Markets Live: Chinese data buoys ASX

Seek shares have dropped 1.6 per cent after Citi downgraded the stock from neutral to sell and cut its price target from $16.20 to $15.30 because of the impact the end of the housing boom would have on job listing volumes.

It also cited weakness in Seek's Asian divisions and overexposure locally as reasons for the ratings cut. 

The shares have declined 3.6 per cent over the last three days, falling to $16.89. 

Citi says there has been rapid growth in ads for construction, trade, manufacturing and related jobs since 2014 even as the unemployment rate remained flat, but that those jobs are set to fall away following the peak of the housing market.

Moves by regulators to tighten lending standards appear to have successfully cooled the runaway housing market, with property prices falling 1.1 per cent in May and apartment building approvals down 26 per cent over the past 12 months. 

Citi predicts housing construction starts will fall by a quarter over the next two years and that job ad growth will fall to 1.5 per cent a year in 2018 and 2019, after growing at 10 per cent between 2014 and 2017. 

While job ad numbers are usually connected to the unemployment rate, Citi told clients in a research note that half the outperformance of Seek was because of the housing construction boom and employee turnover in that industry. 

"Even just a modest pullback in churn rates could lead to a large decline in the number of job ads, even if the change in the total number of people employed in the industry is negligible," analysts wrote. 

Shares in iron ore miners have turned south as Chinese futures in the bulk commodity resume their selloff following a two-day holiday.

Fortescue is now down 0.6 per cent after earlier trading more than 1 per cent higher, while Rio Tinto has dropped 1.3 per cent.

Dalian iron ore futures have slid 3.3 per cent to 436.5 yuan ($US64), on track for a fifth session in the red. Spot iron ore is at $US58.50 a tonne, close to its lowest since October.

Analysts have been noting that while iron ore prices are falling, steel is trading close to five-year highs.

This comes as Platts reports that Chinese gross steel margins for exported steel rebar has touched a 2017 high – nearly 80 per cent higher than lows touched on April 13.

"The rise in steel mill profitability, which mostly reflects weaker iron ore and coking coal prices, should give way to stronger steel output and iron ore demand in coming weeks," says CBA analyst Vivek Dhar.

The slump in consumer spending is expected to continue throughout the year as a major headwind for retailers across the country.

In a note - 'What is going on in Australia's retail sector? - CBA blames weak wages growth as the single biggest factor weighing on the sector as households devote a greater portion of their wallet to health, utilities and education.

"Consumers have a fine amount of disposable income and even with the assistance of a falling savings rate, record low wages growth has weighed significantly on the discretionary parts of retail trade," senior economist Gareth Aird said.

"Soft total retail trade growth is largely down to a lack of spending growth on consumer durables and clothing."

Demand for clothing and other discretionary goods has been weak for the past two years, as seen in falling department store sales and the collapse of a string of apparel retailers.

Herringbone, Marcs and David Lawrence, Pumpkin Patch, Rhodes and Beckett are among a recent spate of largely high-end clothing retailers to have fallen into voluntary administration.

Department store chain Myer has been warning "challenging trading conditions" continue to hurt its sales.

The market value of retailers on the ASX have also come under pressure as investors sell down retail stocks following sales warnings and profit downgrades.

Online giant Amazon's impending arrival in Australia will also put more pressure on retailers to sacrifice more profits for lower prices.

Myer shares are at 86 cents, very close to all-time lows hit earlier this week, while JB Hi-Fi and Harvey Norman have suffered sell-downs largely linked to the Amazon threat.

CBA also warned that the effectiveness of lower interest rates is close to being exhausted and only a lift in wages' growth will lead to an increase in retail spending.

"Given the significant amount of slack in the labour market we don't see that happening in 2017 and we therefore conclude that the retail trade sector, in particular the discretionary parts of retail trade, will continue to be under pressure throughout the year," Aird said. 

When auction clearance rates fall to around 65 per cent in Sydney, a housing downturn will be official, property analyst SQM Research managing director Louis Christopher says.

Christopher, who correctly called the start of the current housing boom in 2012, said that when Sydney auction clearance rates - one of the key measures of housing market performance - hit the mid-60 per cent level and clearances in Melbourne fall to the high 60 per cent level, then "a new downturn can be called."

The preliminary auction clearance rate for Sydney last week was 76.2 per cent while Melbourne was on 77.3 per cent, according to Corelogic. Both were higher than the same period a year ago.

"We do believe we are getting close to a top and perhaps the major banks passing on the bank levy might just be the point which creates a trigger for a slowdown. We will wait and see," Christopher said.

