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Japan shrank

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Japanese economic growth contracted at a slower-than-expected pace during the June quarter with the government reporting a decline of 0.4%.

The figure, which beat expectations for a contraction of 0.5%, was the first quarter since Q3 2014 that a decline had been recorded.

In seasonally-adjusted annualised terms, the economy contracted 1.6%, an improvement on the 1.9% decline expected.

In the March quarter the expanded by 4.5% in annualised terms, above the 3.9% rate previously reported.

Japan GDP Q2 20151Over the June quarter private consumption fell by 0.8%, doubling expectations for a drop of 0.4%. The component makes up around 60% of Japan’s total economic output.

Private sector non-residential capital expenditure fell 0.1% while that for residential jumped by 1.9%.

Public demand increased by 0.8%, adding 0.2ppts to growth, with consumption and investment increasing by 0.1ppts apiece.

From a trade perspective exports fell 4.4%, overshadowing a 2.6% decline in imports. As a result net export contribution fell 0.3ppts.

Private sector inventories added 0.1ppts to growth, having contributed 0.5ppts over the March quarter.

While the economic contraction was less-severe than what many had expected, the composition was not encouraging with a decline in private sector consumption and business investment partially offset by increased government spending and another increase in inventories.

Despite that Akiri Amari, the Japanese economics minister, stated after the release that many one-off factors contributed to the decline in economic output over the quarter.

He noted that there were a lot of reasons to expect a rebound in in consumer spending in the September quarter, adding there was also plenty of room for firms to increase capital expenditure.

SEE ALSO: These are the stocks the biggest names in the hedge fund industry have been buying and selling

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BARCLAYS: The yuan could fall by another 7% this year

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A competitor jumps from the old bridge during a cliff diving competition in Kanal ob Soci August 16, 2015.

The race to call the expected depreciation in the Chinese yuan is now on in earnest, after three straight days of writedowns against the dollar last week.

China strengthened the yuan marginally against the dollar on Monday, but the consensus is still that we're likely to see more weakness to come.

Both Credit Suisse and Morgan Stanley believe the USD/CNY is likely to rise to 6.60, implying further yuan weakness, although they are not the largest declines expected.

In a note released last Friday, Barclays analysts have taken a sword to their year-end target for the yuan, upping their forecast for USD/CNY from 6.35 to 6.80.

Barclays believe the yuan is currently overvalued by 18% based on their model which evaluates purchasing power parity, its historic valuation and changes in fundamentals such as relative labour productivity, terms of trade, relative government size as a fraction of GDP, and the net foreign assets position.

While Barclays believes its model exaggerates the overvaluation, it still feels it’s reasonable to expect the currency to weaken by a further 7% before year-end, with risks tilted to the upside.

Here’s Barclays:

Although a modest overvaluation, as per our analysis, does not imply that previous USD/CNY levels were necessarily unsustainable, we do think it would have been reasonable to expect a 10% depreciation relative to these levels before this week’s announcement by the PBoC.

So far USD/CNY has risen by 3%, hence, a further 7% move would put USD/CNY spot at around 6.80. Given this, we have revised our year-end 2015 forecast for USD/CNY to 6.80 from 6.35, and expect relative stability thereafter, albeit still with upside risks. This view assumes that the Fed ignores the global turmoil and raises rates in September, in line with the expectation of our US economists.

While a rapid 10% depreciation against the US dollar will positively impact at the margin for Chinese GDP and consumer price inflation – the bank believes it would add 0.2ppts [percentage points] to GDP and 0.5ppts to CPI in 2016 – it has the potential to create negative headwinds for growth and inflation elsewhere, particularly in Japan and the euro area.Barclays yuan 1Barclays forecast that a rapid 10% yuan depreciation would shave 0.25ppts and 0.19ppts off Japanese GDP and CPI in 2016. For the euro area, the impacts would be even greater in their opinion, slicing 0.31ppts from GDP and 0.3ppts from CPI.

Given Japan and the euro area are both emerging from a protracted period of economic weakness, should Barclays be correct on their call, it implies that both Japan and the eurozone could look to stymie these negative headwinds by introducing additional monetary policy easing in an attempt to keep their respective currencies weak.

While neither Japan nor the eurozone have suggested that is a possibility at present, it will be interesting to see whether that remains the case should the yuan continue to weaken.

It’s easy to see why markets are uneasy about a potential escalation in the global “currency war.”

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Australia's 4 biggest banks are trying to block Apple Pay (AAPL)

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Sad Apple CEO TIm Cook

Australia’s big four banks are fiercely protecting their share of the nation’s payments market as multinational tech company Apple tries to launch its Apple Pay service Down Under.

There’s a report in The AFR this morning that negotiations have slowed between the banks and Apple after the institutions proved unwilling to give up a portion of the $2 billion a year they earn from merchants for interchange fees.

Apple earns about 15 cents for every $100 of transactions in the US and the AFR reports the tech company is looking for a similar deal in Australia. In the UK, where Apple Pay launched last month, the banks negotiated a deal where Apple receives a few pence for every £100 transaction.

