means Glencore could see its credit rating at junk status and its asset values quartered or halved by the time deals are finalised.
  • Glencore’s $US50 billion debt issue is a mounting concern, increasing the likelihood of fire sales to meet its balance sheet needs.

Tipping point for Glencore? Asset sales tend to move at a snail's pace but markets are demanding swift action.

Tipping point for Glencore? Asset sales tend to move at a snail’s pace but markets are demanding swift action. Photo: Rob Homer

9:53am: US stocks weren’t spared in the overnight markets shake-up, as Wall Street investors worried about the health of China’s economy and its potential impact on the timing of a US interest rate increase.

The Nasdaq composite lost 3 per cent and S&P 500 dropped more than 2 per cent.

Much of the damage came from pharmaceutical and biotech stocks after Democratic lawmakers on Monday attacked “massive” price increases of two heart drugs from Canada’s Valeant Pharmaceuticals International, which tumbled 16.5 per cent.

The Nasdaq biotechnology index fell 6 per cent, its worst one-day drop since 2011, adding to losses from last week when Democratic presidential candidate Hillary Clinton criticised drug pricing.

Among the S&P sectors, the health care index was the deepest decliner, down 3.84 per cent.

“The broad healthcare sector and China are hurting the market. It’s time for risk-off and there’s no place to hide,” said Richard Weeks, managing director at HighTower Advisors in Vienna, Virginia.

Profits at Chinese industrial companies fell 8.8 per cent, fresh data showed, pushing down shares of raw material producers and energy companies. Oil prices fell more than 2 per cent.

US consumer spending rose more than expected in August, according to another report, appearing to add to the case for an interest rate increase this year.

But contracts to buy previously owned US homes decreased, indicating the robust housing market could be losing some steam.

The Federal Reserve held off from raising rates at its September meeting, citing concerns about the global economy, notably China, among other factors.

New York Federal Reserve President William Dudley on Monday suggested the central bank could pull the trigger as soon as October.

“A lot of investors think the Fed is confused,” said Mohannad Aama, Managing Director at Beam Capital Management. “They’re putting themselves in a corner by saying they expect to raise rates between now and the end of the year when the economy every day is proving otherwise.”

The Dow Jones industrial average fell 1.92 per cent to end at 16,001.89 points. The S&P 500 lost 2.57 percent to 1,881.77 and the Nasdaq Composite dropped 3.04 percent to finish at 4,543.97.

Alcoa’s shares jumped 5.73 per cent after the aluminum producer said it would split into two publicly-traded companies.

'It's time for risk-off and there's no place to hide.'

‘It’s time for risk-off and there’s no place to hide.’ Photo: AP

9:37am: And as if Glencore’s dramatic slide wasn’t enough to spook investors, Volkswagen shares tumbled another 7.5 per cent, closing under the 100 euros threshold for the first time in almost four years.

VW shares have fallen by more than 30 per cent over the last week after the company acknowledged installing software in diesel engines designed to hide their emissions of toxic gases.

Bernstein said the potential fine from the USEnvironmental Protection Agency could probably be worth much less than its worst case scenario of $US7.4 billion but cautioned against other risks for the car maker stemming from the emissions affair.

“So we recognise it is prudent to remain extremely wary of VW’s situation and brace for significant financial damage,” it said.

Yet fears are overdone and total damage will probably be less than what it has lost so far in market cap, it added.

Meanwhile, prosecutors in Germany have opened a criminal investigation into former Volkswagen chief executive Martin Winterkorn in the wake of the emissions-rigging scandal.

The probe is understood to concentrate on accusations of fraud, aiming to establish who was responsible for the scandal.

The news came as Audi announced that the device used in parent company Volkswagen’s cars to manipulate emissions tests was also fitted in 2.1 million of its own luxury cars.

Of the 2.1 million diesel-powered Audis affected, some 1.42 million are registered in Western Europe, with 577,000 in Germany.

VW shareholders (green line), it could be worse: just look at Glencore (white line).

9:28am: Shares in mining and trading company Glencore fell almost 30 per cent and closed at a record low after analysts suggested the stock could be nearly worthless.

Shares have been under pressure over concerns it is not doing enough to cut its debt to withstand a prolonged fall in global metals prices.

