Date November 18, 2014

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Patrick Commins, Jens Meyer

4:57pm: Thats it for Markets Live today.

Thanks for reading and your comments.

See you all again tomorrow morning from 9.

4:57pm: A promising start on the Australian stock market faded quickly, with the falling iron ore price, continued poor sentiment over Japan’s economy, and a subdued outlook for the big banks weighing on investors’ minds.

The market opened higher after the Dow Jones closed 0.1 per cent higher to 17,647 but headed back into negative territory at midday. The All Ordinaries fell 0.25 per cent to 5383.1 while the ASX 200 dropped 0.24 per cent to 5399.7.

The miners all fell sharply. Iron ore prices continued to drop with the benchmark price hitting five year lows at $US75.10 per tonne, while gold traded around $US1186 per ounce.

There’s been a couple of things in the market that have been significant. You’ve got ongoing pressure in iron ore prices pushing down on the miners — Fortescue in particular, said Morgan Stanley’s head of investment strategy, Malcolm Wood.

Bank and financials investors were also nervous, he said. The market is anticipating the release of the financial system inquiry later this week. This will hold the banks back.

The fall in iron ore stocks was no surprise, Credit Suisse analyst Damien Boey said said. Iron ore continues to get weaker, particularly in Aussie dollar terms. People are concerned about earnings sensitivity. Until they can see a floor in earnings it’s very hard for them to trust any valuation notice .

Engineering services company UGL was the day’s worst performer, dropping 55.49 per cent to $2.35 after going ex-dividend. Among the iron ore miners, BC Iron fell 10.27 per cent to 65 cents, Fortescue fell 6.29 per cent to $2.98, Atlas fell 4.54 per cent to 21 cents and Mt Gibson fell 4.88 per cent to 39 cents.

 

4:47pm: Japanese investors have snapped up $21.7 billion in Australian assets at the fastest pace in nearly four years as the lure of higher relative interest rates a nd weakness in global growth heightens demand for local bonds and the currency.

The data came as the Reserve Bank said that it blamed loose Japanese monetary policy for putting upward pressure on the Australian dollar. The high currency is a key concern of the RBA.

In the 12 months to September, Japanese institutional investors accelerated their purchases of Aussie dollars and Australian bonds, according to Japanese Ministry of Finance data.

There has been a very sharp reversal in Japanese demand for Aussie dollar bonds and the Bank of Japans (BoJ) decision to pump up the pace of quantitative easing (QE) in October is likely to only add to this wave of money from Japan to Australia , said Westpac senior currency strategist Sean Callow.

There are concerns that Japans struggling economy is now in recession after failing to cope with a sales-tax increase in April. The worlds third-largest economy shrank an annualised 1.6 percent, missing expectations after a revised slump of 7.3 percent (also annualised) in the previous three months.

The data is yet to reflect the impact of increased stimulus by the Bank of Japan and expectations that the Japanese government will delay a second increase to the sales tax until next year.

The likely outcome of the increased Japanese buying activity in Aussie assets is that this is one of the key reasons why we think the Australian dollar will trade above most estimates of its fair value next year , said Mr Callow.

By contrast, a year earlier in the 12 months to September 30, 2013, Japanese investors were net sellers of Australian assets, offloading $33 billion.

Japanese buying into Australian bonds represents about 6 per cent of their international flows. While that is not much, the Australian bond market only represents about 1 — 2 per cent of the global bond market. So we are getting more flows than one would suggest , said Roger Bridges global currency and interest strategist for Japanese firm Nikko Asset Management.

He added that Japanese investors have been buying Australian bonds, and therefore the local currency, because of Australias higher relative interest rates. These bonds are being bought totally unhedged to the Australian dollar .

When the currency goes up against the yen, it means investors have a lot of profit in their portfolios , said Mr Bridges.

4:31pm: And here, ladies and gentlemen, are today’s winners and losers .

Pac Brands enjoyed a boost after announcing more asset sales, while LNG Ltd gained after its AGM today.

UGL was up 3.5 per cent — say what? Aren’t the shares down 55 per cent? That’s Bloomberg adjusting for the impact of trading without the rights to a massive special dividend.

Best and worst performers in the ASX 200 today.

4:23pm: Shares have extended their losing streak, with the benchmark ASX 200 dropping 13 points, or 0.2 per cent, to close a touch below 5400. The All Ords was down a similar amount at 5383.1.