Currently the big four on average earn about 50 cents for every $100 worth of transactions. About half of what’s earned in the US where it’s about $1 for every $100 of transactions.

CBA boss Ian Narev says the functionality associated with Apple Pay has been available in Australia up to two years and the nation’s banking sector is “ahead of a lot of the other markets around the world where Apple has done well.”

Narev recognised payments is a space which is being disrupted by tech and the saturation of mobile.

“If it not Apple, it might be Google; if it is not Google, it might be Samsung; if it is not Samsung, it might be Amazon; if is it not Amazon, it is going to be someone else,” he said.

“Are we going to be able to sit here today and pick the major winners? No. But the disruption is structural. It is only going one way. And I don’t think there will ever be a point where me or my successor, or his or her successor, is ever going to sit here and say their war is done and we won. This level of innovation is here to stay.

“But we have got customers, we have got distribution, we have got brand, we have got product. So as long as we are adding to that investment and have the right execution focus, we should be able to be really competitive.”

Both CBA and Westpac have similar products to Apple Pay. Customers can use their phones at tap-and-go terminals if they’ve got the banks’ apps set up.

Apple Pay launched in the US last October. It allows users to use their phone or Apple Watch to make a transaction but for it to work in Australia the tech company will need to make a deal with the banks to use the payments system.

With payments players like Tyro entering the Australian market, the Reserve Bank is closely looking at interchange fees and has voiced it would like to see them lowered to around 30 cents for every $100.

While there is a report the NAB is the closest to striking a deal with Apple Pay, Fairfax reports it’s more likely a smaller bank will be the first to move on an Apple deal. It would also enable them to target iPhone users for marketshare in the payments space.

There’s more here.

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An astronaut on the ISS captured these stunning images of Aurora Australis

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aurora australis

Over the weekend astronauts on board the International Space Station witnessed incredible scenes of the Aurora Australis, a natural light phenomena native to Australia.

Astronaut Scott Kelly tweeted photos of the natural light show, over what marked his 141st and 142nd days in space.

Astrologists said the weekend’s dark and wintry weather conditions made for optimal viewing of the Aurora Australis.

“The strength of this Aurora was also helped by the fact that the Sun is just at ‘peak’ in it’s 11-year solar cycle, meaning plenty of wild outbursts that slam into the Earth’s magnetic field and cause the aurora,” Swinburne University researcher at the Centre for Astrophysics and Supercomputing Alan Duffy told The ABC.

Here are the photos.

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This video of a crazed koala bear chasing a woman on a quad bike is going viral

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koala gif

South Australian Ebony Churchill was out riding a quad bike when a crazed koala bear started chasing her.

Churchill took a video of the pursuing marsupial and posted it to her Facebook page along with the caption: "The koala bloody chased me tonight! F#$.... Shit me self."

The video has been viewed over 1.8 million times. 

"Far out," she shouts in the clip. "He's coming. Get away."

When she stopped the quad bike, the koala tried to climb on board.

"I don't know what I'm going to do now," an audibly flustered Churchill says as the clip ends.

Watch the bizarre encounter:

The koala bloody chased me tonight! F#$....Shit me self

Posted by Ebony Churchill on Friday, 14 August 2015

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The 215% bull market in US stocks may have further to run yet

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Bull Run

While not everyone will agree, we could be less than one month away from the US Federal Reserve hiking interest rates for the first time since June 2006.

Some market participants are nervous – it has been over nine years since a rate increase last occurred.

Many involved in the markets have never seen a US rate hike during their careers.

After such a prolonged period with rates at abnormally low levels, there are obvious question being asked over what US stocks will do if the Fed does tighten policy on September 17.

The S&P 500, having hit the ominous low of 666 at the height of the great recession (known as the GFC in Australia), has powered higher over the subsequent six years, putting on a dizzying 215% as of Monday’s close.

It’s been amazing bull market, but is it all about to end?

While the normal disclaimers apply – past performance in not indicative of future returns – based on this chart supplied by Fidelity Worldwide Investments, perhaps the six-year, 215% bull market that began in 2009 may have further to run yet.

Fidelity SP 500

It examines the S&P 500 index returns in the year prior to – and following – an initial rate hike from the Fed.

There have been four periods of monetary policy tightening cycles beginning in the US since 1987 – 1988, 1994, 1999 and 2004.

According to Fidelity the average gain in the S&P 500 in the year prior to the start of these tightening cycles was 17%.

While not to the same degree, since September 17, 2014 – potentially the date one-year before the upcoming Fed tightening may begin – the gain on the S&P 500 has been 5.06% so far.

It’ll be some effort to match the previous averages in the month ahead, but the index has moved higher nonetheless.

Looking at the historic 12-month index performance following the start of a tightening cycle, Fidelity note that on each of the past four occasions the index has moved higher, not lower, averaging an increase of 6.8%.

While that bodes well for those who like to look to history to evaluate what will likely happen next, Fidelity point out that US economic growth in the period before and after the Fed began to tighten policy was strong – averaging 4.3% annualized in the 12 months before and 4.2% in the 12 months following.

