Gloom over Westpac’s disappointing earnings spread to the rest of the banking sector on Monday, pulling the index marginally lower as it retreated from the key 6000 level it came close to breaching last week.
The S&P/ASX 200 index eased 6 points to 5953, while the All Ordinaries index lost 3 points to 6027. The n market is nearing the psychologically significant 6000 level as other markets hit record highs.
“The ascent in markets around the world this year has been driven by a combination of positive earnings revisions, as well as multiple expansion,” JPMorgan’s n equity strategist Jason Steed said.
While other bourses have hit the “red wall” in terms of historically high price-to-earnings multiples, the n market’s valuation is comparatively less stretched.
“In fact, the ASX 200 is trading in-line with one- and two-year multiple averages,” Mr Steed said. “Overall, we don’t see the ASX 200 as overly stretched; even at our bull case index scenario of 6500, the implied multiple of 17 times would only be slightly above the [MSCI Developed Market sharemarket index] at 16.8 times.”
Gains in the US at the end of last week had set the n market up for a firmer start on Monday but that was before Westpac announced a profit figure that just missed analyst expectations.
The news sent its shares down 2.2 per cent, while CBA and ANZ shares fell 0.5 per cent, and NAB lost 0.7 per cent.
Orica was another earnings-related loser, dropping 9.8 per cent after revealing that higher gas and ammonia prices cost it an extra $59 million in 2017, alongside slightly lower revenues and underlying profits than last year. Analysts also detected the potential for an earnings downgrade following management comments.
The Brent crude benchmark price gained another 0.3 per cent to $US62.26 a barrel on Monday, adding to Friday evening’s strong gains and helping to fuel more gains in energy stocks.
Energy companies provided a bit of a buffer for the index, with Woodside up 1.3 per cent, Origin Energy up 1 per cent and Santos higher by 0.7 per cent.
More expensive fuel is not great news for Qantas, however, which was off 2.4 per cent.
Shares in real estate agent group McGrath crashed 15.6 per cent to 52?? after falling to a new record low of 45?? earlier in the session. A slowdown in off-the-plan apartment sales in Sydney hit the firm and it warned that it won’t meet analyst earnings forecasts for the current financial year.
JB Hi-Fi shares outperformed the broader market, rising 0.4 per cent. The arrival of the iPhone X could have made JB HBi-Fi a tidy $12.6 million in a single day, Morgan Stanley analysts reckon. Stockwatch
Qantas shares fell 2.4 per cent on Monday to $6.06, as oil prices continued their climb. Morningstar analysts said recently they were assuming a Brent crude price of $74 per barrel ($US57) for the rest of fiscal 2018 and were expecting Qantas’ full-year fuel cost to be around $3.2 billion, a 5 per cent increase on 2017. “This is marginally higher than the worst-case scenario indicated at the fiscal 2017 result, and likely to weigh on second-half earnings,” they said. “We believe the market is failing to appreciate the risk of rising fuel costs, which remain a major driver of group performance, accounting for around one quarter of the total cost base”. Qantas stock is up an impressive 80 per cent this year.
Zinc prices slipped on Monday, as Chinese inventories rose, while copper pulled back after a rally spurred by prospects for surging demand from electric vehicles. A proposal to scrap the $US7500 tax credit in the US for electric vehicles (EVs) helped to dampen investor excitement during the London Metals Exchange industry event in London over the potential for strong demand from the EV growth story for metals such as copper and nickel. Benchmark zinc closed down 1.2 per cent at $US3,219 a tonne after inventories rose in China.
Oil extended gains from its highest close in more than two years on signs OPEC will agree to extend supply cuts when ministers meet in Vienna at the end of the month. Futures rose as much as 0.9 per cent in New York and are heading for a fourth weekly advance. Iraq, the second-biggest OPEC producer, has backed extending the curbs for a further nine months, Oil Minister Jabbar al-Luaibi said in Baghdad. While ministers from Saudi Arabia and Kuwait said this week longer cuts are needed, a consensus on how long is yet to be decided. Oil has advanced more than 15 per cent since the beginning of September.
The yen tumbled to the weakest level since March after Bank of Japan Governor Haruhiko Kuroda said it’s crucial for inflation to exceed the 2 per cent target. Kuroda said in a speech in Nagoya that there’s still a long way to go before the inflation target is achieved. The yen’s slide coincides with a visit by Trump to Tokyo. The yen’s weakness, which has been a boon for Japanese exporters, has drawn the ire of the US president in the past. The yen has declined about 26 percent versus the dollar since Prime Minister Shinzo Abe came to power in late 2012. Japan’s stock benchmarks rose as the market returned from a long weekend.
ANZ job advertisements
n job advertisements have risen in October, lifting expectation that some upwards movements in long-stagnant wages may soon follow. The latest ANZ survey of job ads shows the number of positions advertised in October was up 1.4 per cent month-on-month, and up 12.5 per cent from a year earlier, with improved business conditions and lower underemployment behind the trend. ANZ head of n economics David Plank said despite a global absence of sustained growth in wages, the bank did expect “some upward pressure” on wages as demand for workers begins to increase.