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need2know: ASX poised to open higher

Wall Street was higher on Wednesday afternoon as a strong recovery in oil prices pushed energy shares higher. Photo: Richard DrewLocal shares are poised to open higher as oil and metals rallied overnight. $A surges through 75 US cents. NZ cuts key interest rate.
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What you need2know

SPI futures up 15pts or 0.3% to 5170 at 7am Sydney time

AUD up 1% to 75.09 US cents, 85.11 Japanese yen, 68.19 Euro cents and 52.80 British pence

On Wall St, in late trade, Dow +0.2%, S&P +0.5%, Nasdaq +0.5%

In Europe, Stoxx 50 +0.6%, FTSE +0.5%, CAC +0.6%, DAX +0.4%

In London, BHP +1.1%, Rio +0.2%

Spot gold -0.6% to $US1253.82 at 2.59pm New York time

Brent crude +3% to $US40.84 at 2.34pm New York time

US oil +4.4% to $US38.10

Iron ore -8.8% to $US58.02

What’s on today

ECB rate decision. South Korea rate decision.

Overseas data: China inflation (Feb.), China new lending, money supply (Feb.) anytime March 10-15, US jobless claims (weekly), US quarterly services survey (4Q), US household net worth (4Q), US budget statement (Feb.), Germany trade data (Jan.)

Overseas earnings: Dollar General, Linde, Aviva, Carrefour

Currencies

The Kiwi has fallen in the wake of the RBNZ’s unexpected 25 basis point rate cut, putting the official cash rate at 2.25%. In a statement, RBNZ governor Graeme Wheeler said the outlook for global growth has deteriorated. “There are many risks to the outlook. Internationally, these are to the downside and relate to the prospects for global growth, particularly around China, and the outlook for global financial markets. The main domestic risks relate to weakness in the dairy sector, the decline in inflation expectations, the possibility of continued high net immigration, and pressures in the housing market.”

Wheeler said the NZ central bank will remain accommodative. “While long-run inflation expectations are well-anchored at 2 per cent, there has been a material decline in a range of inflation expectations measures.  This is a concern because it increases the risk that the decline in expectations becomes self-fulfilling and subdues future inflation outcomes.

“Headline inflation is expected to move higher over 2016, but take longer to reach the target range. Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.”

The euro erased losses against the greenback to trade at $US1.1006 in New York. “There’s talk of rates cuts, increasing the size of the asset-purchase program, and expanding the range of products that the ECB will buy,” said Daniel Murray, the London-based head of research at EFG Asset Management. “Let’s see tomorrow how good Draghi is at playing the market. He has built up expectations before and found them hard to meet.”

Russia’s rouble jumped 2.7 per cent versus the US dollar. Turkey’s lira strengthened for a second day, rising 0.3 per cent. Brazil’s real was the best performer, followed by the currencies of other commodity-producing nations.

Commodities

Ore with 62 per cent content delivered to Qingdao fell 8.8 per cent to $US58.02 a dry metric ton, according to emailed data from Metal Bulletin. The price dipped 0.2 per cent on Tuesday after Monday’s 19 per cent rally to the highest since June. The retreat was preceded by losses on futures in Singapore and China.

Oil rose to near the highest level in two months after a US government report showed gasoline inventories dropped more than expected last week. West Texas Intermediate futures climbed as much as 4.2 percent. Gasoline supplies fell by 4.53 million barrels, the Energy Information Administration said. Analysts surveyed by Bloomberg had expected a drop of 1.5 million. Crude stockpiles rose by 3.88 million, the EIA said. “This is certainly a bullish report,” said Bart Melek, head of commodity strategy at TD Securities in Toronto.

Copper, zinc and other base metals rebounded as speculators piled back into the market on hopes more production cuts would lead to shortages. However, copper-output cuts spurred by lower prices aren’t enough to end a surplus this year and demand won’t catch up with supply until 2017, according to Javier Targhetta, a senior vice president of marketing and sales at Freeport-McMoRan, the largest publicly traded producer of the metal.

United States

Wall Street was higher on Wednesday afternoon as a strong recovery in oil prices pushed energy shares higher. “It’s the same three culprits that have been driving the first two months of the year and that is – central bank policy, China and oil,” said Bill Northey, chief investment officer of the private client group at US Bank in Helena, Montana.