Financials were the biggest drag, as big banks were mixed while insurers fell. such as IAG (down 1.1 per cent) and QBE (down 0.9 per cent).

Miners and energy stocks also suffered, with gold producers the exception.

Woolies had another poor day, down 1.4 per cent, while UGL plunged 55 per cent after trading without the right to a $2.94 special dividend.

3:59pm: Pacific Brands chief executive David Bortolussi says the break-up and sale of the loss-making Brand Collective business brings to an end a strategic review. which has raised $219 million in asset sales but which will dramatically reduce the scale of the apparel and homewares group.

Pacific Brands has agreed to sell its footwear, sporting goods and apparel brands to three separate buyers private equity firm Anchorage Capital, UK retailer Sports Direct and Australian clothing company PAS Group, raising a total of $39 million .

Pacific Brandss wholly owned footwear brands Grosby, Julius Marlow and Volley. and licensed brands Clarks, Hush Puppies, Mossimo, Superdry, and the Iconix joint venture, will be sold to Phil Caves Anchorage Capital Partners.

Sports brands Dunlop and Slazenger will be sold to IBML. a division of UK-based sporting goods retailer Sports Direct International. which owns these brands outside Australia and New Zealand.

Sports assets related to the business, including Everlast equipment. will be sold to Designworks. a division of apparel retailer The PAS Group, which listed earlier this year. PAS Group will license the Dunlop, Slazenger and Everlast brands from IBML.

The asset sales will raise about $39 million almost double market forecasts of around $20 million and the proceeds will be used to reduce net debt.

Pacific Brands shares, which have fallen about 22 per cent this year, rose 5.1 per cent to 52, a two-month high .

As the assets are currently in Pacific Brandss books at $66 million, the company will recognise a loss of around $30 million in its 2015 accounts .

3:41pm: The yen will crash through multi-year resistance of 120 yen per US dollar, and it is entirely plausible that it will quickly move down to 145 yen. forcing commensurate devaluations across the whole Asian region and sending a tidal wave of deflation westwards .

Phew. Thats the latest from Albert Edwards, the resident big, bad bear at French investment bank Societe Generale .

Edwards believes the yen/US dollar chart is the most important one for investors. One of the peculiarities of the financial forecasting industry is that strategists never like to predict too far from the current spot rate , writes Edwards, who has no such reservations.

I expect the key 120/$ support level to be broken soon and the lows of June 2007

(Y124) and Feb 2002 (Y135) to be rapidly taken out. If you want a target to reflect historic volatility, think about the Y145 low of August 1998 (see chart).

That is my Q1 forecast.

He believes that the yen devaluation will drag down other competing currencies in the Asian region, pointing in particular to Korea .

And that brings him to China. After a record 32 successive months of deflation at the producer price level, China has suffered as much PPI deflation over the past three years as it did in the immediate aftermath of the 1997 Asian crisis.

Do investors really think China can cope with a devaluation of the yen from here? They simply cant tolerate this and they wont. They will devalue .

The yen last traded around 116 per US dollar.

The yen/dollar chart is the one all investors should be watching, says Societe Generale strategist Albert Edwards.

3:25pm: Australia’s newly-signed free trade agreement with China is expected to provide significant benefits to the domestic economy, but for listed companies the impact is likely to be felt over the longer term. say fund managers and analysts.

The business community has been largely positive about the finalisation of the deal with Australia’s largest trading partner, however, many sectors that benefit from the agreement, like agriculture, have limited equity offerings .

In concept, it’s a positive. There are larger macro benefits to the economy with increased trade, that will benefit everyone, Nikko Asset Management portfolio manager Malcolm Whitten said. If GDP is higher there is more money sloshing around, that’s the greatest positive you can take from it just now .

Companies such as dairy producer Bega and beef producer Australia Agricultural Company could stand to benefit from lower tariffs, but the changes will happen gradually. between four and 11 years. Other parts of agriculture, such as wool. that will benefit don’t largely affect the equity market.

Listed winemakers, such as Treasury Wine Estates. will also enjoy a removal of tariffs over four years and will hope that growing demand for Australian wines in China will continue.

Under the new agreement, private hospital operators, such as Ramsay Health Care. will be able to build wholly Australian-owned operations in China, as well as aged care facilities. Many operators will be keen to tap into China’s aging, and increasingly affluent, population.

However Mr Whitten said it would be a long time before any companies had direct benefits. There are also inherent risks in investing, for example, in hospitals, in China.