He also said a downturn could be closer after observing a rise in unreported auctions in 2017 against the bumper level of 2015.

The reactions to Altiar Asset Management's shock decision, taken by chairman and investment officer Philip Parker, to sell its equities fund an return the money to investors continues to be a key topic of discussion among Australia's investment professionals. The warning issued by Parker, which in large part rested on his concerns about the overheated property market, has been largely dismissed by senior property industry executives.

Macquarie Group's former head of real estate business Bill Moss suggesting it was overstated.

"You could have said that [about China] a long time ago," Mr Moss said.

Australia's property was experiencing a "one-off adjustment" to yields and values because of "incredible demand" from China to invest in residential and commercial real estate, Mr Moss said.

Altair's sell-all strategy has attracted criticism with Macquarie Group's former head of real estate business Bill Moss suggesting it was overstated.

"You could have said that [about China] a long time ago," Mr Moss said.

 Australia's property was experiencing a "one-off adjustment" to yields and values because of "incredible demand" from China to invest in residential and commercial real estate, Mr Moss said.

Read the full story on the Sydney Morning Herald. 

Network Ten's big-name shareholders are millions in the red. Joe Aston writes in Rear Window on "what has to have been the greatest money pit in Australian corporate history":

In good news for investors in Network Ten, the free-to-air broadcaster is having a good week so far, closing at 19¢, off its Friday low of 17¢. Everything's relative, right?

Remember this is after the 1-for-10 consolidation of Ten shares in January 2016. So when WIN proprietor Bruce Gordon was buying millions of these last decade for $2.58 a pop, he was effectively paying nearly $26 in a like-for-like comparison to the scrip you could pick up today for less than a silver coin. According to an ASX filing of July 2006, Gordon-related entities owned 48.8 million Ten shares, worth $126.2 million. If he'd done nothing since, he'd now own 4.88 million shares worth a princely $927,200. But instead he kept buying and buying and buying, including newly-issued capital. Gordon now owns 55.5 million post-consolidation Ten shares, worth $10.4 million. Yep, that's $9.5 million for, in effect, half a billion of shares. No wonder he catches the bus to Wollongong. 

Chairman of archrival Seven, Kerry Stokes, quietly amassed a stake in late 2012 worth around $40 million. According to Ten's 2016 annual report, Stokes' Network Investments had 11.5 million shares as at October, now worth $2.2 million, which wouldn't buy you a bedsit in Darling Point. 

Foxtel's $77 million placement just 18 months ago is now worth $9.75 million – which isn't inconsistent with the direction of Foxtel's own value to News Corp and Telstra.

News co-chairman Lachlan Murdoch and then Consolidated Media chair James Packer paid around $130 million each (before the multiple raisings) at $1.50 (or, in effect, $15) in 2010 for a combined 14.9 per cent position now worth just $10.6 million

And having sunk near enough to $200 million into Ten since 2011, Gina Rinehart's 8.2 per cent stake is now worth $5.8 million. 

Read the full piece on the AFR.

One of the nation's biggest mutual lenders has cut interest-only loans in half and hiked interest rates by 40 basis points, heralding a tough new phase in attempts to cut back on risky borrowing.

It means borrowers will have to take out two loans for a single property – a minimum principal and interest loan and a maximum interest-only.

Teachers Mutual Bank, which includes UniBank and Firefighters Mutual Bank, is requiring a minimum of 50 per cent principal and interest for all home loans, which means the maximum interest-only is also 50 per cent.

A new borrower seeking $300,000 will have two loans – a minimum of $150,000 on principal and interest and a maximum of $150,000 on interest-only.

In addition, borrowers cannot draw down any cash from any loan where part of the total borrowing is interest-only and scrutiny of ability to pay has been toughened.

It comes as latest APRA numbers reveal that interest-only loans still account for more than 36 per cent of total home loans by value in the March quarter, down from 37.5 per cent previously.

APRA issued an order at the end of March requiring banks to cut interest-only loans to 30 per cent of new residential lending.

Since then most lenders have increased minimum deposits to at least 20 per cent, raised interest rates, toughened scrutiny of borrowers' ability to pay and banned overseas' lenders.

Here's more at the AFR

Growth in China's manufacturing sector in May kept pace with the previous month, an official survey shows, beating expectations in a reassuring sign the world's second-biggest economy is not losing too much steam after a solid first quarter performance.

The official Purchasing Managers' Index (PMI) stood at 51.2 in May, compared with the previous month's 51.2 and above the 50-point mark that separates growth from contraction on a monthly basis.