Biotechs came under pressure after the US government proposed a test program aimed at lowering Medicare drug costs. The Nasdaq Biotechnology sector was down 1.3 per cent.

Sentiment has improved on Apple. Shares in the iPhone maker have increased 5 per cent in the past two weeks as Wall Street bets the company this month will launch a less expensive phone to boost sales in developing countries like China. Ahead of the stock’s 20-per cent drop that started in December, 41 analysts recommended buying Apple shares while just one recommended selling, according to Thomson Reuters data. Currently, no analysts recommend selling, while 38 recommend buying.

Europe

European shares advanced as investors speculated on further stimulus from the ECB when it meets tomorrow. Glencore paced miners higher, rising 2.3%, while gains in oil helped energy shares rebound from their deepest selloff in two weeks. BHP Billiton added 1.1% and Rio Tinto edged 0.2% higher.

The Stoxx 600 added 0.6 per cent to 339.39 at 4.30pm in London, after earlier rising as much as 1.3 per cent. The equity gauge has recovered 12 per cent from a 2013 low reached last month amid concern over global growth and a rout in banks. Investors are once again looking to the ECB for reassurance that monetary policy will focus on boosting growth. President Mario Draghi said in January that officials will consider the possibility of more stimulus at the upcoming gathering.

“Expectations are quite high for tomorrow,” said Daniel Murray, the London-based head of research at EFG Asset Management. “There’s talk of rate cuts, increasing the size of the asset-purchase program, and expanding the range of products that the ECB will buy. Let’s see how good Draghi is at playing the market: he has built up expectations before and found them hard to meet.”

What happened yesterday

The Australian sharemarket shrugged off a weak lead to resume its March rally, lifted higher by buying in the big banks and a strong day for healthcare stocks. Early in trade the market fell by as much as 26 points before staging a 1.5 per cent turnaround to close at the day’s highs.

The benchmark S&P/ASX 200 index ended 1 per cent or 49 points higher to 5157.2. The broader All Ordinaries rose 0.9 per cent or 46 points to 5215.7.

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Could shares in brickmaker Boral soar if Donald Trump becomes US President?

Donald Trump’s proposed Mexican wall will need a lot of bricks Photo: Tom Pennington Boral is getting the trucks ready… just in case Trump decides to build anything big. Photo: Ben Rushton
Nanjing Night Net

As the possibility of Donald Trump winning the US presidency becomes more realistic by the day, local investors are starting to ponder what a Trump presidency could mean for the Australian sharemarket.

The chief investment officer of Australian Foundation Investment Company, Mark Freeman, believes he might have found the answer.

Referring to the large wall that Mr Trump has vowed to build along the border of the US and Mexico if he wins office, Mr Freeman told AFIC shareholders that building materials companies could thrive under a future President Trump.

“One of the stocks we might have to look at is Boral, because they manufacture bricks in the US and they will need a lot of bricks to build that wall,” he told AFIC shareholders on Wednesday.

Yes, Mr Freeman was joking, but then again, most people thought Mr Trump was joking too when he flagged plans to run for president.

But it seems someone is already onto the “Trump & pump” strategy; shares in Boral have risen 17 per cent over the past five months.

US Bank strategist Bill Merz​ was quoted by Bloomberg last month as saying the election was making markets more volatile.

“The longer there remains uncertainty in the election cycle, the more it can start to creep into investor sentiment and expectations around policy and that can facilitate more volatility,” he said.

While Boral’s link to the US election may be more humorous than serious, some ASX-listed companies do have a bit riding on the outcome of the US presidential race.

BHP Billiton and Rio Tinto will have reason to be concerned if Democratic candidate Bernie Sanders wins his way to the White House.

In late 2015, Senator Sanders jointly sponsored a bill to repeal the law that gave the two ASX-listed miners access to land earmarked for a new copper mine called Resolution.

The Resolution mine, of which BHP and Rio each own 50 per cent, is controversial because it will be built on lands that Apache people consider to be sacred.

Rio and BHP were given access in a land-swap deal that has been bitterly contested.