Heading into the potential start of the next tightening cycle, US GDP is significantly lower than historic averages. The advance GDP estimate for Q2 2015 was 2.3%, near half the historic average seen prior to the last four tightening cycles.

That alone underlines while markets are nervous about what may happen if the Fed hikes rates on September 17, and demonstrates why many believe there is no pressing need for US monetary policy tightening to occur as yet.

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Don't expect China to take its leash off the stock market anytime soon

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china police arrest

Retail investors with little formal education are likely to have suffered the most from the recent plunge in China’s stock market, creating a political problem for policymakers that will likely ensure abnormal policies to support the market will remain in place for some time yet.

That’s the view offered by the NAB in a research note released earlier today in which they note that close to 90% of the 60 million accounts created to trade Chinese A-shares in Shanghai and Shenzhen were done so by investors with less than 100,000 yuan to invest.

“No less than 27 million new individual investor accounts were opened for A share market investors on the Shanghai exchange between March and July with another 33 million at the Shenzhen market”, says the NAB, adding “CSDC data shows almost 90% of the growth in investor numbers involved accounts of under RMB100K”.

They also note that “a late 2014 China Household Finance Survey also found that the majority of new investors in China’s equity markets had little formal education, with only one-third having completed high school”.

That’s 40 million stock trading accounts – four with seven zeros following it – that were opened by investors who had failed to complete high school.

Many, as has been well documented, were also leveraging to amplify expected market gains.

According to the NAB “transactions involving margins increased during the equity boom, reaching 3 or 4% of market capitalization (higher than the New York Stock Exchange), before falling sharply as the bubble bust. They suggest that with many shares unavailable to trade, the proportion of transactions using leverage as a proportion of China’s “free float” market capitalization was probably close to double the 3 to 4% level stated.

Using data from the China securities finance corporation (CSFC), a state-run body that provides financing to securities brokers that can be then onlent to investors, the NAB estimate that at the market’s peak, lending for margin financing could have been as great as 3.5 to 4.0 trillion yuan – nearly a third of all money lent in China’s residential housing market.

These are huge numbers, particularly when you consider the concern there is over the levels of debt in the Chinese property market.

 

NAB shanghai comp

While the benchmark Shanghai Composite index did rally by an impressive 57% from the start of March until June 12, from the peak of 5,178 struck on that day, the index has subsequently fallen by close to 24%.

It’s a safe bet that many who opened accounts between March to July have, for the moment, suffered substantial capital losses, particularly those who bought towards the end of the rally using leverage.

“The burst equity bubble is particularly awkward for the Chinese authorities as official media outlets and spokesman were seen as having talked the market up. Back in 2014 the State news agency was calling for a “quality bull market”, an April 2015 opinion piece in the People’s Daily said that the Shanghai index of 4000 then prevailing was just the start of the bull market and the head of the securities regulatory agency said he applauded the concept of a “reform bull market” and that higher equity prices had some reasonableness and inevitability”.

Given this has failed to materialize – the Shanghai Composite is still some 5 points below the 4,000 point level – the NAB note that “there is considerable political and social sensitivity for authorities related to the share market collapse”.

The bull market that turned into a bear explains why Chinese policymakers through everything bar the kitchen sink to support the nation’s stock market in recent months.

State-controlled insurers and pension funds were ordered to buy stocks. Brokers also agreed to purchase shares, and promised to not to sell until the benchmark Shanghai Composite index returned to at least 4,500 points. Some investors were also banned from selling down their holdings for a period of six months, among others.

A ban on short selling by some market participants, along with the potential arrest of those who short-sold maliciously, were some of the most publicized measures implemented.

Clearly, as the chart below shows, they’ve had an impact – short sale volumes have plummeted in recent weeks.

short nab

Having seen the wild swings in China’s stock market stabilize in August, the question many are now asking is whether Chinese authorities will be willing to let market forces play a greater role in determining the future direction of the stock market.

Given the PBOC’s surprise decision last week to allow market forces to play a greater role in determining the level of the Chinese renminbi, it’s a valid question to ponder.

While the PBOC move may have been designed to increase the likelihood of a near-term inclusion of the renminbi in the IMF’s special drawing rights (SDR) basket, the NAB believes authorities will not be so forthcoming when it comes to allowing market forces to play a greater role in the stock market.

“Facing the need to sustain solid growth to create jobs, limit over-capacity and to keep bad debt ratios under control, the Chinese authorities would be expected to err on the side of keeping growth up and hope that further expansion will, yet again, take care of any adverse medium term consequences”, say the NAB.

Longer-term, while “it may well be that market forces take on a greater role in driving the economy”, the NAB do not expect “authorities to simply or rapidly relinquish the field to purely market driven outcomes”.

“Instead they will continue to use their considerable leverage to ensure that market outcomes fall within a politically acceptable range”, they note.