Continuing momentum gives policy makers room to rein in increased leverage and financial risks. Analysts last month upgraded forecasts for China's economic growth this year after an unexpected pick-up to 6.9 per cent in the first quarter.

The data has put a bit of a spring into the Australian market, with both shares and the Aussie rising to the day's highs (albeit not a huge gain).

Australia's yield advantage over the US is shrinking fast, which has stirred the Aussie dollar bears, but ANZ head of FX exchange Daniel Been notes that rate differentials are only one driver of the currency.

The 10-year yield spread has narrowed to just 18 basis points, and last week even fell to just 16 basis points, the lowest in 16 years.

The last time the yield gap was at these levels, the Aussie was fetching less than US50¢, but Been doesn't believe that the currency will fall below even US70¢, pointing out that when the spread was negative in 1998 the Aussie was 10¢ higher than in 2001.

"This suggests that the absolute level of yield was not the only important factor for the AUD, even when it was very narrow," Been says, adding that even when you include changes in the terms of trade it doesn't tell the whole story.

Instead, forex traders should include risk factors and the US dollar index to explain the performance of currencies such as the Aussie. As examples of risk driving market performance in 2001, Been cites the tech bubble bursting and the Enron scandal

The subsequent rally in the US dollar was on its own worth about 5 cents of underperformance in the Aussie, he has calculated.

So what does that mean for today? Been says it's much more helpful to look at the Aussie through this broader frame, which makes the situation for the currency look far less dire on a number of fronts.

Here are a few reasons why he believes the Aussie isn't headed for 2001 levels:

• The terms of trade are significantly stronger than it was in 2000. In fact China was not even a part of the WTO last time the spread was at this level;
• The risk premium is already negative, implying the negative effect of a tighter spread is already integrated into the markets expectations for the AUD;
• The probability of a significant deterioration in risk appetite remains lower than it did in 2001, at least in the near term

As such, Been doesn't believe that the fall in the interest rate spread is about to drive a slump in the AUD, or that the AUD at current levels is fundamentally misaligned with the level of rates given the broader environment.

Quite the contrary, Been says the recent improvement in the current account should dampen the negative impact of the narrow rate differential, as the Australian economy's funding need has shrunk significantly. 

"We think that the biggest risk to the AUD is ultimately going to be a sharp deterioration in risk appetite, rather than the narrowing in spreads, however we continue to think that, at least over the next 12 months, this remains a tail risk," Been says.

"Until this kind of risk event can become integrated into a central scenario rather than a tail, we think that the AUD will remain stable above US70¢."

Shares have opened fairly flat, with some buying in the oversold retail sector offset by drops in energy stocks.

The ASX is down 0.1 per cent at 5714.2, putting it on track for a loss of 3.5 per cent in May, its worst monthly performance since the market mayhem of January last year.

"Sentiment on Australian markets today could be influenced by how China's steel and iron ore markets perform when trading gets under way after a two-day holiday," CMC chief market analyst Ric Spooner says. "Prices were sliding at the end of last week and sentiment will not be helped if strong downward momentum continues today."

Spooner added that investors will be hoping that today's release of China's manufacturing PMI can also hold the line after a softer read in April, which showed a decline in employment conditions.

Blue chips are all over the shop, with the big banks trading flat to slightly higher, BHP down 0.2 per cent but Rio up 0.1 per cent and Fortescue gaining 1.25 per cent.

One of the biggest winners is Aristocrat Leisure, up another 3.1 per cent as the pokies maker moves from strength to strength.

Market dogs in the retail sector are catching some relief, with Myer gaining 1.8 per cent and Super Retail up 1.3 per cent after Credit Suisse upgraded both stocks to 'neutral'.

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The ASX's worst month since January 2016 will soon be in the rearview mirrow, and IG strategist Chris Weston wonders whether June has anything better in store:

For some the idea of turning the page and closing what has been a fairly bleak month to be long the Aussie equity market will be welcomed. That being said, being long certain industrial and telco names has seen strong outperformance in the portfolio.

What won't be welcomed is the idea that June is actually the worst month to be long or tracking the Aussie equity market, with the average loss over the past decade at 2.2%.

We have seen the past four months of June down by an average of 3.1% and while past performance obvious doesn't predict future returns it is a consideration.

Certainly, something to think about and the technical set-up on the ASX 200 is interesting, with the bulls happy to defend the 5775/77 level yesterday which we can see from the daily chart seems a quite pivotal support level representing swing lows in March and May. A break of this level and we should be talking sub-5600, but for now, we are watching to see if the bulls can build on the platform set yesterday.

