BUSINESS

The AUD has opened almost half a US centhigher today, supported by high commodity prices.Despite rising tensions in Egypt and the ECB leaving itsrates unchanged in Europe the AUD held onto its recentgains, performing extremely well in mixed overnight trade.

The Australian Dollar has jumped from yesterday's open of 1.0070/80 to highs near 1.0160 after a volatile offshore session.

U.S. stocks drifted just below the flatline Thursday as investors eyed encouraging earnings and stronger January sales among retailers, with a backdrop of continued unrest in Egypt.

US ICSC comparable chain store sales rose by 4.8pct in January from a year earlier. Apparel, wholesale and luxury sales all recorded healthy gains.

By Greg PeelThe Dow gained 20 points or 0.2% while the S&P added 0.2% to 1307 and the Nasdaq also added 0.2%.Australia's December trade balance surprised economists yesterday by recording a similar surplus to November of about $2bn. Expectations were for $1.6bn. The result gave the Aussie another kicker given, all things being equal, a strong surplus implies pressure on the RBA to raise. However, it will no doubt be a different tale in January when weather impacts really start to make their mark.As we contemplate the effects of lost exports, both resource and agricultural, and lost tourism which is also an “export”, we note the service sector in January was even more dour than the manufacturing sector. The manufacturing sector managed to slightly slow its rate of contraction but service sector contraction picked up pace with the PMI dropping to 45.5 from 46.4 in December.China does not separate out a construction sector number but rather notes manufacturing (55% of the economy) and non-manufacturing (45%). The non-manufacturing PMI slipped to 56.4 in January from 56.5 on Beijing's numbers. Meanwhile the UK service PMI surged to 54.5 (49.7), the eurozone's ticked up to 55.9 (54.2) and the US came in with 59.4 (57.1). That's the best US result since 2005, and services represent over 70% of the US economy.Again we see the “old world” forging ahead as the “new world” eases back. The UK results have been no less than astonishing.Wall Street nevertheless opened weaker last night, spooked by a weak result from Dow component Merck and ongoing uncertainty in Egypt and despite the positive service PMI and surprisingly healthy chain store sales for a snowbound January. But then along came Uncle Ben.The Fed conceded late last year that perhaps it was time to address its longstanding policy of aloof detachment – one which sees the issue of official statements and minutes, appearances before government and financial industry groups, and not much else. Taking a leaf out of the ECB's book, the Fed has decided it's time to open up to “the people”, and as such last night Ben Bernanke participated in a “meet the press” session which to date has been a very rare thing indeed.Unsurprisingly, Bernanke was hammered with questions about QE2 but clearly he needed only to point to the improving US recovery for justification. Indeed, Uncle Ben suggested the US economy was running even better than hoped, and despite recent data supporting that view and despite stock prices quantifying that view Wall Street took this as good news and the market turned around.The indices moved into the black in the last hour ahead of tonight's all important monthly jobs data. Economists are looking for 145,000 new jobs to be added.The strong US services PMI and talk from Uncle Ben helped to push the US dollar index higher, up 0.8% to 77.75. The Aussie nevertheless marched to its own tune of strong surplus and added 0.7 of a cent from 24 hours ago to US$1.0160. Gold suddenly decided last night that yes, the Middle East is a worry and yes, perhaps some safe haven investment might be sensible. It rose US$18.20 to US$1354.50/oz.Oil is playing an uncertain game around this US$90 level in WTI, and last night fell back US16c to US$90.71/bbl. The WTI is no doubt being affected psychologically by the other “big” oil contract – Brent – which is wondering whether or not to push on above US$100/bbl. It was a steady night for base metals in London.Strength in the US dollar was also assisted by last night's ECB monthly monetary policy decision. The central bank left its rate on hold at 1.0% and Jean-Claude Trichet talked down current inflation pressures much to the surprise of economists. It will be a watch and wait game in the eurozone.The SPI Overnight rose 13 points or 0.3%.Rudi will be a guest on BoardRoomRadio's Friday Afternoon Round Table this afternoon which will be available for live video streaming from 3pm and for download from 4pm. [Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]FN Arena is building the future of financial news reporting at www.fnarena.com . Our daily news reports can be trialed at no cost and with no obligations. Simply sign up and get a feel for what we are trying to achieve.Subscribers and trialists should read our terms and conditions, available on the website.All material published by FN Arena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.