[In terms of] Immediate aspirations to get on the ground working in China, it’s going to be a long road to any direct benefit. At the moment, it’s only an MOU, so the final details are not specified, Mr Whitten said.

Fiducian investment manager Conrad Burge agreed there were opportunities in health and also highlighted motor vehicle insurance. where Australian companies will now have access to China ‘s third-party liability motor vehicle market .

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Australian businesses will be free to open aged-care operations in China under the new agreement. Photo: Reuters

3:04pm: Japanese one-year government bills were sold for the first time at negative yields. underlining strong demand for the debt under the Bank of Japan’s qualitative and quantitative easing policy, through which it buys big amounts of short-term debt.

The Ministry of Finance sold 2.312 trillion yen ($US19.84 billion) of one-year bills in which the average accepted yield was -0.0029 per cent.

The auction came as Prime Minister Shinzo Abe was expected to announce that he will delay an unpopular sales tax rise and call a snap election, a day after data showed the economy had fallen into recession nearly two years after he returned to power.

2:53pm: Average new home prices in China’s 70 major cities fell 2.6 per cent in October from a year earlier, the second consecutive month showing an annual fall, Reuters reports.

Compared with the previous month, home prices were down 0.8 per cent in October, a sixth consecutive monthly drop following September’s fall of 1.0 percent, the calculations showed.

Economists believe the cooling housing market poses the biggest risk to the world’s second-largest economy, even as Beijing tries to stimulate overall growth.

The National Bureau of Statistics said new home prices in Beijing were down 1.3 per cent in October compared with a year earlier, versus September’s increase of 0.4 per cent. They dropped 1.1 per cent from September.

Shanghai’s home prices were down 2.0 per cent in October from a year ago, versus a 0.8 per cent fall in September. They fell 0.6 per cent from September, the sixth month-on-month fall in a row.

2:24pm: Playing the rebound in housing activity over the past two years has been a lucrative one for investors stocks exposed to the theme are up around 70 per cent since mid-2012 against the markets rise of 33 per cent.

But is there anything left in the tank?

Strategists at Deutsche Bank say yes.

Despite building approvals already past their peak. history suggests more outperformance is in store for the likes of Boral, Stockland, Harvey Norman, Lend Lease and James Hardie the stocks included in their model portfolio.

The best of the earnings leverage lies ahead , they write in a note to clients, pointing out that actual construction has lagged building approvals more than usual in this cycle, but is running strong now .

Price growth for construction materials is finally now emerging, and the DB analysts note that while 2013-14 earnings jumped for these housing stocks, very little came from revenue that lies ahead.

Valuations look reasonable with their housing names as a group trading back at around the market P/E after a period of trading well above that.

Previous cycles have witnessed steep drop-offs for building approvals after the peak. but they expect approvals to defy that historical trend to remain relatively high as ongoing strong population growth means theres still an undersupply to work off, and that leaves rents still quite expensive compared to buying .

This leads to their preferred indicator of housing demand the rent versus buy equation which you can see below, and which, they say, points to a high level of construction .

Renting is still expensive versus buying, suggesting there’s a need for more housing construction, says Deutsche Bank.

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a2 says it expects a listing to be completed during the first three months of 2015.

1:47pm: New Zealand listed a2 Milk Company is seeking a dual-listing on the Australian Securities Exchange in a bid to open up the company’s register to Australian investors and boost the liquidity of its shares.

The company said at its general meeting today that it has commenced the application process for an ASX listing and it expects a listing to be completed during the first three months of 2015 .

With a significant part of our earnings and growth coming from Australia. seeking an ASX listing is a logical strategic move for the company, a2 managing director Geoffrey Babbage said.

Listing on ASX will enable more Australian investors to participate in the company’s growth and will increase the attractiveness and liquidity of its shares. The board believes that this will benefit all shareholders.

The company said no new capital will be raised in the listing and it will remain incorporated in New Zealand .

1:13pm: Oil and coal demand will plummet — and natural gas demand will soar — over the next few decades, even without last week’s climate change deal between China and the US, according to research from Citi.

And if China and the US meet their 2030 emission targets, far-reaching reassessment of long-term fossil fuel values would be required.

But with existing policies, current market dynamics in China and the United States should still affect trillions of dollars of oil, gas and coal demand already, said the research, entitled A New Climate Order.

Existing (carbon reduction) policies and subdued market conditions could lead to lower demand from 2015 to 2030 in the order of US$1.3 trillion for oil and as much as $US1.6 trillion for coal. 