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A fake McDonald's sign promising a new restaurant in the middle of a desert has been removed by police

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fake mcdonalds sign

It’s been a month since trekkers through Australia’s Simpson Desert were promised a McDonald’s was “opening soon”, but now the dream is over.

Of course, the sign rising from a 15m high red dune was a prank. An installation by a Melbourne artist which took him, and some mates, 12 months to plan and install.

A month later, the SA government dispatched a park ranger from Port Augusta to make the 12-hour drive in order to save tourists from themselves.

“We do see the funny side of this,” SA environment minister Ian Hunter told the ABC.

“It is very humorous, but we particularly don’t want people searching for a sign off the tracks, damaging the fragile landscape and putting themselves potentially at risk in a very remote location.”

It’s been a popular addition:

A photo posted by Kaidyn Howard (@kaydos_) on

A photo posted by Nikki 🐣 (@awsumegg) on

There’s even a box at the bottom containing an “emergency” meal, but if anyone ever broke the glass, they would have found toilet rolls.

fake mcdonalds sign

“We put some solar powered lights on it so that it powers up at night and it’s even more obvious,” the artist responsible told the ABC last month.

A McDonald’s spokesman at the time distanced the fast-food franchise from the prank.

“The font and the style used on the sign is not consistent with our branding and it serves us no purpose,” the spokesman said.

The sign has now been moved to a new home outside the Mungerannie Hotel at Marree, on the Birdsville Track.

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Chinese stocks have been hammered again

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Dragon

Fresh from a mammoth decline on Tuesday, Chinese stocks have continued their slide on Wednesday.

At the mid-session break the benchmark Shanghai Composite index is off 3.12%, adding to the 6.1% fall seen yesterday.

Earlier in the session the index fell as much as 5.06%, taking the two-day loss to 10.92%.

The index suffered a technical correction of more than 10% in less than two trading sessions.

While unbelievable to those in western markets, movements of that magnitude are quickly becoming the norm in China’s stock market.

SSEC Aug 19Of the sectors only telecommunications, having been punished yesterday, is higher. It’s put on a nifty 5.57%, but it is the exception to the price action seen elsewhere.

IT, energy, industrials, consumer cyclicals and materials are all off by more than 4%.

The weakness in Shanghai is extending to other bourses with the CSI 300 and 500 indices, comprising the 300 and 500-largest listed firms in Shanghai and Shenzhen by market capitalisation, lower by 2.20% and 3.61% respectively.

The SSE 50, brimming with large-cap stocks listed in Shanghai, is the relative outperformer, falling only 1.85%.

To the south, the Shenzhen Composite and tech-heavy ChiNext indices have both fallen more than 2.5%.

Earlier in the session the PBOC fixed the USD/CNY rate at 6.3963, slightly above the 6.3930 closing level of Tuesday.

It is currently trading at 6.3979, indicating a slight weakening in the renminbi.

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Chinese stocks plummeted, then staged a ridiculous rumour-driven rebound

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Chinese soldiers enjoy a ride on a rollercoaster at an amusement park in Beijing July 31, 2005. China marked Army Day on Monday with a pledge never to engage in expansionism but warned self-rule Taiwan against formally declaring statehood.

Wild. Rumour-filled. Chaotic.

They're just some of the words that come to mind looking at the Chinese stock-market action on Wednesday.

In the end, markets finished a bit higher, but it didn’t look as if that would be the case earlier in the session.

Something really weird happened before the end of trading on Wednesday.

The benchmark Shanghai Composite, having been down by more than 5% in early trade — which took its losses to more than 11% from Monday’s close — finished the session up by an impressive 1.24%.

That's quite a turnaround, even by the Composite's usual standards. The daily range was a near unbelievable 6.64%.shanghai turnaroundAll sectors except financials and energy finished with strong gains, with telecommunications leading the pack higher, up a whopping 9.63%. But on Tuesday it had fallen by a similar amount.

Elsewhere, materials and healthcare finished with gains of more than 2%.

Having been outperformed by their larger peers earlier in the session, small-cap stocks roared higher in afternoon trade, with the CSI 500, Shenzhen Composite, and tech-heavy ChiNext indices all finishing with gains in excess of 2%.

While they still finished higher, large-cap stocks were the session laggards.

The SSE 50 and CSI 300 indices finished with gains of 0.90% and 1.59% respectively.

So what was the catalyst behind the huge late-session gains?

Apart from the likelihood of government-backed buyers being involved, there were also unsubstantiated reports that China’s central bank, the People's Bank of China, may cut the reserve-ratio requirement for Chinese banks by 50 basis points this weekend.

Whether that will eventuate remains uncertain, but it is amazing how rumours such as these always seem to appear when Chinese stocks are in the midst of a sharp sell-off.

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Here's why this CEO of a San Francisco startup fired everyone, including himself

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Sometimes the best way to fix an issue is to start afresh.

That’s what the Australian founder and CEO of StartupHouse Elias Bizannes decided when he fired himself and all four full-time employees at the San Francisco-based incubator and co-working space.

“We were having issues with the business, multiple issues, one of them was the team,” he told Business Insider.