Despite the situation, neither miner will be making donations to Senator Sanders’ rivals; both have strict policies banning political donations in all countries.

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Staying trim with fuel efficiency by propane

IT powers our taxis to supersonic speeds, burns sausages to a crisp, and now propane gas is propelling the leanest, cleanest and greenest outboards on the market.
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New to Australia is a range of LPG-powered four-stroke motors from LEHR, which are said to be exceptionally eco-friendly and cost-effective. Where you normally associate gas with big petrol-guzzling motors, the LEHRs are limited to 2.5, 5, 9.9, 15 and 25 horsepower.

The overhead-valve engines have zero evaporative emissions, easy starting with no choke and no priming, and no carburettor clogging – everything you want in a new-generation motor for the tinnie transoms and yacht sterns of Australia.

Propane, on average, is 30 per cent less expensive than petrol, being domestically produced and commonly in high supply. Gas retailers offer tank exchange programs or bulk-filling cylinders at various locations.

Apparently gas is 50-times cleaner than gasoline, with 96 per cent fewer carcinogenic compounds and up to 70 per cent less hydrocarbons. Added to that, the LEHR motors run a closed fuel system to ensure even cleaner burning.

LEHR Australia will have a display at Sanctuary Cove International Boat Show in May while the nearest dealership is Huett Marine Centre at Cowan – phone 9456 1444.

And speaking of fuel efficiency, also new to the outboard world is a GPS-based auto-trim system from Mercury designed for a wide range of outboards and sterndrives.

Trimming is an under-utilised if not unknown art for many runabout skippers, despite the fact it makes such a major difference to fuel burn, outright performance and ride comfort.

Forget trimming up too early or too late when the boat is getting on plane – the new GPS-based system does all the thinking to make boating easier and more enjoyable.

ART: Active Trim at work, keeping an RIB inflatable running clean and fast. Active Trim is compatible with 40hp to 400hp Mercury four-stroke outboards, two-stroke outboards with SmartCraft.

According to Mercury, those who’ve used the system have been overwhelmingly positive, likening Active Trim to moving from manual to automatic transmission on a car. That means new boaties can drive a properly trimmed craft from day one.

It’s not entirely new – Volvo Penta has an Automatic Boat Trim system for larger vessels that uses Interceptor trim tabs integrated with GPS receivers to deliver optimum levelling. I’ve tried them on a couple of Rivieras and couldn’t go back to the manual system.

Mercury claims its system uses an exclusive and patented control system that doesn’t just rely on engine rpm. Rather, it also factors in boat speed to avoid problems when a propeller cavitates in a hard turn. You certainly don’t want the leg trimming up at that moment.

PROGRESS: The Lehr outboard motor uses LPG. The gas is 50-times cleaner than gasoline, with 96 per cent fewer carcinogenic compounds.

Five selectable trim profiles cover everything from runabouts, pontoons, bass boats and cruisers to high-performance ski rigs.

You just select the profile that’s best suited for the application, although skippers can personalise Active Trim to suit their driving style or changes in boat load and conditions.It’s available mid-March for US boat companies and should be on its way to Australia this year.

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Negative gearing: we’re becoming a nation of landlords and serfs

The negative gearing-driven explosion has made it harder for Australians to buy houses to live in. Photo: iStockOnce we talked about the great Australian dream. Now it’s something meaner: “getting ahead”. The great Australian dream meant owning your own home. “Getting ahead” means getting ahead of someone else. It’s how Treasurer Scott Morrison sees the Australian dream.
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“I think it is great in this country that people want to aspire to do better and provide for their kids, so I don’t judge people for actually wanting to get ahead,” the treasurer told radio host Neil Mitchell a few weeks back. “That’s what this country is about.”

It’s certainly what negative gearing is about. “The vast bulk of Australians who use negative gearing are just trying to get ahead and trying to get their family in a better position,” Morrison says. But negative gearing only gets them ahead if prices climb. The more that people negatively gear in order to get ahead, the more prices climb. The further they climb, the harder houses become to buy. And the harder they become to buy, the more the Australian dream recedes.