Turning to Asia and it will be interesting to watch China come back on line today after its two-day holiday. Of course, while the spot iron ore market has been open (as price is fixed in Singapore), we get the re-open of the Dalian iron ore and steel futures exchanges today and who knows where that will trade.

The market will keep a beady eye on official manufacturing and services PMI data (at 11:00 AEST) for further signs of an economic downturn and we should expect a very modest slowdown in the pace of expansion here, with the manufacturing PMI data expected in at 51.

Whether we are talking copper or AUD, the market hasn't been overly sensitive to this print of late, but that could change if the data comes in far lower or higher than forecast. Again, the prospect of the latter materialising seems very low.

Read more.

New Zealand's central bank said risks to the nation's financial system have receded after house-price inflation slowed and global dairy prices recovered from a slump.

"New Zealand's financial system remains sound and the risks facing the system have reduced in the past six months," Reserve Bank governor Graeme Wheeler said in the bank's semi-annual Financial Stability Report on Wednesday in Wellington. Still, he warned that global uncertainty remains elevated and that New Zealand would be vulnerable if a sharp reversal in risk sentiment drove up borrowing costs for banks.

New Zealand home-owners have built up record amounts of debt in recent years as house prices soared, which may leave many stretched if borrowing costs were to rise quickly. Wheeler has cut his benchmark interest rate to a record low of 1.75 per cent to spur weak general inflation, requiring him to introduce lending restrictions in an attempt to curb housing demand.

He said today that those restrictions have caused house-price growth to slow over the past eight months. However, "house prices remain elevated relative to incomes and rents, and any resurgence would be of concern", Wheeler said.

A recovery in dairy prices over the past year had reduced risks faced by the dairy sector, though some parts of carry excessive debt and remain vulnerable, the RBNZ said.

New Zealand's banking system "maintains strong capital and funding buffers, and profitability remains robust", the central bank said. Still, banks had increased reliance on offshore funding for credit growth and remain exposed to a shift in global sentiment.

"A sharp reversal in risk sentiment could lead to higher funding costs for New Zealand banks and an increase in domestic borrowing costs," the RBNZ said.

Here are the overnight market highlights:

• SPI futures down 4 points to 5718
• AUD +0.4% to 74.66 US cents (Overnight range: 74.16-74.69)
• On Wall St, Dow -0.2%, S&P 500 -0.1%, Nasdaq -0.1%
• In New York, BHP +0.4%, Rio +0.8%
• In Europe, Stoxx 50 -0.5%, FTSE -0.3%, CAC -0.5%, DAX -0.2%
• Spot gold -0.4% to $US1262.95 an ounce
• Brent crude -0.9% to $US51.82 a barrel
• Iron ore unchanged at $US58.50 a tonne
• Dalian exchange closed
• LME aluminium -1.3% to $US1926 a tonne
• LME copper little changed at $US5656 a tonne
• 10-year bond yield: US 2.21%, Germany 0.29%, Australia 2.39%

Plus a few analyst recommendation changes:

• Henderson Group (HGGDA): New buy at UBS, PT $35.25; New market perform at KBW, PT $32
• Myer Holdings (MYR): Raised to neutral at Credit Suisse, PT
  $0.82
• Seek (SEK): Cut to sell at Citi
• Super Retail (SUL): Raised to neutral at Credit Suisse, PT
  $7.56

What to watch today:

April private sector credit; China May manufacturing PMI, non manufacturing PMI; Japan April industrial production, housing starts; Euro zone April unemployment rate; Fed Beige Book

And not to forget, Orica is trading ex-dividend.

The British pound came under pressure overnight after a new poll found that PM Theresa May's Conservative Party risks falling short of an overall majority in next month's national election.

The pound fell to $US1.2791, near a one-month low of $US1.2775 touched on Friday. The pound also slipped to 0.8738 pound per euro, near Friday's eight-week low of 0.8750, while the Aussie strengthened about 0.5 per cent to 58.3 pence.

New constituency-by-constituency modelling by YouGov showed the Conservative Party might lose 20 of the 330 seats it holds while the opposition Labour Party could gain nearly 30 seats.

Breaking: Latest YouGov Poll points to a hung parliament as @Conservatives could be 16 seats short of a majority. #GE2017 #gbpusd #UK #GBP pic.twitter.com/WLmcEzNn37

— WealthFX (@WealthFXnet) May 30, 2017

The news came after a string of opinion polls show a narrowing lead for May's Conservatives, shaking the confidence among investors that May would easily win a majority in a national election on June 8.