“There were issues around performance and motivation” and the team “blew up” over a client matter. Bizannes was struggling to get them back on track.

He was on on holidays when his sister suggested he fire the entire team and start again. When he returned from his break in July he acted, seeing it as an opportunity to “reset” the entire business. The team gathered to hear the news.

“There were some unhappy people in the room and there was a lot of emotion,” he said. “It was a weird meeting because there was the feeling of being fired, but there was a sense of hope because there was an opportunity to reset.”

One major change was earmarking COO Karolis Karalevicius to take over as CEO, and then he would decide who was rehired.

“Despite everyone telling me I was crazy, it was probably one of the best things I’ve done for the business because every single person in the team is re-energised and nearly everyone is going to be basically rehired and in the cases that they’re not going to be rehired it was actually more of a personal choice,” Bizannes said.

One of the problems, he said was that complacency crept in and despite being profitable and the model working, it was time to reassess the vision. Losing your job turned out to be a great motivator.

“It’s created a fresh energy in the team and it’s also allowed us to rethink what the roles in the team should be.”

But with the likes of Angel List CEO and founder Naval Ravikant and 500 Startups founder Dave McClure on the list of investors who’ve tipped in about $500,000, revealing what he’d done was daunting, yet simple.

Elias Bizannes startuphouse ceo

“I thought it was important that I tell them, so I dropped them an email with a subject line that said ‘I just fired my entire team’. I got immediate responses from every single investor – they were all supportive and open to bouncing around ideas. Everyone was surprised,” Bizannes said.

“Even though they weren’t expecting this, they do support me in my decision and they appreciate me trusting my gut.”

So with a clean slate, Bizannes took on the role of executive chairman. His new focus is the future of StartupHouse and how it can be expanded beyond a single building real estate play.

“What I actually realised was it was not actually the fault of my team… it was my fault for expecting them being able to do it when they had so much of a workload,” Bizannes said.

“I’m actually going to be able to be an entrepreneur in the business again, rather than being a manager. The business needs an entrepreneur to rethink the growth.”

Bizannes envisages a number of locations in San Francisco to begin with. The idea behind StartupHouse is to reduce the living costs of entrepreneurs and help them get off the ground. Its focus is on early stage – pre-funding or pre series A – startups.

startup house

Currently it has 100 paying members on various monthly plans and Bizannes is looking at providing accommodation, incubation or foundry mentorship programs and expanding the events program.

Many startups end up there after competing in one of the international StartupBus competitions, also founded by Bizannes. Bridgefy, a messaging app that works without Internet or SMS, was runner up at last year’s North American tour and incubated at StartupHouse. It launched recently with 11,000 users and just won the global Twitter hatch competition, scoring $25,000.

Bizannes maintains StartupHouse is not pivoting, it’s just trying to become better at what it does: build startups.

“What I did was basically try and take my ego out of it. By restructuring it, which also hurts my personal interests because I’m not controlling the business now I’m not in the CEO role, it’s actually allowing the business to be more successful,” he said.

“That’s a really hard thing to do because as a founder, you actually want to stay in control.

“We’re at the transition now where we’re no longer a startup… we’re now a growth business.”

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Qantas is about to announce the biggest turnaround in Australian corporate history (QAN)

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qantas

Early in 2014, Qantas announced a severe cost-cutting program and a corporate restructure to return the airline to profitability.

And then, this time last year, CEO Alan Joyce unveiled a record massive $2.8 billion loss.

Twelve months on, Joyce is about to announce a return to full-year profit, one of the biggest turnarounds in Australian corporate history.

And the market knows it. The share price has outperformed the general market many times, tripling from $1.25 to $3.72 since October.

QANTAS SHARE PRICE AUG 19 2015

Falling global oil prices have amplified the effects of the cost-cutting program. This is no comfort to the thousands of people who lost their jobs. But it is a spectacular turnaround for the company which two years ago was facing huge structural pressures from its cost base, restrictions on foreign investors, and a fare war on its domestic Australian business waged by Virgin.

Analysts expect a profit number in the late $600 millions or early $700 million. Its underlying profit of $367 million for the six months to the end of December indicates the number could be higher.

Qantas reports it has been running on target or ahead of its cost cutting program and squeezing out more profit from each seat on its aircraft. Investments in new international routes and lounges have been a signal of its growing confidence through the year.

The 2015 financial year was critical to the airline’s return to profit. Qantas had planned $1 billion in debt reduction for 2015, plus 4,000 of a planned 5,000 job cuts, and a big chunk of a planned $2 billion in cost cutting by 2017.

qantas

As the red ink disappears, Qantas has been handing out rewards. Last month it announced it was giving staff, who’ve been on an 18-month pay freeze, a 5% thank you bonus. About 28,000 Qantas employees got the benefit, costing an estimated $90 million.

CEO Alan Joyce described the bonus as recognition of the contribution made by all employees to strengthen the airline’s competitive position.

Aside from the headline figure on the return to full-year profit, the market will be watching closely to see if Qantas shareholders get their bonus after dry years without a dividend since the last payout in 2009.