Australia's sugarcane crop has suffered devastation as farmers venture out to survey their properties in the wake of category five Cyclone Yasi, whose destructive eye broke land at Mission Beach and passed over Tully, inland bound, last night.Crops have been devastated in Yasi’s wake, the hardest hit being sugarcane – with initial loss estimates at around $500 million for the industry alone. A sugar-growing heartland, sugarcane growers in north Queensland will again bear the brunt of losses,...

The Australian Banana Grower's Council today warned consumers that the Australian banana industry, which escaped flood damage, had suffered devastation as a result of tropical cyclone Yasi.Banana growers across Far North Queensland, in particular Innisfail and Tully, have been the worst affected by the cyclone, according to ABGC Chairman Cameron MacKay.

Office vacancy rates in Melbourne’s central business district are the lowest of all city centers in the country with only 6.3 percent of total office space available for rent.

New data published by the Australian Bureau of Statistics (ABS) on Thursday showed that the country’s trade surplus shrunk to $1.981 billion in the three months leading to December and that number could further slide as the economy starts absorbing the damages wrought by the recent flooding.

Rising costs of oil and jet fuel in the world market pushed Qantas Airways Ltd to increase its fuel surcharge by more than 50 percent, which the national carrier said would applied on specific international flights.

Australia’s two largest telecommunications companies have both reported service outages in the aftermath of Cyclone Yasi.

Channel Seven Sydney Pty Ltd breached the Children’s Television Standards 2009 (CTS 2009) provisions restricting the use of popular personalities and proprietary characters in endorsing commercial services during children’s programming periods, the Australian Communications and Media Authority (ACMA) has found.

US-based magazine Forbes released on Thursday its collection of Australia’s richest and listed as number one is mining magnate Gina Rinehart, with a current net worth of $US9 billion.

Communities across Far North Queensland experienced the full force of Category Five Tropical Cyclone Yasi Wednesday night as it reached landfall.

Canberra continues to report double vacancy rates in the last six months with figures slowing slightly to 13.4 percent from 14.1 percent reports the Property Council of Australia’s Office Market Report.

Overall motor vehicle sales in January retreated a bit as consumers appeared to reallocate their resources on more pressing needs due to the flooding disaster that had hit many Australian states.

Activity in Australia's services sector slowed further in January, with new orders, retail trade and employment all softening.

Australian household savings are expected to grow strongly in the next five years but banks need to look at other ways than pricing to attract new businesses, fresh data has revealed.

BHP Billiton (ASX: BHP) says its Jansen potash project has progressed into the feasibility study phase, an advanced stage of the company's project approvals process.