In contrast, the likely rise in gas demand could be worth $US1.3 trillion.

Under these existing policies, Australia — a major exporter of both metallurgical and thermal coal — will suffer from the reduced demand for coal.

But liquefied natural gas — for which Australia is expected to be the world’s major exporter by 2019 — will increase in demand.

Global liquids (oil) demand vs the US Energy Information Administration’s reference case, and differences in US dollar value for demand affected between 2015 and 2030. Source: EIA, Citi Research

12:59pm: If youre into macroeconomics, heres an interesting article by Wolfgang Mnchau in the FT on Germanys parallel universe. explaining how German economic theory differs from the mainstream and how this ‘exceptionalism’ endangers the Euro project :

German economists roughly fall into two groups: those that have not read Keynes, and those that have not understood Keynes. To describe the economic mainstream in Germany as conservative misses the point. There are some overlaps with the various neoclassical or neoconservative schools in the US and elsewhere. But as compelling as a comparison between the German mainstream and the Tea Party may appear, it does not survive scrutiny. German orthodoxy straddles the centre-left and the centre-right. The only party with some Keynesian leanings are the former communists.

The Germans have a name for their unique economic framework: ordoliberalism. Its origins are perfectly legitimate a response of Germanys liberal elites to the breakdown of liberal democracy in 1933. It was born out of the observation that unfettered liberal systems are inherently unstable, and require rules and government intervention to sustain themselves. The job of the government was not to correct market failures but to set and enforce rules.

After 1945, ordoliberalism became the dominant economic doctrine of the centre-right. In the 1990s, the Social Democrats started to embrace it, culminating in Gerhard Schrders labour and welfare reforms in 2003. Today the government is ordoliberal. The opposition is ordoliberal. The universities teach ordoliberal economics. In the meantime, macroeconomics in Germany and elsewhere are tantamount to parallel universes.

In practice, German macroeconomic exceptionalism did not really matter all that much until recently, when it started to matter a lot. When you have your own currency and engage with the rest of the world mainly through trade, a wacky ideology is your problem. That changes when you enter a monetary union, which is when policy makers have to work together.

It is hard to think of a doctrine that is more ill suited to a monetary union with such diverse legal traditions, political system and economic conditions than this one.

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Parallel universe. German economic thinking revolves around ‘ordoliberalism’. Photo: Sean Gallup

12:46pm: Singapore-based low-cost carrier Scoot expects the lower Australian dollar will prove positive for the airline as it looks to boost its capacity into Sydney, Perth and the Gold Coast and potentially launch flights to Melbourne next year .

If anything [the lower Australian dollar] is probably a benefit to us because people will be frugal, Steven Greenway, the head of commercial at the Singapore Airlines subsidiary said during a visit to Sydney last week.

They are cutting back on the frills and putting the remainder of their money into the end destination. And the inverse as well there will be more people coming into Australia because their money is worth more. And from that perspective it works okay for us.

Singapore Airlines does not disclose Scoot’s financial results, but analysts believe it has yet to turn a profit in a highly competitive market. Its rivals include other low-cost long-haul carriers AirAsia X and Jetstar .

But it will take delivery of its first Boeing 787-9 Dreamliner in December. to be placed on the Perth-Singapore route from January. By April, the flights to Sydney and the Gold Coast will also be on 787s, which are far cheaper to operate than Scoot’s current fleet of 777s. Scoot aims to boost all of those Australian flights to daily services once it receives the 787s, up from four to five weekly outside peak periods at the moment.

Mr Greenway also flagged the potential to launch flights on the Melbourne-Singapore route from the second half of next year as Scoot receives enough aircraft to expand its destinations.

We’ve looked at Melbourne for many years, he said. So now that certainly seems to be something we want to pursue .

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Scoot has also received approval from the Singapore competition regulator to coordinate its pricing and network with short-haul low-cost carrier Tigerair Singapore, meaning it will now be able to offer connecting flights throughout Asia.

12:25pm: It’s now or never if the iron ore price is going to rebound into the years end, UBS analyst Daniel Morgan says.

Australias most important commodity traditionally rallies heading into Christmas, as Chinese steel mills restock ahead of that countrys winter months.

Morgan said feedback from a trip to China suggests inventory at steel mills is very low but plans are only for a modest restock.

The analyst predicts that if iron ore finishes the year below $US90, the UBS forecast price for 2015 of $US85 could be breached at the lower end.

