THE DISTILLERY: China surprise

There were a few echoes this morning of Rate Rise No Longer Looms, but the big story today for markets will be last night's surprise Rate Rise Happens from China. Yesterday, meanwhile, Telstra revealed a management shuffle, which stunned the jottery to life.

China lifted interest rates last night in a surprise bit of timing. The Financial Times' Asian edition leads with the story this morning: "China has raised interest rates for the fifth time in eight months, indicating the country's leaders are still focused on taming politically sensitive inflation, the world's second-biggest economy is slowing. The rise suggests that inflation is likely to have accelerated to a three-year high of more than 6 per cent in June, well beyond Beijing's comfort zone. The government is scheduled to announce the inflation figure next week."

The Australian Financial Review's Chanticleer columnist took a bat to the prudential regulator, APRA, this morning: "There is evidence that the Australian Prudential Regulation Authority is falling down in its key objective of enhancing public confidence in superannuation."

While The Australian reported this morning that: "The Reserve Bank could downgrade its forecasts for the Australian economy by up to 1.5 per cent after Wayne Swan warned yesterday the high dollar was increasing the two-speed economy divide between the booming minerals sector and others already struggling with the strong currency. Economists yesterday were calculating how much the central bank could shave from its outlook, after the RBA said the economy was slowing more than expected this year. The economy contracted by 1.2 per cent in the first quarter and most economists forecast a rebound in the second quarter back to positive growth." We won't know the new forecasts until August 2 or thereabouts.

The Australian's economics editor, Michael Stutchbury says: "Here's another good thing about the two-speed economy: interest rates won't have to rise as much even amid the biggest mining and energy investment boom in Australia's history. The rate hike pencilled in for next month was virtually erased by Glenn Stevens on Tuesday, after the Reserve Bank board considered the softness of the non-mining economy."

And The Australian's Tim Boreham writes: "Rather than whingeing about Julia's carbon tax of $20-25/tonne, why not convert it to fuel? Greenearth Energy last week signed up for a "revolutionary" Israeli technology that uses solar power to convert CO2 into a mix of carbon monoxide and hydrogen (no, we don't understand it either). Still, it goes to show there'll be collateral on-market winners – as well as losers – from Sunday's carbon tax announcement."

Fairfax's CBD columnist predicts a fiery AGM for CSR today: "CSR's retiring chairman, Ian Blackburne, might struggle to get a standing ovation when he is farewelled at the company's annual meeting today. After copping a blast at a general meeting in February where shareholders approved a capital return of $661.4 million from the proceeds of the $1.75 billion sale of CSR's sugar business, the Sydney-headquartered company is still expected to face a hostile crowd, despite holding its first annual meeting in Melbourne. Discussions between the Australian Shareholders' Association and CSR's incoming chairman, Jeremy Sutcliffe, on Tuesday night appear to have failed to take any heat out of today's meeting." And the AFR agreed this morning: "CSR investors will be looking for detail on how the business is dealing with a depressed housing market and the rising threat of imports at today's AGM."

The Australian's John Durie wrote yesterday: "Telstra has underlined its push into new applications and technology to extend its reach in the NBN world. In a further management shuffle unveiled this morning, Deena Shiff was put in charge of the new venture which will leverage its financial muscle chasing new product applications. The division, staffed by around 20 people, will be akin to Telstra's in-house venture capital fund with a financial backing limited by ideas rather than dollar amounts. That's the sort of leverage the company has thanks to its NBN deal, which all going to plan will ultimately mean an extra $1.5 billion in cash a year." This morning Durie reworked that comment: "Telstra's boss David Thodey yesterday underlined his intention to extend his domination of the telecom market by creating an in-house venture capital team to develop new applications and IT for his customers. The NBN may have removed one competition bottleneck in the industry by structurally dividing Telstra, but its real competitive advantage is its balance sheet and Thodey intends to use that to ram home his advantage."

And Fairfax's Malcolm Maiden writes: "It's fair to assume that, with the management changes he unveiled yesterday, Telstra chief David Thodey also revealed who he expects eventually will replace him. It's Gordon Ballantyne, who joined Telstra from Britain a scant year ago: in the new management structure, he sits on top of businesses that account for 75 cents in every dollar that comes through Telstra's door."

The AFR wrote this morning: "The ASX has warned companies it will closely monitor statements they make about the impact of the carbon pricing scheme on their operations, as it emerged the scheme would directly affect about 500 businesses."