By Greg PeelAustralia's ASX 200 ended 2009 on 4870 and ended 2010 on 4745 for a loss of 0.2%. By contrast, the US S&P 500 ended 2009 on 1115 and 2010 on 1257 for a 13% gain. Now, remind us again – which is the country that weathered the GFC storm and is hellbent on being in budget surplus in a couple of years, and which is the country that spent half of 2010 fretting over a double dip and is so up to its neck in debt there is never any real intention of seeing a return to budget surplus?A certain amount of explanation can be found in the comparable movements of the previous year. The ASX 200 gained 31% in 2009 while the S&P 500 saw only 23%. The Australian result reflected, as it should, forward earnings forecasts which at the time were optimistically representative of a substantial “V” bounce. Those forecasts were later pared back, most notably around the middle of last year. US earnings forecasts on the other hand just kept shifting up from low bases, and then along came QE2 to add that extra bit of spice.Aside from some substantially wrong calls from stock analysts in the earlier part of 2010 (business credit demand would bounce and soar, retail spending would quickly bounce back to pre-crisis frenzy levels, for example) a major swing factor has been the Aussie dollar – the plaything of foreign hedge funds and a proxy for China. Remember that if a US hedge fund buys BHP and the stock price rises, if the Aussie rises as well that hedge fund wins twice. Vice versa on the downside. BHP jumped in 2009 as the commodity price bounce was priced in, then sat largely steady for most of last year. The Aussie ran from US60c at its nadir to parity. From a US point of view, BHP in Aussie dollars currently represents little upside and a screaming void of a downside were anything to go substantially wrong in the world again (European debt, for example) or if Beijing accidentally brought China in for a hard landing.In the year to September 2009, notes Deutsche Bank, foreign investors injected US$60bn into Australian equities representing 5.6% of total market cap and reached about a 40% holding. In the same period 2010, they withdrew US$2.5bn.The question now is: what will the year 2011 bring?Deutsche notes that while 2010 saw a slight net withdrawal, foreign flows into Australian equities were nevertheless positive in the September quarter and have again been positive in the December quarter. Has the tide turned? Deutsche believes it has. Indeed, Deutsche is forecasting a 15% rise in the ASX 200 over calendar 2011.Deutsche believes the earnings downgrade cycle in Australia should now have ended (notwithstanding immediate weather impacts). Listed companies missed the bulk of the government stimulus provided since 2009 (small builders were winners for example, retail had an initial spurt from hand-outs but then consumer demand fell away except for larger items like cars). Mining companies have been making grand expansion and general spending plans since 2009 but the mining tax debate meant a lot of those projects were stalled. While the mining tax issue is not yet fully resolved, resource companies should feel sufficiently confident to roll out the capex this year given commodity price rises at the very least.The mining tax issue was clearly another reason why foreign investors backed out of Australia in 2010, or stopped buying, as was the general uncertainty caused by political turmoil.Australian direct equity investors are remaining shy post-GFC. The popularity of self-managed super has risen dramatically but funds have found their way into cash deposits and other yield instruments rather than risk stocks. But households in general are still making what Deutsche suggests are “substantial” contributions to superannuation funds both at the mandatory and discretionary levels.Australia's underperformance is also a reflection of Australia's two-speed economy. The resource sector may have been booming, mostly at the smaller cap level, but this has been offset by disappointment, some might even say recession, elsewhere. The retail sector is the obvious example. Can the resource sector continue to boom?With a thinly veiled air of world-weariness, Goldman Sachs has once again increased its shorter term commodity price forecasts. “Another year and another round of upgrades,” notes GS in a report this week. Short term price forecasts are now more than double long term forecasts, the analysts note, for both iron ore and copper. For the majors, such prices represent