“The hurdle for the Fed to move on rates this year has always been high, given that cuts
could lead to further imbalances when financial conditions have already retraced from
last year, while a hike in rates has the potential to create unwanted market volatility via
pressure on corporate margins and equity valuations as the discount rate rises.”
Results from National Australia Bank, AMP and asset manager Pendal Group added to the market woes on Thursday.
Announcing its first-half results, NAB said it would cut its interim dividend by 16.2 per
cent, citing surging customer compensation bills in the wake of the Hayne inquiry. It’s
the first time the bank has reduced its dividend in five years. Its shares fell 0.3 per cent
The losses from the other banks were much larger. Commonwealth Bank tumbled 0.9
per cent to $74.86, ANZ fell 2.4 per cent to $27.27 and Westpac declined 2.6 per cent to
AMP shares fell 2.6 per cent to $2.25 after announcing its wealth management
quarterly outflow totalled $1.8 billion as superannuation and platform customers took
their money elsewhere in the aftermath of the Hayne royal commission.
Pendal Group closed 13 per cent lower at $8.04 after it announced a sharp decline in its
first-half results, with cash net profits falling 26 per cent compared with the same
period a year earlier. The global asset manager said lower performance fees and market
volatility contributed heavily to the result.
Wesfarmers made a $776 million cash bid for lithium producer Kidman Resources,
securing the backing of the miner’s board and joint venture partner SQM. The cash-rich
Perth-based conglomerate’s offer is worth $1.90 a share, at a 47 per cent premium to
Kidman’s Wednesday closing price. Wesfarmers closed the session 0.4 per cent lower at
$35.65 while Kidman’s shares soared 45 per cent to $1.87.
Other listed lithium miners took a strong lead from the news. Pilbara Minerals rose 9.1
per cent to 66¢, Galaxy Resources added 3.4 per cent to close at $1.53, Orocobre
climbed 5.5 per cent to $3.46 and Altura Mining closed 0.1 per cent higher at 12¢.
Woolworths shares ended the session 0.8 per cent higher at $32.23 after reporting
strong sales results in the March quarter. The supermarket chain’s same-store sales
rose by 4.2 per cent in the first three months of the year, its fastest growth in more than
Apollo Tourism shares fell 25 per cent to 64.5¢ after downgrading its profit earnings for
2018-19 on the back of slower than expected retail sales results.
Morgan Stanley increased its price target on ANZ but remains “underweight” on the stock
following the release of its first-half results on Wednesday. While the broker
acknowledged the bank had a relatively strong capital position, it said it would still face
execution challenges in retail banking. It also flagged challenges associated with the
earnings downgrade cycle and the regulatory uncertainty surrounding the banks. “ANZ’s
track record in a supportive operating environment for retail banking was strong, but it
is now dealing with the end of the super-cycle,” analyst Richard Wiles said. “It lost
market share in both mortgages and deposits in the first half and we are worried that its
franchise will underperform.” Morgan Stanley increased its price target on ANZ from $24.90 to $25.30.
Base metals were the worst-performing commodities during April as the global
economic growth outlook soured prospects of demand increasing. Nickel and
aluminium were the hardest hit during the month while copper prices ended April just
slightly lower. The best-performing commodities were those with commodity-specific
factors, with iron ore, coal and oil all rising firmly through the month. The US’s decision
to end waivers on sanctions on countries importing Iranian oil pushed the price of
crude up while outages and supply issues at iron ore mines in both Brazil and Australia
pushed prices up.
Copper prices slid heavily on Wednesday, extending its poor performance over the past
month. Most base metals closed the session lower but copper was among the worst
performers, sliding 3.1 per cent to $US6225 a tonne on the London Metal Exchange.
Sentiment was dampened by disappointing US manufacturing data, which showed the
sector slowed faster than expected in April. The data only added to already weaker
sentiment after China’s manufacturing growth last month also disappointed
expectations. Aluminium was the only base metal to close the session higher, rising 1.3
per cent to $US1807 a tonne.
The US dollar firmed following the Federal Open Market Committee’s decision to keep
rates on hold, with the committee noting economic activity rose at a solid rate. The
positivity in the FOMC’s statement reflective of the stronger than expected
performance of the US economy towards the end of the first quarter but still caught
investors off guard. While the market had been anticipating the Fed would turn more
dovish, chairman Jerome Powell said the board would be patient when it came to moving
rates and said he didn’t see a strong case for moving rates in either direction.
Nickel has gone from being one of the best-performing base metals in the first few
months of the year to being among the worst, down 7 per cent since the start of August.
“Concern about overproduction of nickel-containing grades of stainless steel,
especially by Tsingshan, the world’s largest and fastest-growing stainless steel
producer, has risen,” Macquarie noted earlier this week. “There are fears that stainless
production will be cut in the near term and this is now being reflected in prices. These
fears are overdone as nickel remains in structural deficit between supply and demand
and any correction will be short-lived.”
William McInnes covers markets from Sydney including editing the Markets Live blog.