Weekly market review
Written and accurate as at: Sep 25, 2017 Current Stats & Facts
The S&P/ASX 300 fell 0.7% for the week; a positive week from large cap financials was not enough to offset weakness in resources and bond-sensitives to hold the market above water. The US Federal Reserve laid out a plan for shrinking their balance sheet, suggesting that they would continue to do so regardless of the underlying economic data. This hawkish bent was offset to an extent by a flattening of expectations around the terminal rate – the level to which interest rates are ultimately expected to reach. Bonds sold off a touch in reaction – with US 10 year Treasury yields rising 5 bps to 2.26%. This relatively muted reaction is due in some part to the more significant rise in yields in preceding weeks, up from recent lows of 2.05%. Nevertheless, it was enough to see bond sensitives - such as the S&P/ASX 200 AREIT Index (-2.3%) – lag within the Australian market.
Iron ore sold off -12% over the week, to finish at just below US$64/tonne, as signs that the inventory build ahead of the winter steel shutdown in China is coming to an end. This saw Fortescue Metals (FMG) (-7.8%), BHP (BHP) (-1.2%), and Rio Tinto (RIO) (-1.1%) sell down as the S&P/ASX 300 Metals & Mining Index shed -2.1%. Gold too was weaker and Newcrest Mining (NCM) (-3.4%) further unwound some of its outperformance over the year to date. South32 (S32) was one of the few resource companies to buck the broader trend, gaining +3.5% as the aluminium price continued to rise. There is an element of further risk from the changes in Chinese political leadership at the upcoming People’s Congress.
The oil price ground towards the top end of its recent trading range, with a barrel of Brent crude just below US$65. Energy companies such as Woodside Petroleum (WPL) (+2.8%) and Santos (STO) (+2.1%) outperformed, and Caltex Australia (CTX) (+2.6%) also did well, although this was likely due to further increases in Asian refining spreads.
There was a bounce in retail stocks with Myer (MYR) +2.9% and Harvey Norman (HVN) +2.3%. Financials outperformed. The banks made small gains; Commonwealth Bank (CBA) was up +0.5%, announcing that they had agreed the sale of their life insurance business to global insurer AIA. They achieved a good price for the deal, which lifts their Core Tier 1 capital ratio above the APRA target and to the top of the sector. This will provide a buffer against potential penalties arising from alleged regulatory breaches and which, in combination with proceeds from the mooted sale of their asset management arm, could see some capital return to the shareholder. Westpac (WBC) (+06%), ANZ (ANZ) (+0.2%) and National Australia Bank (NAB) (+1.4%) also gained, while NAB spin-off CYBG (CYB) – which owns and operates two UK-based banks – was up +5.2% as higher-than-expected UK inflation data raised the possibility of interest rate hikes there.
Finally, TPG Telecom (TPM) (-2.9%) underperformed following their result release, which included a downgraded guidance for next year due to the squeeze on NBN margins, as providers make a “land grab” for market share as the network is rolled out.