Citigroup last week slashed its price forecast for iron ore for the for the next two years to $US65, from about $US80.

The iron ore price at Qingdao port in China slipped 0.5 per cent to a new five-year low of $US75.08 a tonne on Monday night and is down 44 per cent since the beginning of the year.

11:57am: The Reserve Bank has repeated its view that the Australian dollar is overvalued.

The minutes of its board meeting on November 4 confirm the RBA sees a period of stability in interest rates as its most prudent course, in line with the announcement made after the meeting

Despite significant falls in commodity prices since January — a key driver of the exchange rate over the long term — the Australian dollar was higher at the end of October against the currencies of Australias trading partners, the RBA noted.

Despite the recent appreciation of the exchange rate, the Australian dollar remained above most estimates of its fundamental value. particularly given the further declines in key commodity prices over the course of the year to date, the RBA said. As a result, the exchange rate was offering less assistance than would normally be expected in achieving balanced growth in the economy.

This was cited in the minutes as one of the considerations for the RBAs decision to keep interest rates on hold, as widely expected.

It could be interpreted as an attempt to talk down the exchange rate, but similar comments over the past year or so have had little effect.

Which is why the Aussie moved slightly higher on the publication of the minutes, to 87.23 US cents, as the RBA didn’t ramp up its rhetoric.

11:57am: Outgoing Arrium chairman Peter Smedley spent much of the steel and iron ore producers annual general meeting defending the groups shock $754 million capital raising .

In August, Arrium reported record earnings and strong cashflow for 2013-14. Just weeks later the company had launched a major capital raising that finished with Arriums share price mired well below the 48 offer price and about 20 per cent of the companys shares in the hands of the underwriters.

The stock closed at 28.5 on Monday.

Smedley said at last weeks AGM the company was significantly better positioned (after the capital raising) to deal with a challenging environment stemming from a soft iron ore price.

Credit Suisse analyst Michael Slifirskis agreed, but said this should not be misinterpreted as the company being well positioned .

The analyst said Smedleys speech showed the companys evolution from a committed dividend payer at the August result to requiring a massive capital raising just one month later, after the iron ore price plunged from $US93 a tonne to $US83. The price is now $US74.80.

Arrium would continue to face challenges associated with lower US dollar iron ore prices and shrinking South east Asian steel margins. which would likely hit fiscal year 2015 first-half earnings, Slifirski said.

11:37am: As Sydney experiences its biggest housing boom in more than a decade, there is a growing expectation regulators will soon introduce lending restrictions, known as macroprudential policies.

But how much difference would such a move really make?

A new report from Moody’s Analytics attempts to shed some light on the issue by modelling the impact of following New Zealand’s lead, and capping the share of bank loans with a loan-to-valuation ratio (LVR) above 80 per cent.

For buyers hoping this type of response would significantly cool the market, the results may be disappointing.

The modelling, based on work done by the Reserve Bank of New Zealand when it introduced its LVR speed limit in October last year, found adopting New Zealand’s policies would barely affect the local market.

National house prices would be only 1 per cent lower than they would have been without the intervention. it found.

NSW — which is driving the surge in prices — would be slightly more affected, with prices 1.4 per cent lower than otherwise.

Significantly, most experts say Australia will not adopt New Zealand’s approach, because it would have a disproportionate impact on first home buyers. who are most reliant on high-LVR loans.

All the same, Moody’s economist Glenn Levine says trying to gauge how the New Zealand policies would play out in Australia provides a useful benchmark.

Levine said the model found NZ would be more sensitive to the LVR speed limit than Australia, because NZ’s market was overvalued when the rules were introduced. In contrast, he believes local house prices are close to fair value when assessed against interest rates, rents and incomes.

Levine stressed that the modelling results should be taken as a guide, rather than gospel, noting that New Zealand house price growth had slowed significantly since the rules were introduced last year.

The Reserve Bank and Australian Prudential Regulation Authority have not specified what macroprudential policies they may choose for Australia, but economists reckon they will probably include brakes on lending to investors.

 

11:30am: Australia and India will push for a free trade pact between their countries, Prime Minister Tony Abbott and Indian Prime Minister Narendra Modi said. during a rare state visit to Canberra by an Indian leader.

Trade between Australia and India stands at around $15 billion a year, or just a tenth of that between Australia and China .