This is what has happened. Back before the explosion of negative gearing around the turn of the century, 52 per cent of Australians aged in their mid-20s to mid-30s actually owned their home. At the most recent census in 2011 it was 47 per cent. Before the turn of the century, 70 per cent of Australians aged in their mid-30s to mid-40s owned their own home. It’s now 64 per cent.

The negative gearing-driven explosion has made it harder for Australians to buy houses to live in. Here’s how Luci Ellis, head of the Reserve Bank’s financial stability department, puts it: “It’s a truism that if an investor is buying a property an owner-occupier is not.”

It gets better, for investors: “To the extent that person is not then buying their own home, they are therefore creating a market for rental and making it attractive to purchase investor properties.”

Betting on prices going up becomes a self-perpetuating machine. The further they climb out of reach of owner-occupiers, the more the Australian dream recedes and the more renters there are to rent to, which allows investors to bet still more on prices rising.

The man who chaired the inquiry that Ellis spoke to was John Alexander, the Liberal member for Bennelong. He says the changes are turning Australia from a “commonwealth”, with huge home ownership, into more of a “kingdom” in which landlords rent to involuntary tenants who pay through the tax system for their acquisitions.

“Some have said we are on track to becoming a kingdom where the Lords own all the land and the biggest Lord will be King and the enslaved serf tenant is paying rent to the Lord to become wealthier,” he told the Financial Review. “Is that an over-dramatisation or is it very, very close to the truth?”

A landlord-heavy housing market is inherently unstable. Whereas owner-occupiers aren’t that likely to sell if interest rates rise or prices threaten to stop climbing, landlords can run for the doors. The Property Council makes the point dramatically in an advertisement depicting housing as a house of cards.

One way to wind things back would be to gently limit negative gearing. It’s an idea endorsed by the Murray Financial System Review and now the Business Council of Australia. It’s Labor policy, and despite Morrison’s talk about the need to support mum and dad investors (over mum and dad buyers), it might yet be adopted by the Coalition in some form.

Alexander’s committee was considering limiting the amount of mortgage interest that could be deducted from wages. At the moment it’s 100 per cent. That proportion could be adjusted by an authority such as the Reserve Bank to keep the market stable. And the committee was considering extending to owner-occupiers the concessions afforded to investors.

Right now investors get to deduct interest payments from their income for the purpose of determining tax. Under the proposal owner-occupiers could opt to have a portion of their interest payments treated the same way. If for example they chose to deduct 20 per cent of their interest payments from income they would be taxed on 20 per cent of the eventual gain when they sold.

Every time a negative gearer sold to an owner-occupier the government’s tax position would improve, the housing market would become more stable, and more Australians would be protected from poverty in their old age.

The changes in politics at the end of last year saw Alexander removed as chairman of the committee and another chair appointed who has also since moved. The report was due at the end of last year, but it  will now be finalised later this month as soon as another chair is appointed.

Public opinion backs Alexander, just. This week’s Essential poll shows 34 per cent of Australians would prefer lower housing prices and 32 per cent would prefer higher prices. Landlords strongly favour higher prices.

For a while, before politics overtook things, it looked as if we would have a sane discussion about what our headlong rush into negative gearing was doing to us. I’m hoping it’s not too late.

Peter Martin is economics editor of The Age.

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‘Zika is not a new Ebola’: Brazilian Ambassador combats ‘misinformation’

Zika virus: Full coverageZika virus alert: Sexual transmission common
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On Monday, February 1, the World Health Organisation (WHO) declared the Zika virus, transmitted by the Aedes aegypti mosquito, an international public health emergency.

The announcement followed the declaration by Brazil of a national public health emergency. An outbreak of the Zika virus was detected last year in Brazil.

The virus has since been found in several countries in Latin America and, more recently, the United States. The main concern is over the virus’ link to microcephaly, a congenital condition where a child is born with a smaller than normal head size and impaired brain development.

The WHO declaration will allow for better coordination of actions and mobilisation of the necessary funding in a global effort aimed at preventing the spread of the virus, as well as speeding up the research to develop a vaccine and new therapeutic drugs.

Despite the real public health risk, it is important to avoid misinformation. At this point, there is no reason to cancel business or pleasure trips, but extra precautions must be taken by pregnant women, who should talk to a doctor before travelling to the most affected areas.