substantial short term cashflow. BHP Billiton ((BHP)) derives 37% of earnings from iron ore and 24% from copper (2011 forward basis) and Rio Tinto ((RIO)) 80% and 15% respectively.Coking coal (used in steel production) is the big mover although it has not yet reached double short/long pricing. GS sees more upside for coal than iron ore given the swing factor of Indian demand. India has no coal; China is quite well supplied albeit is now a net importer. Oil, aluminium and nickel forecasts are less divergent on the short/long basis.BHP, Rio, and counterparts across the globe are all in the process of significant iron ore production expansions. Global supply was 1006mt in 2010 but GS sees potentially 1675mt by 2015. This would require all projects to get up and without too much delay, which is not likely, but either way GS sees a tipping point for iron ore not too far ahead with a possibly very sharp price reversal before 2015 as Chinese steel production matures.Goldmans' advice to resource majors is to return capital to shareholders rather than look to undergo even further capacity expansions. What will Marius come up with at the upcoming result announcement?On the assumption of reverting iron ore prices, Fortescue Metals ((FMG)) has a window of opportunity to meet expansion goals before its too late. GS analysts support the company's expansion goal to 155mtpa as long as time and funding costs go in FMG's favour.For coal stocks, on the other hand, the story will keep on running in Goldmans' view.But just how much of this shorter term commodity upside is already built into share prices?UBS analysts believe commodity prices will remain “resilient” in 2011 but resource sector stock prices look a bit overheated in their view. In early December, on this basis, UBS trimmed its Overweight ratio for the resource sector in its model portfolio from 5.5% to 2.0%. This week, UBS has actually downgraded its resource rating to Neutral. Small cap valuations seem particularly stretched, the analysts suggest.The flipside was that UBS upgraded Australia's banking sector rating to Neutral from Underweight in December, but Neutral it will stay until there are signs of more positive credit demand growth. UBS remains Overweight industrials and Underweight REITs.UBS has also shuffled the stocks in its model portfolio, adding Graincorp ((GNC)), Myer ((MYR)), Origin Energy ((ORG)) and Transurban ((TCL)). It has removed AGL Energy ((AGK)), Bradken ((BKN)), Gloucester Coal ((GCL)), Harvey Norman ((HVN)) and ResMed ((RMD)).BA-Merrill Lynch has looked to global factors in reassessing its own model portfolio. Merrills sees the US economy shifting into a “Phase II” of recovery in which unemployment will begin to ease. As the US recovery broadens, lingering GFC shock and more recent sovereign debt concerns will also start to ease, the analysts suggest, and prices will react accordingly. Financials and energy stocks are Merrills' stand-outs on this assumption.From the Australian perspective, Merrills sees a wider benefit of a Phase II US recovery than just for those stocks with direct US exposure. Easing fears should see Australian retail investors begin to rebuild those portfolios which for so long have been biased to cash. With regard to financial sector beneficiaries, Merrills sees better value outside of the Big Four banks with asset managers such as AMP ((AMP)) and Challenger Financial ((CGF)) favoured, along with small banks such as Bendigo & Adelaide ((BEN)) and investment banks such as Macquarie ((MQG)) (is there another one?).While the oil price has run higher, it has underperformed those of bulk commodities despite oil being a closer proxy for global GDP. Merrill's thus likes the energy sector, and Woodside ((WPL)) in particular.Summing up, Merrills has Macquarie, Bendigo and Challenger as the major “overweights” in its model portfolio, along with QBE Insurance ((QBE)), as well as Woodside and WorleyParsons ((WOR)) in the energy space. Merrills is also is favour of the consumer sectors in 2011, and as such Wesfarmers ((WES)), JB Hi-Fi ((JBH)) and David Jones ((DJS)) are also overweights.FN Arena is building the future of financial news reporting at www.fnarena.com . Our daily news reports can be trialed at no cost and with no obligations. Simply sign up and get a feel for what we are trying to achieve.Subscribers and trialists should read our terms and conditions, available on the website.All material published by FN Arena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.

