ASX heads for worst December quarter since GFC
Australian shares closed the week at a fresh two-year low, extending their losses for what is set to be the local market's worst December quarter since the global financial crisis.
The S&P/ASX 200 Index fell 134.4 points, or 2.4 per cent, to 5467.6 this week as the market was hit on multiple fronts.
"The past week saw sharemarkets fall further on the back of ongoing worries about growth not helped by a 'not dovish enough' Fed, a lack of new measures to address China's slowdown in a speech by President Xi Jinping, threats to US-Chinese negotiations, worries about a US government shutdown, a court ruling against America's Affordable Care Act and problems at various US companies," AMP Capital chief economist Shane Oliver said.
The major banks weighed on the index, despite the Australian Prudential Regulation Authority removing the interest-only lending cap on home loans, as the US Federal Reserve's rate hike sent global markets tumbling.
ANZ shares fell 6 per cent to $23.30, Westpac closed 4.2 per cent lower at $23.83 and Commonwealth Bank slid 0.5 per cent to $68.48. NAB shares closed the week 3.6 per cent lower at $22.84 after recording the biggest vote against an ASX300 company's remuneration report since voting was introduced in 2005. Macquarie shares also closed the week lower, down 7.4 per cent to $104.82.
Insurance shares fell in the back half of the week after Insurance Australia Group announced the severe hail storms in Sydney on Thursday would cost it $169 million. IAG's shares fell 4.4 per cent to $6.65, QBE Insurance slid 3.7 per cent to $9.76 and Suncorp Group closed 4.6 per cent lower at $12.42.
Oil prices continued to tumble, pushing the energy sector lower. Woodside Petroleum declined 4 per cent to $29.92, Origin Energy fell 13.3 per cent to $6.07, Oil Search slipped 5.1 per cent to $6.83 and Beach Energy closed 12.9 per cent lower at $1.29.
BWX shares fell 50 per cent to $1.48 this week after it downgraded its earnings for the second time in less than three months on Thursday, citing slowing domestic export sales to China and lost momentum in its core US brand.
The company said it expected normalised earnings before interest, tax, depreciation and amortisation for the 2019 financial year would be in the range of $27 million to $32 million and EBITDA in the first half to be around $7 million.
The sell-off in global markets pushed investors toward more safe-haven assets such as gold, lifting local miners.
Newcrest Mining rose 2 per cent to $21.26, Northern Star Resources climbed 10.4 per cent to $8.91, Evolution Mining lifted 7.3 per cent to $3.53, Regis Resources advanced 10 per cent to $4.63, St Barbara closed the week 7.3 per cent higher at $4.54 and Resolute Mining ended the week's trade at $1.17, up 10.4 per cent.
Medibank Private shares rose 6.9 per cent to $2.49 after the Federal Court dismissed an appeal by the ACCC and found that Medibank had not misled customers about their out-of-pocket health insurance costs. The ACCC first took the company to court in June 2016, alleging the insurer had engaged in misleading and deceptive conduct.
Stock watch
Orocobre
Morgan Stanley maintained its "equal-weight' rating on Orocobre but did flag the potential for future downgrades after the lithium miner's production and sales figures came in below the broker's estimates. Production for the first half of 2018-19 was 11 per cent below Morgan Stanley's forecasts and the broker noted the company's full year production estimate was at risk, given production would need to be at record levels to achieve that forecast. Sales for the first half of 2019 were 25 per cent softer than Morgan Stanley estimated and analyst Rahul Anand said the broker would likely need to revise its own estimates lower. Mr Anand did not that pricing for the first half of the fiscal year was 12 per cent above the broker's estimates. Morgan Stanley kept its price target for Orocobre at $4.20.
What moved the market
UK inflation
Concerns over the possibility of a "no deal" Brexit are continuing to grow, with fears the British pound would fall and inflation would soar. "One likely consequence of a no deal Brexit, especially if it were disorderly and accompanied by a further slide in sterling, would be higher inflation," said Capital Economics chief markets economist John Higgins. "Indeed, we think that it would rise to nearly 4 per cent in early 2020. So it is not surprising that investors' required compensation for inflation has risen too." Investors appear to be betting the Bank of England won't tighten monetary policy in the event of a no deal Brexit.
Aluminium
Aluminium touched a 16-month low during trade on Thursday after the United states said it would lift sanctions against Russian aluminium giant Rusal after the company agreed to reduce the influence sanctioned oligarch Oleg Deripaska has on the company. While Deripaska will remain sanctioned by Washington, Rusal will now be able to operate freely. The price of aluminium on the London metal Exchange slid to a 16-month low of $US1,905.5 a tonne on the news. Aluminium hit a seven-year high during April following the announcement of the sanctions.
Japanese yen
Japan's consumer price index fell 1 per cent for the December quarter, falling in-line with expectations and doing little to affect the yen. The market had been expecting Japan's inflation to decelerate from 1.4 per cent from the previous term on the back of a fall in energy prices. CBA senior currency strategist Joseph Capurso said he saw almost no chance of the Bank of Japan tightening monetary policy in the next few years, with the country's interest rate set to remain on hold at -0.1 per cent. Japan has had a negative interest rate since early 2016.
Oil
The price of oil continued to move on Thursday, resuming its downward spiral as Brent crude broke though $US55 a barrel while US crude prices hit a 17-month low. "Despite the recent announcement of cuts between OPEC+, visible allocations of the output reductions and even pledges to extend the cuts beyond 1H19, investors remain apprehensive, citing broad macro-based concerns," said RBC Capital Markets' global head of commodity strategy Helima Croft in a note on Thursday. The price of Brent crude oil has now fallen 36.4 per cent from its October highs.