Banks help market curb mining losses

THE sharemarket closed modestly higher after strong leads from US banks helped local financials curb losses from the mining sector.

By InvestSMART · 17 Oct 2012

By InvestSMART ·
17 Oct 2012

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THE sharemarket closed modestly higher after strong leads from US banks helped local financials curb losses from the mining sector.

The benchmark S&P/ASX 200 gained 8.1 points, or 0.2 per cent, to 4491.5.

Financials continued to add to yesterday's climb, rising 0.5 per cent. Materials stocks were the biggest losers, down 0.5 per cent, gold fell 0.3 per cent and energy dropped 0.2 per cent.

"We had positive leads from the US, with some of the US banks reporting, those numbers looked reasonably good, particularly from the North America retail banking revenue. That gave our market, particularly the financials, a boost," said Sean Larcombe, head of risk and execution at Citigroup.

All the big banks finished higher, ANZ added 0.2 per cent to $25.79, CBA rose 0.5 per cent to $57.09, NAB jumped 1.3 per cent to $26.62 and Westpac gained 0.4 per cent to $25.72.

Rio Tinto and BHP were the main drags on the market, said Mr Larcombe, as commodity prices continued to weaken. Rio Tinto fell 1.1 per cent to $55.12, while BHP dropped 0.8 per cent to $33.07.

Fortescue Metals jumped 3.6 per cent after the iron ore miner said it remained committed to expanding its production to 155 million tonnes a year.

Ten Network continued its downward spiral, falling another 4.3 per cent to 33.5?.

JPMorgan put out a cautious statement on Ten, saying: "Based on recent main channel weakness and the overall networks ratings decline, we see downside risk to Ten's 2013 financial year consensus earnings before interest, tax, depreciation and amortisation (EBITDA)".

In a report on the wider media sector, Citi said that there were no signs of growth into November-December.

Seven West Media and APN News Media were also down, 1.2 per cent and 2.6 per cent respectively, while Fairfax Media and News Ltd posted gains, up 2.6 per cent and 0.5 per cent, respectively.

Retailers impressed, buoyed by the increased likelihood of a November interest rate cut, with Credit Suisse interest rates futures pricing in a 78 per cent chance of a 25-basis-point cut next month.

"It appears to us that dwelling investment will be an important factor that the RBA will be watching over coming quarters to 'fill the void' of softer mining investment," Deutsche Bank Australia chief economist Adam Boyton said.

"Given the heightened conservatism among Australian households, the net of this leaves our own view on rates unchanged: a 3 per cent cash rate by the end of this year, and 2.5 per cent around mid-2013."

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Frequently Asked Questions about this Article…

What happened to the ASX 200 today and how big was the move?

The ASX 200 closed modestly higher, gaining 8.1 points (about 0.2%) to finish at 4,491.5. Strength in the financials helped offset weakness in materials, gold and energy sectors.

Why did Australian banks help curb market losses today?

Banks received positive leads from US bank results, which lifted local financial stocks. Financials rose about 0.5% overall, and the major Australian banks all finished higher: ANZ +0.2% to $25.79, CBA +0.5% to $57.09, NAB +1.3% to $26.62 and Westpac +0.4% to $25.72. Citigroup’s Sean Larcombe noted North America retail banking revenue looked reasonably good, giving financials a boost.

How did mining and materials stocks affect the market performance?

Materials were the biggest losers, down roughly 0.5%, as commodity prices continued to weaken. Large miners Rio Tinto (down 1.1% to $55.12) and BHP (down 0.8% to $33.07) were cited as the main drags on the market.

Why did Fortescue Metals Group shares jump and what is its production target?

Fortescue Metals jumped 3.6% after the iron ore miner confirmed it remains committed to expanding production to 155 million tonnes a year, which supported investor sentiment for the stock.

What’s the outlook for Ten Network and other media stocks mentioned in the report?

Ten Network continued to fall, dropping about 4.3% to 33.5, after JPMorgan warned of downside risk to Ten’s 2013 EBITDA given weaker main channel performance and ratings declines. Citi also said there were no signs of growth in the wider media sector into November–December. Other media moves: Seven West Media and APN News Media were down 1.2% and 2.6% respectively, while Fairfax Media rose 2.6% and News Ltd gained 0.5%.

How are interest rate expectations influencing retailers and market sentiment?

Retail stocks were buoyed by an increased market expectation of an RBA rate cut in November. Credit Suisse interest-rate futures priced in about a 78% chance of a 25-basis-point cut next month, which supported retail sector optimism.

What did economists say about housing, mining investment and the RBA’s likely cash rate?

Deutsche Bank Australia chief economist Adam Boyton said dwelling (housing) investment will be an important factor to 'fill the void' left by softer mining investment over coming quarters. Deutsche Bank’s view on rates in the article was a 3% cash rate by the end of the year and around 2.5% by mid-2013.

What do these mixed signals—strong banks but weak miners—mean for everyday investors watching the Australian market?

The article highlights a market split: financials were supported by positive US banking leads while miners were pressured by weaker commodity prices. Everyday investors can take these reported signals as evidence of sector rotation and heightened sensitivity to commodity trends and interest-rate expectations, which were driving moves in banks, retailers and resources stocks on the day.