And The Australian's Tim Boreham wrote: "It's best not to interrupt your broker these days because they're bound to be tied up with something very important – like attaining the next level of Angry Birds. Despite the market lull – epitomised by the lack of interest in equities from retail and foreign investors – ASX stats this morning suggest the conditions in 2010-11 were far from Armageddon-like. The June activity report showed cash market trades for the year were 144.3 million, up 9 per cent, although the value of billable trades slipped by 1 per cent to $1.3 trillion. No doubt the numbers were bolstered by robotic algorithmic trading, rather than genuine investor interest."

Fairfax's Adele Ferguson wrote yesterday: "The move by Elders to put out a statement to the ASX putting a figure on the cost to its business of the live cattle ban will crank up the pressure on the minister for agriculture Joe Ludwig to resign or be sacked. Elders' shares slumped more than 1.3 per cent to 39 cents on a day when the market was flat on the grim news that the Gillard Government's decision to suspend live cattle exports to Indonesia could cost it up to $7.3 million. For a business that lost $14.6 million in the first six months to March 31, on revenue of $1.08 billion, it is a cost it can ill afford."

And this morning Fairfax's Elizabeth Knight wrote: "The trade in live cattle is set to resume but the questions of how much damage has been done to the industry is yet to be quantified. For those engaged in the live cattle export trade it has been very difficult to quantify the effect of the government temporarily blowing up their business with its decision to ban trade to Indonesia. A month on from this decision a number of things had happened. If most concern are reports out of Indonesia that the ban gave its government the opportunity to permanently reduce the amount of live cattle and boxed beef it sources from Australia - in an effort to increase self-sufficiency."

News Ltd's Terry McCrann wrote this morning: "With the implosion of the MIS (managed investment schemes) forestry sector after the Timbercorp and Great Southern debacles, the Commonwealth Bank decided to withdraw funding to that sector. A listed company called TFS Corp which operates the Indian Sandalwood Plantations in WA owed the CBA $67 million. Thanks, we'll have it back, said the CBA. But it is also arguably outrageous behaviour. The very exercise in doing something like that could bring down an otherwise solvent company." Quite right. The company later got its money offshore, at 11 per cent!

Fairfax's Ian Verrender wrote this morning: "It could have been the ultimate corporate fairytale. Tiny local explorer with potentially world-class deposit hooks up with international trading giant on ambitious mine and infrastructure project, delivering fabulous riches to shareholders and the nation. Until recently, that was the happy scenario facing Murchison Metals and its ambitious plan for Western Australia's midwest region, once touted as an iron ore territory to rival its famous cousin, the Pilbara. After this week's events, however, Murchison is more likely to become a casualty in a giant game of chess being played out between Beijing and Tokyo."

The AFR wonders about that market talk of a break up of Incitec Pivot: "In a market bereft of meaty deals it is little wonder some are pondering what might generate some handy fees for advisers." Ah, a fee-led deal, rather than one based on economic sense. How investment banker that is.

Fairfax's Insider Ian McIlwraith wondered about the absence of ASIC in one messy situation this morning: "Farooq Khan and his sister Ambreen Chaudhri have been heavily slapped on the wrist by the Takeovers Panel over recent share dealings in the listed Bentley Capital that elevated their stakes to a combined 46 per cent - but where, oh where, is the corporate regulator? The panel, chaired in this case by Ian Ramsay, walked away from declaring unacceptable the April share buying by Chaudhri's Data Base Systems after the parties agreed to legally enforceable undertakings that they will either get shareholder approval for the acquisition or sell the shares. The panel was poked into action by another shareholder, Bellwether Investments, which complained not only of Chaudhri's April acquisition, but the circumstances of its initial investment back in 2009. The Takeovers Panel reckoned activities in 2009 were outside of its jurisdiction. Insider would note, though, that they are still well within the power of the Australian Securities and Investments Commission."

Terry McCrann also wrote in the Herald Sun this morning: "The potential takeovers of the two different halves of the old Foster's Brewing Group provide very different opportunities and would produce very different takeover dynamics. They do, though, share one thing very much in common. In both cases it would be a foreign takeover. So the treasurer would be forced to decide whether our most precious 'national fluid' was red or amber. Or perhaps both or neither. There is no prospect of local bidders for either Foster's or the newly, oddly named Treasury Wine Estates."

And finally Nabila Ahmed wrote in The Australian this morning: "Foxtel is expected to formalise its $1.9 billion bid for Austar as soon as today. But investors shouldn't get too excited as there is a long way to go before the deal gets over the line. The original $1.52-a-share proposal announced in late May was subject to a number of conditions, including an opportunity for Foxtel to conduct due diligence on its regional counterpart. With the conditions satisfied, Austar is poised to outline a definitive agreement, a recommendation from its independent directors led by Timothy Downing, and the structure of the acquisition."