Qantas told an investor presentation in May the board of directors was now well placed to consider paying dividends again.

“Extent and timing of shareholder returns dependent on prevailing operating conditions and outlook,” investors were told.

Others signs of investment, rather than pure cost cutting, include plans to start flying to San Francisco again.

According to its half year results, all parts of Qantas have returned to profitability, including Qantas International which is in the black for the first time since the GFC.

Qantas International reported underlying earnings before interest and tax of of $59 million, a turnaround of $321 million.

The international arm was the big part of the record $2.8 billion losses last year. Most of its was write downs on the business outside Australia. Without that, the underlying loss was $646 million.

And the domestic business has been benefiting from an end to the seat war with Virgin. Both have been getting better returns from each seat, as local air fares have moved higher with economy fares around 10% more expensive this year. There are fewer discounted fares around.

Another induction of the strength of the return to financial health is a ratings upgrade this month by Moody’s to Ba1.

Moody’s said this “reflects the considerable progress Qantas has made in improving its financial and operating profile”.

We’ll see the details tomorrow morning.

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A 4-year-old wandered onto the pitch in a rugby league match — so the professionals passed him the ball and let him score

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In their day, blokes like Petero Civoniceva, David Peachey, Paul Sironen, Matt Geyer and Shaun Berrigan were some of the hardest men in rugby league.

But something unexpected happened during a charity match in Queensland earlier this month, and 26 rugby legends showed they had hearts of gold.

The Legends of League State of Origin charity match in Toowoomba was raising funds for the local hospital and one young fan took the chance get even closer to the action when Queensland kicked off, deep into Blues territory.

Former Sharks player David Peachy has just taken a long pass when he spots 4-year-old Laiken on the burst off the try line and turns around and gives him the ball.

His mum, Chloe Kearns, who temporarily misplaced her son, was a little surprised to see him force his way into the Blues side, especially since he’s a Queenslander, but Laiken wasn’t going to miss his chance, running the length of the field to score, albeit with a little help from former Knights premiership winner Robbie O’Davis, who picked the boy up and carried him across the line as he began to tire.

Laiken then converted his own try between O’Davis’ arms.

The local TV station, Win, was filming the game and shared the footage with Kearns, who then sent it into The Footy Show.

Sit back, enjoy, laugh and you may find yourself wiping away a tear or two too. It’s a great reminder that Australian sport can be beautiful.

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China just took a major blow to the renminbi

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renminbi yuan

If China was hoping that its decision to allow market forces to play a great role in determining the level of the renminbi would expedite the currency’s inclusion in the IMF’s special drawing rights (SDR) basket, it will be very disappointed right now.

It won’t be included. At least, not in the near term.

In a statement released overnight the IMF announced that its SDR basket – consisting of the US dollar, euro, Japanese yen and Great British pound – would remain unchanged until September 16.

A review of the basket, and the possible inclusion of the renminbi within it, was originally slated for November this year.

Had the decision to add the renminbi been granted, it would have joined the SDR at the start of 2016.

Here’s the IMF on the basis for pushing back the SDR review:

“The nine-month extension is intended to facilitate the continued smooth functioning of SDR-related operations and responds to feedback from SDR users on the desirability of avoiding changes in the basket at the end of the calendar year. The extension would also allow users sufficient lead time to adjust in the event that a decision were to be taken to add a new currency to the SDR basket. As noted in recent IMF staff papers, the approved extension of the current basket does not in any way prejudge the outcome of the Review of the Method of Valuation of the SDR, expected to be discussed formally by the Executive Board later this year”.

In essence, complaints about the timing of a potential change in the SDR basket – something that would have occurred over the New Year – was one factor, along with allowing market participants time to adjust to the possible inclusion of the renminbi should its admission be granted.

As the IMF statement outlines, the delay in the decision does not in anyway prejudge the decision on the renminbi’s inclusion. Whether that will be enough to satisfy Chinese authorities is debatable though.

The sudden decision by the PBOC last Tuesday to allow market forces a greater role in determining the trading level of the renminbi was seen as an attempt by Chinese policymakers to facilitate an early inclusion of the currency in the SDR.

The timing of the decision, just days after the IMF first mooted that they were considering delaying the SDR review until next year, suggests this may have been the case.

Criticisms from the IMF on the lack of market influence on determining the level of the renminbi, and the change in tact from the PBOC to allow this to occur, adds credence to this view.

The question now is what will the response be from the PBOC to the IMF’s announcement? It has held the USD/CNY largely steady since Thursday last week, in line with market forces.

Will that remain the case today in light of the overnight announcement? We’ll soon find out – the PBOC’s Thursday fixing occurs at 11.15am AEST.

On Wednesday, the spot USD/CNY rate closed at 6.396.

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China's sovereign wealth fund is betting big on the stock market

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china bubble

The reason for the sharp turnaround in China’s stock market on Wednesday has been partially resolved and, unsurprisingly, it appears to be an all too familiar reason – state-backed buying across the markets.