The US dollar fell to two-week lows against the safe-haven yen as investors turned cautious amid political worries in Europe as well as weaker stock and commodity markets after a long US holiday weekend.

Worries that US political stalemate due to investigations into President Donald Trump's ties with Russia could hamper progress on tax cuts and other stimulus measures from Washington has been undermining the dollar.

The dollar fell to near two-week low of 110.665 yen and last traded at 110.85 yen, while the Aussie lifted to US74.61¢. The US dollar index dipped to 97.396, around the levels it was trading at before Trump was elected in November.

Amazon's shares topped $US1000 for the first time in overnight trade in the United States, underlining how the e-commerce behemoth is revolutionising the retail experience and wreaking carnage on traditional bricks and mortar sellers.

Founder Jeff Bezos is now estimated to be the second-richest person in the world, 20 years after he floated the retail disrupter as a public company at $US18 a share. He trails, but could soon surpass, Bill Gates.

Amazon's shares have risen 33 per cent so far this year, lifting its market cap to $US475 billion, nearly double the value of America's largest physical retail chain, Walmart.

In Australia, retail competitors, consumers and investors are bracing for Amazon's flagged arrival, with many fretting the innovation juggernaut will unleash a wave of store closures and job layoffs Down Under.

Yet despite the doom and gloom emanating from the collateral damage in the US, experts point to evidence to show retail is far from dead and some American retailers are not only surviving against Amazon, but thriving.

One retailer with close ties to Australia, former Woolworths senior executive Greg Foran, appears to be helping turn the tide against Amazon in his current job as Walmart's US chief executive.

New Zealander Mr Foran, who quit Woolworths in 2011 after missing out on the Woolworths CEO job, recently helped Walmart unveil a 63 per cent rise in online sales for the March quarter.

Walmart's overall comparable store sales increased a respectable 1.4 per cent for the quarter, to notch their 11th straight quarter of gains. The company's share price is up 39 per cent since it struck a four-year low in November 2015, in the wake of more than 200 announced store closures.

It has invested heavily in technology, as well as spending $US3.3 billion on online retailer Jet.com, plus smaller acquisitions such as ShoeBuy.

Walmart's global chief executive, Doug McMillon, emphasised to investors in May that most of the online sales growth came from the organic Walmart.com channel, not the online businesses it acquired.

In a direct challenge to Amazon's membership-fee based fast delivery, Walmart has offered free two-day shipping to entice customers.

Nevertheless, Amazon has left a trail of destruction at other retailers including department store chains Macy's, Kohl's and JC Penney, as well as a host of other specialist retailers.

US stocks inched lower overnight, with the S&P 500 retreating slightly from a record, as weakness in the energy and financial sectors outweighed gains in technology shares.

Oil prices fell to keep US crude below $US50 a barrel on concerns output cuts by the world's big exporters may not be sufficient to lessen a global glut and signs of resurgent output in Libya.

The energy sector's 1.3 per cent fall made it the worst performer among the major S&P 500 sectors. Financial stocks, down 0.8 per cent, also supplied some downward pressure. JPMorgan fell 1.7 per cent and Bank of America lost 1.4 per cent as the two biggest drags on the S&P 500.

Data showed US consumer confidence fell in May and a gauge of core US inflation retreated on a year-over-year basis., despite picking up over the month. On the bright side, consumer spending recorded its biggest increase in four months in April.

Dallas Fed head Robert Kaplan said while he was concerned about the recent economic data, he expected two more rate hikes in 2017. Fed Governor Lael Brainard said a hike is probably coming soon, though the central bank may want to delay if inflation remains soft.

"The markets are susceptible to geopolitical and to purely political risk, but in terms of the economy and in terms of earnings, we are where investors are comfortable," said Peter Kenny, senior market strategist at Global Markets Advisory Group in New York.

"There isn't a huge rush to put more money into equities, there isn't a huge rush to put more money into Treasuries - the market is treading water."

The lack of progress on tax cuts and other stimulus measures from Washington has also weighed on the outlook for company profits and broader economic activity, analysts said.

"There have been some softness in US economic data, and there are some less market-friendly policies in the US on the margin," said Stephen Wood, chief market strategist with Russell Investments in New York.

Good morning and welcome to the Markets Live blog for Wednesday.

Your editors today are Jens Meyer and Patrick Commins.

This blog is not intended as investment advice.

Fairfax Media with wires.