The Australian sharemarket is slightly stronger after almost three hours of trade with the All Ordinaries index (XAO) up 0.29 pct or 14.1 pts to 4910.9.

Strong performance for investment opportunities in Melbourne’s central business district is forecast for this year with stock surpassing demand says a CB Richard Ellis review.

The Australian Competition and Consumer Commission (ACCC) finally gave its go signal for the five-year partnership sued for by Virgin Blue Holdings Ltd and Abu Dhabi-based Etihad Airways, paving the way for the two airlines to closely cooperate in providing flight services to their networks.

Action on a carbon price and measures to lift productivity and workforce participation so Australia can take full advantage of the new resources boom and a period of economic growth must be the focus of the 2011-12 Federal Budget, says the only peak council and national centre representing the Australian workforce.

Lower demand and higher interest rates have cut expectations for rental returns for Australian commercial properties based on a National Australia Bank Ltd. survey.

FNArena has added another video to its Investors Education section on the website.ATW's Jerry Simmons explains how a technical based set-up before opening of markets can give daytraders an edge. In this video Simmons uses crude oil and gold as examples. Total duration 44 minutes.SummaryThis is an educational video in which Jerry Simmons, Lead Mentor and Co-Founder of the Advanced Trading Workshop, Inc. explains how each morning at about 6 am ET, 3.5 hours before the markets open, those markets are highlighted where most of the price action is expected to be that day; their structure is analysed and setups are highlighted that will develop if clearly defined conditions are met. He uses two of three markets prioritised that morning, namely Crude Oil and Gold, as examples.CommentsCrude OilAt about 6 am ET Crude Oil Futures were trading at about $85.80/barrel. During that pre-market analysis online, a confirmed break-out above $86.50 was stated, in the written “Markets of Interest” notes, to be a confirmed reversal off a local Double Bottom, likely to result in a sustained move up. The confirmed break-out above $86.50 happened at about 9 am; prices then rapidly moved up to $89.73 at about 11:15 am, a move of $3.23/barrel or $3,230 per 1000 barrel contract.GoldThe pre-market analysis at about 6 am that day analysed gold to be forming a major Double Bottom and a local inverse Head & Shoulders pattern. Any break-out below $1,320 was stated to invalidate the bullish setup. The upside target was calculated to be at the 1,385 – 1,395 level. The reversal confirmation point was stated, in writing in the “Markets of Interest” notes, to be $1,350-1,355. An entry at say $1355, a completion target at say $1395 and a stop at $1350 would result in a $40 reward and a $10 risk, i.e. a very good 4:1 reward to risk ratio. A move of $40 an ounce results in a profit of US$4,000 per 100 oz contract.To view the ATW Strategic Prep Video (originally from November 29, 2010) titled "Review CL n GC" click HERE or visit the FNArena Investors Education section of the website.Here's the direct link: http://www.fnarena.com/index2.cfm?type=dsp_front_videosAll views expressed are Jerry Simmons's, not FNArena's (see our disclaimer).Jerry Simmons has over 25 years of full-time trading experience. He is the senior partner and head mentor for the “Masters” Programme within the education system at New York based Advanced Trading Workshop (ATW). ATW recently set up shop in Australia through the establishment of ATW Australia (since mid-2010).FNArena is pleased to have Jerry Simmons as a highly valued contributor to its service which aims at both educating investors and assisting them with their own market analyses.The above mentioned videos can be accessed via the FNArena Investor Education section at http://www.fnarena.com/index2.cfm?type=dsp_minc_education)About ATW AustraliaFounded in June 2010, ATW Australia is a “one-stop-shop for all a trader needs to succeed”: quality education for new traders, superb advanced trading education, fast unfiltered data, a world-leading trading platform, customer oriented competitive brokerage, quality ‘Made in the USA’ specialized trading computers, trading magazines, and the all-important psychological mentoring and coaching for traders. The trading educational products are provided by the Advanced Trading Workshop, Inc. in New York, all other services are provided by a network of partners that were chosen based on their superior products and services in their specific field of expertise. FNArena is one such partner.To learn more visit www.advancedtradingworkshop.com.au.FN Arena is building the future of financial news reporting at www.fnarena.com . Our daily news reports can be trialed at no cost and with no obligations. Simply sign up and get a feel for what we are trying to achieve.Subscribers and trialists should read our terms and conditions, available on the website.All material published by FN Arena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.