We want to go further and that’s why the next priority for Australia is a comprehensive economic partnership agreement with India, Abbott said.

If I may say so, this is a moment in time. This is the time to get this done.

Modi, who will address the Australian parliament later today, emphasised the need to secure greater access for Indian investors .

We have agreed to speed up negotiations on the comprehensive economic partnership agreement, Modi said. I also asked for easier access for Indian business to the Australian market and quicker investment approvals.

We also agreed on seeking early closure on the civil nuclear agreement. which will give Australia a chance to participate in one of the most secure and safe nuclear energy programme in the world.

Australia sealed a civil nuclear deal to sell uranium to India in September and also offered to increase supplies of conventional fuel to help India overcome chronic shortages.

Talks towards the Civil Nuclear Cooperation Agreement began about two years ago after Australia lifted a long-standing ban on selling uranium to energy-starved India.

Australia is emerging as a key source of thermal coal for India ‘s growing number of electricity users .

Indian trade and infrastructure conglomerate Adani Enterprises has signed a pact for a loan of up to $1 billion from the State Bank of India for a $6 billion Australian coal mine, rail and port project .

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Indian Prime Minister Narendra Modi and Prime Minister Tony Abbott at Parliament House. Photo: Alex Ellinghausen

11:12am: Ruralco Holdings managing director John Mahe r said that low spring rainfall is hurting farmers in Australias drought-stricken north as the rural services group reported an 86 per cent jump in full-year profit to $10.6 million.

Mr Maher said the fundamentals underpinning Australian agriculture remain attractive. with growing demand for the nations grain, meat and breeding stock and increased buyer interest in rural properties .

But rain is desperately needed in the north .

The immediate priority is a genuine northern season to relieve drought-affected regions of Queensland and northern New South Wales given the depleted cattle herd and reduced summer cropping in recent seasons, he said.

Ruralco today reported a 21 per cent rise in revenue for the year ended September 30 to $1.4 billion.

The result was buoyed by earnings from newly acquired water services business Total Eden and a stronger performance from agency services, particularly livestock.

Mr Maher said he is pleased with the result given the difficult, dry conditions.

Underscoring the difficulties posed by weather, east grains giant GrainCorp last week reported a 64 per cent drop in full-year profit to $50.3 million as dry weather hammered the Australian grain crop.

Ruralco declared a final dividend, fully-franked, of 8 per share .

The company’s shares are up 2 per cent at $3.51.

10:55am: Some of the countrys best known fund managers are predicting downgrades in corporate earnings in 2015 and for the broader Australian share market to weaken as the domestic economy struggles to grow.

David Paradice, founder of Paradice Investment Management which manages $8 billion in assets under management, expects earnings to be downgraded in the year ahead as businesses feel the pinch of lower commodity prices and underwhelming industrial earnings.

The Australian growth outlook remains modest. So far, very low interest rates have mainly resulted in higher property prices rather than the desired broader improvement in economic activity , he said in a client note.

Consumer sentiment generally remains soft. Despite the lower Australian dollar, there is little optimism that the non-resource economy is going to materially accelerate any time soon, post the peak of the commodity boom.

Specific stocks that Paradice thinks will perform well despite the underlying economy include Caltex, Cochlear and Tabcorp .

Geoff Wilson, founder of Wilson Asset Management, which has $851 million in funds under management, believes economic growth will be soft at best in 2015 and the local equity market will be lower at the end of next year than at the start.

My outlook for slow economic growth and the removal of excess liquidity globally lies at the core of this prediction, he said in a note to investors.

The stocks Wilson likes given the current environment include Slate & Gordon, Infomedia and Aristocrat Lesiure — all of which should benefit from a weaker Australian dollar.

The local sharemarket traded on a price-to-earnings ratio (P/E) of 14.4 times at the end of the third quarter on September 30, with consensus expecting around 4 per cent earnings growth next financial year .

In the context of a low bond yield environment, the markets valuation looks reasonable, according to Paradice.

But he added that we feel already modest earnings growth is set to be downgraded, as lower commodity prices and underwhelming industrial earnings flow through.

Caltex is one of David Paradice’s picks for 2015. Photo: Glenn Hunt

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Illustration: John Spooner

10:39am: Find out what yanks their chain . Prepare to get PO in court as soon as possible. Wants dirt on PO  ANZ chief risk officer Chris Page  giving directions to liquidators PPB .

PO is Pankaj Oswal. the flamboyant Indian petrochemical billionaire who came to Perth and set up the Burrup Fertiliser plant.