According to a report in the South China Morning post, Central Huijin Investment, a Chinese state-backed subsidiary of the China Investment Corporation, used more than 20 billion yuan ($3.125 billion) to increase its stake in Chinese banks during Wednesday’s trading session.

The China Investment Corporation, or CIC, is China’s sovereign wealth fund.

Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, China Everbright Bank, and state-owned New China Life Insurance notified the Hong Kong stock exchange on Wednesday evening that Central Huijin increased its stake in their A-shares through transfer agreements, said the report.

While financials were one of the worst performing sectors on Wednesday – it closed the session up 0.28%, a far cry from the 1.24% gain registered for the broader Shanghai Composite index – the revelation that state-backed firms are continuing to support stock prices was likely enough to prompt a wave of bargain hunting in recently beaten down stocks.

The price action witnessed yesterday certainly backs this view. Having fallen more than 5% in early trade, the Shanghai Composite roared higher in afternoon trade, finishing the session up 1.24%.SSEC intraday Aug 19

The intraday range was an amazing 6.75% – remarkable to Western investors but only the 11th-largest seen so far in 2015.

So what lies ahead for China’s stock market today? Given the trading range for the Shanghai Composite has been over 6% both Tuesday and Wednesday, it’s a safe bet that it’s likely to be more volatility.

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Citi hacked its outlook for China's economy

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cHINA q2 gdp

Citi has turned bearish on the prospects for Chinese economic growth in the years ahead, slashing their forecasts for GDP in 2016 and 2017 by a significant margin.

The bank’s economics team now expects China’s economy to grow by 6.3% in 2016, down from 6.7% seen previously. For 2017, growth is forecast to accelerate to 6.5%, although this is significantly below the 7.1% pace previously forecast by the bank.

According to China’s government, the economy is currently growing at an annual pace of 7.0%, the equal-lowest level since the Global Financial Crisis.

Citi’s 2016 forecast is in line with that offered by the IMF in its latest world economic outlook, but significantly below the 7.0% and 6.8% levels expected by the World Bank and Asian Development Bank.

Here’s Citi on the basis for its downgrade:

“The Chinese economy showed little evidence of stabilization in July. While maintaining our GDP growth forecast of 6.8% for this year, we are cutting our estimates of official GDP growth rates to 6.3% for 2016 and 6.5% for 2017 (from 6.7% and 7.1%, respectively, last month) to reflect slow economic and policy adjustments. The YoY pace of growth in 1H 2016 will be particularly challenging due to base effects for the service sector. We continue to expect the political cycle may turn favorable to growth (i.e., less negative spillovers of anti-corruption) from 2H-2016. Our downgrade also assumes that the growth target in the upcoming 13th Five Year Plan (2016-2020) will be reduced from 7.0% to 6.5% or even 6%. This should create almost no material impact on the economy, given that we have argued for a while that the actual growth rate was around 5% (or perhaps even lower) in 1H, and the growth can at best stabilize at that level in 2H”.

Aside from lowering expectations for economic growth, Citi believe the Chinese renminbi will continue to weaken against the US dollar, upping its mid-2016 forecast for the USD/CNY pair to 6.80 from 6.25 seen previously.

They also expect CPI will remain below 2% until the final quarter of 2016.

Fitting with further weakness in the renminbi, inflation and economic growth, they also expect the PBOC to unleash another wave of monetary policy easing in the months ahead.

By the end of the June 2016 they forecast the PBOC to cut interest rates twice and reduce the reserve ratio requirement for banks on five separate occasions.

This scale of easing is more aggressive than other economic forecasters, but certainly not out of the realms of possibility should economic growth slows, as Citi currently forecast.

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Hong Kong is in a bear market

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Hong Kong's stock market is in a bear market.

The Hang Seng index fell 1.7% and closed at 22,757, down 20% from its April 27 high of 28,558.

It has now moved from being in a technical correction to being in a bear market.

Year-to-date the index is down 1.2%.

Hang seng Aug 20

While the fortunes of Hong Kong are largely determined by developments in China, in comparison, the benchmark Shanghai Composite index has risen by 15% over the same time period.

It would be interesting to see where the Composite would be trading had the government not stepped in to underpin the once free falling market.

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Chinese stocks tanked again, and now people are asking whether the market can recover

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China military training

After being down only 10 points from the overnight close at the lunch break, Shanghai stocks crumbled in late-afternoon trade to fall 128 points for an overall loss of 3.39%.

Authorities in Shanghai and Beijing will be wondering what they have to do to keep this market from falling all the time.

But as we learned on Wednesday, the wall of selling from investors still wanting to liquidate only seems to be ameliorated when the government, or one of its sponsored entities, enters the market with a big buy order.

Indeed, for all the ups and downs over the past few weeks in Shanghai, it's Hong Kong that perhaps gives a better indication of what traders — Chinese and foreign alike — think about the prospects for the economy at the moment.

Last week, while the Shanghai composite was waltzing its way to a gain of over 5%, the Hang Seng in Hong Kong fell by 2.49%. This week it has continued to fall, and on Thursday, with a fall of another 1.7%, the Hang Seng has entered a bear market.