As the Brazilian ambassador in Washington, Luiz Alberto Figueiredo Machado, has pointed out in a recent article, the Zika is not a new Ebola, its symptoms being similar to a mild flu in adults.

The Zika virus is of course a matter of concern, given association with microcephaly in newborn babies. More data and standardised protocols are needed before the link – first discovered by Brazilian doctors – between the virus and such cases of abnormally small heads and brain damage can be fully clarified.

Microcephaly in newborn babies can also be caused by a number of other diseases. Health experts are dealing with something new: the link between Zika and microcephaly is unprecedented in the scientific literature and requires in-depth studies and analyses – which are already under way – both to find out what is really happening and to determine the risk level for pregnant women.

The Brazilian Ministry of Health is investigating 5909 suspected cases of microcephaly in the country. According to the latest information released on February 27, 641 diagnoses of microcephaly were confirmed, of which 82 were linked to the Zika virus. Another 1046 suspected cases of microcephaly had their diagnosis discarded. This in no way diminishes the seriousness of the risk, nor does it weaken the resolve of the Brazilian government to take action.

From a Brazilian perspective, this fight is global, regional, and national. Globally, the WHO will be the main coordinator of efforts in this fight to control the virus worldwide. On the regional level, Brazil is also in permanent contact with the Pan American Health Organisation (PAHO) and regional partners.

At the domestic level, the Brazilian government is seriously addressing this issue as a matter of utmost importance, not only in view of the Olympics but also because of its potential long-term impact on the Brazilian people. The federal government has launched a three-front National Plan to Combat the Aedes and Microcephaly: prevention and combat against the Aedes aegypti; healthcare and assistance to pregnant women and children; and research. All efforts are co-ordinated by the federal government in partnership with state and local governments.

In order to fight the vector of the infection, the mosquito, the Brazilian government has deployed 220,000 troops and 300,000 health agents, who are visiting communities to educate the population and help eliminate all mosquito breeding grounds.

Insecticides and larvicides, as well as repellents, are also being employed as traditional weapons that proved efficient in the past. The mobilisation also involves the civil society, schools, NGOs and other public and private institutions in a broad-based alliance to raise public awareness about the infection and prevent the spread of the disease.

Apart from these more traditional strategies and the efforts to strengthen its healthcare network, Brazil is investing in technology and research to develop a vaccine and new therapies. A genetically modified mosquito, now under trial, could offer a new and promising weapon. Our national public health institutions are reaching out to their partners abroad to strengthen the research network and develop more efficient diagnostic kits, antiviral drugs and a Zika vaccine.

In Brazil, the Butantan, Chagas, Pasteur, and FioCruz Institutes operate as leading world-class institutions with vast experience in tropical diseases and a successful record in technological development. All the available expertise and manpower of these and other organisations is now directed towards this fight, in co-operation with international partners. The private sector, especially drug companies, is also investing in research into new and innovative ways to defeat the virus. This is an emergency, but Brazil and the world have the know-how and are able to muster the human and material resources to meet the challenge.

The Brazilian government promptly notified PAHO and WHO about the Zika outbreak and is taking the measures that have proved effective in similar situations in the past. I am certain that this strategy will pay off.

While any reaction based on misinformation may disrupt our daily lives without helping to solve the problem, effective measures require scientifically consistent data, transparency, rational planning, and decisive action. The international community must unite in this global effort and draw the right lessons to improve the international framework for preventing and fighting epidemics and tropical diseases. Brazil will continue to do its part with resolve and determination.

As Brazil prepares for the Olympics in August, authorities are working hard to rid the Rio de Janeiro region and the whole country of Aedis aegypti mosquitoes. Moreover, the Olympics will take place during winter in the southern hemisphere, a period of cooler temperatures, which usually contribute to a sharp decrease in mosquito-borne illnesses. We are perfectly aware of the responsibility of being the first South American country to host the Olympics. It was to me a source of great satisfaction to hear from Kitty Chiller, Australia’s chef de mission for the Rio Olympics, that she had a good impression from the preparation for the Games and that she is confident the event will be successful

Manuel Innocencio de Lacerda Santos Jr is the Brazilian ambassador to Australia.

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