By Chris ShawAustralian REITs outperformed strongly in January, delivering a total return of 2.4% against an overall market return for the month of just 0.2%. According to JP Morgan, the lack of specific news in the sector implies much of the outperformance is likely explained by a lowering of the shorter end of the interest rate curve.JP Morgan sees this as a reflection of the market adjusting its interest rate assumptions, as the Queensland floods and the associated levy mean timing expectations for any further rate hikes have been pushed out.In sector terms JP Morgan notes Office and Retail were the best performers for January, the former driven by favourable office data in the Sydney CBD market. Relative underperformance was delivered by the Diversified and Industrial sectors.Looking beyond January, Macquarie expects the fact many REITs continue to trade at a significant discount to the broker's valuation and to net tangible asset backing means capital management is increasingly likely to become a point of focus in 2011.What supports this theory according to Macquarie is an improvement in the overall credit environment , the fact REITs generally have excess capital available and many are not highly leveraged at present. The process may have already started given Charter Hall Retail ((CQR)) has recently announced a share buyback of $20 million worth of units.Elsewhere in the sector, Macquarie suggests the metrics in support of some sort of capital management appear very favourable for ING Office ((IOF)), Stockland ((SGP)), Dexus ((DXS)), Charter Hall Office ((CQO)) and Commonwealth Property Office ((CPA)). Another positive identified by Macquarie is the potential for capital management initiatives to deliver an improvement in the sector outlook over the course of 2011, as debt restructuring including the reduction of costly excess liquidity implies some potential earnings upside.As well, Macquarie notes a moderate increase in distribution payout ratios would still leave the sector in a cash neutral position this year and a cash positive position in FY12 based on the broker's estimates, so making such moves more likely.There is also scope 2011 turns into a below average year with respect to equity raisings in the sector, this as companies continue to reposition their portfolios and given a lack of acquisition opportunities. Add in cash being received from asset sales and Macquarie suggests the usual capital raising drag on the REIT sector may be somewhat less than in recent years.To reflect this, Macquarie is forecasting a total shareholder return for the Australian REIT sector for 2011 of around 13%, a return the broker views as attractive given the relatively low risk profile of the sector.The Sydney and Melbourne office sectors have a positive outlook this year according to Macquarie, with rental and yield data already offering evidence a recovery has begun. As well, the broker's forecasts for the Perth office market have been increased given an increase in net absorption rates. In contrast, a further recovery in the industrial market is not expected until 2012.Leading into the December half results season this month, Macquarie suggests there should not be too many surprises. The key risk relates to outlook comments for FY11 from residential developers, particularly as a result of recent bad weather and the floods experienced in Queensland.Within the sector Macquarie's key Outperform ratings are given to CFS Retail Property ((CFX)), Charter Hall ((CHC)), Dexus and GPT ((GPT)). Macquarie also sees strong value in Westfield Retail ((WRT)), estimating a total shareholder return for the stock of around 16% given a target price of $2.90. Leading into their respective results, Macquarie's key Underperform ratings are given to Stockland and Australand Property ((ALZ)).An appreciating Australian dollar has negative near-term implications for the NTA (Net Tangible Asset) of companies with equity invested offshore. For Macquarie this implies NTA falls for Charter Hall Office and Charter Hall Retail, ING Office, ED Retail ((EDT)) and Westfield Group ((WDC)), but evidence of a recovery in the US economy is a positive for Westfield Group, Dexus, Charter Hall Office and EDT Retail over the medium-term.BA Merrill Lynch has also looked at the REIT sector, but from a perspective of how big a threat online shopping is to margins in the retail sector and for owners of retail shopping centres. The analysis is timely given Australian industry figures suggest online sales may account for between 3-7% of total retail sales.Taking a long-term view, BA-ML suggests the types of goods likely to do well in an online environment are those of relatively high value that are easy to ship such as books, CDs, DVDs and small electrical items, and specialised niche items that cannot justify a dedicated retail store presence. Other categories such as food and staples appear more protected, as do large ticket items and fashion goods. On the broker's estimates, the growth in online sales could cost Australian retailers about 1% annually in sales growth terms. As well, in BA-ML's view the very high returns on equity and margins for the Australian retailers have and will continue to come under pressure as the internet increases competition and removes some barriers to entry.Even allowing for this, the broker expects Grade A malls will continue to enjoy gains in sales volumes. In FY11 BA-ML expects mall rental growth of 3% for the major Australian REITs, with almost nil vacancies to be reported in February. Given a relatively robust Australian economy and a recovering US consumer environment, BA-ML continues to prefer retail REITs in comparison to the office sector. In order of preference, BA-ML rates CFS Retail, Charter Hall Retail, Stockland and Westfield Group as Buy, while Westfield Retail is rated as Neutral.The broker's forecasts suggest a total return for the Australian REIT sector of 10-12% in 2011, which is below BA-ML's forecast for a 20% total return from the broader Australian equity market.FN Arena is building the future of financial news reporting at www.fnarena.com . Our daily news reports can be trialed at no cost and with no obligations. Simply sign up and get a feel for what we are trying to achieve.Subscribers and trialists should read our terms and conditions, available on the website.All material published by FN Arena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.

The bullish sentiment surrounding the AUDover recent days took a bit of a hit overnight as investorsmoved to a "risk off" mentality.

The Dow Jones Industrial Average struggled towards a fifth gain in six sessions, as investors moved cautiously following a strong run up and a fresh wave of uncertainty in Egypt.