Highlighting that only government money can keep the Shanghai Composite from falling further, Hou Yingmin, an analyst at AJ Securities, told Reuters: "Even as the government has the will to put a floor under the market, whether it has the ability to do so is in doubt. Without fresh money inflows, any rebound is not sustainable."

That of course is the problem with the authorities' actions to wash volatility out of the market. They have also washed out speculators — the very traders who may take the other side from the sellers.

Here’s the chart of Thursday's action:investing.com SSEC 20082015 5 minutes

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Asia is deflating

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Deflationary pressures across Asia are building, reaching a fresh six-year low in July.

There is no better demonstration of this than examining recent movements in producer price inflation.

In annualized terms, they’ve fallen for 41 consecutive months in China. South Korea, the Philippines, Hong Kong and Singapore have all seen prices fall for more than 30 months. Indonesia, at 4.3%, is one of the few nations to have recorded an compared to a year earlier.

MS PPI

Perhaps more concerning than the scale of deflation is the slow, tepid, and reactionary response by central banks across the region to address the continued falls.

Morgan Stanley, in a note released earlier today, pick up on that point, suggesting that policymakers across the region need to borrow a leaf out of the central bank playbook from developed nations and ease monetary conditions further.

Here’s Chetan Ahya, Derrick Kam, and Jenny Zhen of Morgan Stanley’s Asia economics team.

Central banks in DM economies have addressed deflation risks via monetary easing – but the response from central banks in Asia ex Japan is still relatively slow. Moreover, the weakness in aggregate demand is resulting in a feedback loop where deflationary pressures are intensifying – as evident in the PPI moving even further into deflation.

In our view, the deflation challenge is deep-rooted and persistent.That could ultimately give rise to a need for a more aggressive monetary easing cycle than is being currently expected. We believe that central banks in the region will remain on an easing path as they address the deflation challenge, though the risks are still tilted towards them being more reactive rather than pre-emptive.

So how can deflationary forces be turned around, and can it solely be achieved through aggressive monetary policy easing?

The answer, in short, is no.

Morgan’s believe it will take more than policy easing, and offer their own five-point plan to help address building deflationary risks across the region.

The five-point plan can be found below.

  1. Accept slower growth in line with changing potential growth dynamics due to structural factors such as a decline in the working-age population, high level of debt and slowing productivity growth.
  2. Address the moral hazard risks in the banking system and/or tightening prudential norms, restructuring industries with excess capacities to ensure efficient capital allocation.
  3. Cut real interest rates to give the private sector incentive to borrow for productive investment.
  4. Initiate structural reforms to encourage productive private sector investment and improve potential growth.
  5. Provide temporary fiscal stimulus in cases where necessary.

Given overcapacity concerns in many sectors, particularly in China, Morgan’s also suggest that more consumption is required, rather than investment.

While it initially aided economic growth in the first few years following the global financial crisis, over-investment in many sectors created overcapacity which, in turn, created an oversupply. With supply growth far greater than demand in recent years, it has merely added to deflationary pressures.

What Morgan’s are saying is that more investment in an attempt to stimulate growth may only worsen deflation further.

Alongside measures to boost consumption and stymie investment in sectors already suffering over-capacity issues, they also suggest that real interest rates remain high despite recent monetary policy easing.

China, again, is at the forefront of this debate. Consumer price inflation is running at an annual rate of 1.6% at present, well below the 4.85% benchmark one-year lending rate currently implemented by the PBOC.

While it’s not only up to China to address deflationary concerns, given the sheer scale of its economy and the fact that many of the concerns touched on above are clearly evident within its economy, it clearly has a major role to play.

If policymakers continue to be reactionary rather than preemptive, it’s unlikely that the current deflationary spiral will ease anytime soon.

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The super-rich will soon be able to swim in this transparent pool 114 feet above London

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A 25m glass pool suspended 10 storeys above a London street will be the first of its kind, developers say.

It’s certainly breathtaking:

london swimming pool

The transparent “sky pool” is the brainchild of engineering firm Arup Associates with specialist advice from marine design engineers Eckersley O’Callaghan and aquarium designers Reynolds.

It will be a hard to match feature for sales teams pitching the new 2000-home Embassy Gardens development at Nine Elms, a £15 billion ($32 billion) building project in south-west London.

Project backer Eco World Ballymore says the pool is “more akin to an aquarium … with glass that is 20cm thick”.

It’s 5m wide and 3m deep and you’ll be looking straight down at a street scene 35 metres below.

london swimming pool

For the frightening privilege, residents will have to fork out a minimum of £602,000 ($1.28 million) – the starting price for one of the 2000 new homes in the twin blocks.

Arup specialises in eyecatching aquatic development, as the firm behind Beijing’s incredible Water Cube Olympic venue and a recent proposal to build a wave park opposite Melbourne’s Etihad Stadium.

Embassy Gardens will open in 2017.

SEE ALSO: 28 gorgeous rooftop pools to swim in during your lifetime

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