​ANZ put ​Burrup ​into receivership. ​Now Perth Federal Court judge Antony Siopis has ordered an inquiry into the conduct of the receivers PPB in the three receiverships involved .

Oswal has alleged PPB charged $34 million over 13 months. including $13 million on lawyers Freehills Herbert Smith.

Besides the instructions from Page to get dirt on Oswal contained in a file note of a conference call a slew of embarrassing revelations has emerged in the Federal Court proceedings in Perth.

Here’s a taste: Oswal and his wife Radhika claim PPB spent 48 hours filling out a form (a second form 524) and charged $19,240. Further high charges were incurred for the filling out of another form (a third form 524), a task that apparently endured for 19 hours though, according to the allegations, the form was still not filled out correctly.

Responding for this story, ANZ said the Owals had refused to return to Australia to face serious allegations.

10:39am: JPMorgan has downgraded its view of the US stock market, reversing its overweight call to underweight as valuations relative to Europe had turned outright expensive.

The firm upgraded the eurozone to overweight from underweight, believing the region is due a period of outperformance vs the US, with European banks primed to support the region.

While Europe is expected to perform better than the US equity market, JPMorgan wrote that it expects US stocks to continue scaling new highs. as they have throughout the year.

The S&P 500 has gained 10.2 per cent thus far in 2014, compared with gains of 2.2 per cent for the FTSEurofirst 300 index of top European shares.

That lag means that Europe is now trading at a lower price relative than the one recorded at the point of peak stress (in 2011), when eurozone breakup was almost the base case, JPMorgan wrote. It said the level of eurozone earnings relative to that of US companies has never been as depressed as it is today.

The return on equity differential between the two regions is at the top of its historical range, and it should start to normalise from here. We note that the [earnings per share] revisions in the US are not much better than those in eurozone anymore — the gap is closing.

Banks in Europe have weighed on the region throughout the year, but the group may be poised to advance, JPMorgan wrote.

German loan growth has already turned outright positive, the broker said in a note to clients. The fact that stress tests are finally behind us should allow the banks to be more supportive of the economy.

Clear outperformance: while the S&P 500 (green) is trading at record highs, European stocks (white) are languishing and the ASX200 is stuck in the middle.

10:24am: Shares are enjoying an early relief rally. with BHP, Telstra and the banks leading the charge.

The ASX 200 is 11 points, or 0.2 per cent, higher at 5423.1, while the All Ords is up 10 points at 5406.7.

Most stocks are trading higher, with listed property and consumer staples the only sectors in the red. as Woolworths continues its poor run, falling 0.5 per cent. Energy is the best performing group. up 0.7 per cent with Woodside advancing 0.6 per cent and Oil Search 1.1 per cent.

BHP is providing the biggest single support to the market, up 0.6 per cent. The big banks are all up around 0.3 per cent.

10:02am: ABC managing director Mark Scott said Foxtel will really crack open the anti-siphoning regime. which currently ensures free-to-air broadcasters have a stranglehold on broadcasting rights for major sporting events, if its joint approach for Ten Network Holdings with Discovery Communications is successful .

Mr Scott also defended the ABC’s decision to bid $1.5 million against its sister corporation the SBS for the Asian Cup. after SBS managing director Michael Ebeid said he was flabbergasted at the move and Communications Minister Malcolm Turnbull criticised it as a waste of taxpayers’ money.

Anti-siphoning laws regulated media companies’ access to significant sport events and free-to-air broadcasters usually have first refusal to key events.

I think what will be very interesting in a public policy setting would be a Foxtel, Channel 10 tie-up because I think that’s the thing that could really crack open the anti-siphoning challenge, Mr Scott told the Screen Forever conference in Melbourne.

Anti-siphoning has clearly been on the public policy agenda for decades now. But the prospect that Ten and Foxtel are bidding for a program, I think could be quite an interesting thing.

I think that’s something that Seven and Nine would look at very, very closely.

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The prospect that Ten and Foxtel are bidding for a program, I think could be quite an interesting thing.”: ABC managing director Mark Scott. Photo: Mal Fairclough

9:48am: While Wall Street keeps notching up new records, the local market seems stuck in a rut.

But are we just following the pattern we’ve been seeing over the past years: a lacklustre November followed by a convincing Santa rally? Here’s our poll:

Poll: The local market is currently struggling a bit but is this just what’s needed for a Santa rally next month?