About 3.5 billion pounds in market value was wiped off the Swiss-based firm, whose $US10 billion share offering in 2011 turned its managers into billionaire shareholders but left it saddled with debt – a growing problem as commodity prices fell.

The fall followed publication of a note by analysts at investment bank Investec which raised doubts about Glencore’s valuation if spot metal prices do not improve. The note pointed to high debt levels and a need for deeper restructuring.

“If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate,” the analysts wrote.

An interesting tweet on the selloff by Gianclaudio Torlizzi, founder of the consulting and market intelligence company T-Commodity:

A Glencore director just told us: “we are under hedge fund attack but don’t know why”

— Gianclaudio Torlizzi (@TCommodity) September 28, 2015

Chief executive Ivan Glasenberg had to bow to shareholder pressure this month by agreeing to cut debt as worries mounted over the firm’s ability to protect its credit rating.

Glencore has said it will suspend dividends, sell assets and raise cash, among other measures, to cut its $US30 billion debt pile and protect its rating after the prices of its main products, copper and coal fell.

London-listed Glencore has already raised $US2.5 billion through a share placement, part of a wider plan to cut its net debt.

Ivan Glasenberg's Glencore lost 30 per cent in value overnight.

9:10am: Local shares are poised to drop sharply at the open as a renewed rout in commodities hammered resource producers’ valuations.

What you need2know

  • SPI futures down 102pts at 5004
  • AUD at 69.87 US cents, 83.80 Japanese yen, 62.25 Euro cents and 46.06 British pence
  • On Wall St, S&P 500 -2.6%, Dow -1.9%, Nasdaq -3%
  • In Europe, Stoxx 50 -2.4%, FTSE -2.5%, CAC -2.8%, DAX -2.1%
  • In London, Glencore -29%, BHP -6%, Rio -4.8%
  • Spot gold -1.1% at $US1132.53 an ounce at 2.15pm New York time
  • Brent crude settled -2.6% at $US47.34 a barrel

What’s on today

Australia ANZ/Roy Morgan weekly consumer sentiment. US S&P/Case Shiller July home prices, US September consumer confidence

Stocks in focus

Credit Suisse has an “outperform” on Woodside Petroleum and a target price of $34 a share.

Bell Potter keeps a “hold” on Brickworks, but raises the price target to $15.06 from $14.36 previously. “The near term outlook for BKW remains encouraging with a strong pipeline of work in building products and the scope for sales from the Oakdale West property into the trust to be key drivers of earnings in FY16e. In addition the balance sheet looks to get an immediate boost from the receipt of a $60m distribution from the BGAI CDC Trust following the August $253m sale of the CDC.”

Trading ex dividend today: Fantastic Holdings, Imperial Pacific, London City Equities, McMillan Shakespeare, SG Fleet Group, Traditional Therapy Clinics.

Commodities

ANZ sees little comfort in sight for commodity producers in the months ahead. “The trend in prices continues to point to further weakness, with markets falling to new lows in late August. Prices did recover modestly in September, but this may only be a short-term reprieve as weaker seasonal demand becomes the next hurdle.”

Alcoa, the top US aluminium maker, will break itself up by separating manufacturing operations from a legacy smelting and refining business that’s struggling to overcome booming production from China. The tax-free transaction is expected to be completed in the second half of 2016, giving Alcoa shareholders all shares of both the upstream and value-add companies, it said.

Switzerland’s competition regulator identified seven banks that are being investigated as part of a probe into whether companies in Europe, the US and Japan colluded to manipulate the prices of gold, silver and other precious metals. UBS Group AG, Deutsche Bank AG, HSBC Holdings Plc, Barclays Plc, Morgan Stanley, Julius Baer Group and a unit of Tokyo-based trading company Mitsui & Co are part of the probe, which was opened in February, the Competition Commission said in a statement Monday.

9:07am: Good morning and welcome to the Markets Live blog for Tuesday.

Your editor today is Jens Meyer.

This blog is not intended as investment advice.

BusinessDay with wires.

Read more: www.smh.com.au

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Posted on September 29, 2015, in ConspiracyOz Posts. Bookmark the permalink. Leave a comment.

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