Major banks lead losses on ASX as house prices tumble
The Australian sharemarket has started the month lower led by losses in the finance sector as house prices continue to soften.
The S&P/ASX 200 index closed 4.5 points or 0.1 per cent lower, at 6275.7 after CoreLogic data revealed that house prices had experienced their biggest annual fall since 2012.
The major banks fell on the news, with NAB leading the losses, closing 1.4 per cent lower at $27.95. Macquarie also weighed the index, falling 0.5 per cent to $122.16.
Janus Henderson announced that former chief Dick Weil would assume control of the company after co-CEO Andrew Formica resigned. The company also reported net outflows in the quarter ended June 30 of $US2.7 billion and a 15 per cent fall in net income to $US140.6 million. Its shares fell 7.3 per cent to $40.46.
AMP shares advanced 3.8 per cent to $3.53. In an article on Wednesday morning in The Australian Financial Review, company chairman David Murray said he would make changes to the company's structure and operations in a bid to make the board and management more accountable for their actions.
ALS announced it was expecting first-half underlying earnings to increase by up to 25 per cent as demand for its analysis and testing services increases. The company says it is now expecting underlying profit after tax to be in the range of $85 million to $90 million for the sex months to September 30. Its shares rose 12 per cent to $8.34.
Saracen Mineral Holdings reported record group ore reserves of 2.5Moz, up 20 per cent from the same time last year. The gold miner said it had reduced costs during the past 12 months and also increased its production guidance for the financial year. It rose 4.9 per cent to $1.97.
Genworth Mortgage Insurance reported a 53 per cent fall in its profit to $50.3 million as premium revenue was dragged down due to changes to its premium earning pattern. The market appears to have been expecting worse however, as its shares rose 4.5 per cent to $2.81.
Accounting software company Xero rose 3.2 per cent to $44.17 after it announced the acquisition of Canadian management software company Hubdoc for $US60 million. The transaction is expected to be competed in August.
Stock watch
Orocobre
Canaccord Genuity upgraded its earnings forecast for Orocobre, believing that it will now be able to break even by 2020. Canaccord has retained its strong target price for the company too, despite its share price falling 38 per cent since late January. The broker said that while the lithium miner had reported softer final sales than expected, the final pricing came in higher than expected, highlighting the strong margins at its Olaroz project, despite production and shipping issues. The broker said that the company's fall from its highs earlier this year is more reflective of poor sector sentiment from weaker spot prices in China, rather than poor company fundamentals. The broker has retained its $7.45 price target for Orocobre, at a 61.3 per cent premium to its closing price of $4.62 on Monday.
What moved the market
Tech weakness
The US technology sector looks to have stabilised after a few days of turbulence. Commonly seen as one of the best performing sectors on the S&P 500 this year, the sector rose by 18 per cent in the first seven months of the year compared with the index's 6 per cent advance. The sector has performed poorly in the past few months however, particularly after US President Donald Trump approved tariffs on $US50 billion worth of Chinese goods. Fears that China would retaliate by targeting US firms operating in the country appear to have been particularly felt in the IT sector given some US-listed tech companies' reliance on Chinese consumers and production.
Oil retreats
Oil prices fell on Wednesday after data from the US showed stockpiles of crude oil had unexpectedly risen. The price of West Texas Intermediate crude oil fell by 2 per cent while Brent crude fell by 1.9 per cent. Both benchmarks recorded their biggest monthly declines since July 2016 during the past month as oil producers pledged to increase their production levels. The US's level of production surprised investors particularly. Data from the American Petroleum Institute showed that domestic crude inventories rose by 5.6 million barrels last week, smashing consensus expectations that inventories would actually fall by 2.8 million barrels.
US dollar lifts
The US dollar lifted in response to reports that the United States and China would return to the negotiating table over trade tariffs, although tensions between the two countries remain high. "While a good sign for the global economic outlook, it will likely take some time to defuse the simmering frictions," said senior currency strategist as CBA, Joseph Capurso, in a note. On Thursday, the Federal Open Market Committee will meet, with market consensus suggesting there will be no change to monetary policy and no change to the post-meeting statement. The ISM manufacturing index figures will also be released on Thursday.
Housing and interest rates
AMP reiterated its belief that the Reserve Bank of Australia will not move interest rates until 2020 at least, adding that they could not rule out the next move being a cut rather than a hike. In a note on Wednesday, AMP's chief economist Shane Oliver said that the continued softening of house prices in Sydney and Melbourne would depress consumer spending. "It's consistent with our view that the RBA will leave rates on hold out to 2020 at least," he said. "Home price weakness is at levels where the RBA started cutting rates in 2008 and 2011, so we still can't rule out the next move in rates being a cut rather than a hike."