Markets: The week that was

What were the top three issues stirring market minds this week?

Earnings season picked up the pace this week and we have been graced with record profit numbers from some of our biggest companies. But the market has proved difficult to please.

Margin fall

Posting an 11 per cent profit rise over the previous nine months wasn’t enough to keep Australia and New Zealand Banking Group (ANZ) out of the red today.

Investors turned their focus to falling net interest margins, which fell 2 basis points in the period to the end of March. ANZ was honest enough to acknowledge net interest margins will contract further due to the lower interest rate environment and headwinds for international banking markets.

Investors were quick to punish ANZ, forcing the stock down 3 per cent on Friday. The remaining major banks escaped relatively unscathed considering lower net interest margins are going to be systematic for the entire sector in the near future.

Picky investors

Improving profit numbers on the previous period by CSL Limited (CSL) and Wesfarmers Ltd (WES) hasn’t been enough to keep them out of the red.

Investors have scrutinised future earnings prospects for CSL and, after enjoying a year of 23 per cent growth in earnings per share, they have become demanding. With global growth set to be moderated by economic pressures again, chief executive officer Paul Perreault delivered an honest outlook for CSL.

In response, investors have pushed CSL down 6.5 per cent since the announcement on Wednesday.

Wesfarmers posted a 6.3 per cent increase in net profit after tax which was combined with a positive outlook for core business Coles. With idle cash available, Wesfarmers has flagged a $579 million capital return (50 cents per share) to be approved by shareholders.

The capital return looks attractive on the surface, but perhaps it reflects limited opportunities to spend the cash on something that could help their growth and earnings along. The underlying message from Wesfarmers seems to be that investors could generate a better return with the 50 cents per share than they could.

Wesfarmers are down more than 4 per cent since the profit announcement hit the market on Thursday morning.

Talking taper

Taper talk reared its head again on Thursday night, which weighed on our index on Friday, pushing the ASX 200 down 38.5 points.

Initial jobless claims in the US have fallen to levels not seen since late 2007 adding further support to the positive news seen in the July consumer price inflation report. With economic indicators continuing to improve, the possibility of the Federal Reserve reducing the current $85 billion per month of bond buying is increasing.

With 65 per cent of economists surveyed by Bloomberg tipping the Fed will snip the bond-buying program next month, it is becoming a reality markets are adjusting to.

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