The Australian sharemarket has closed the session higher for just the second time this month as positive reporting season results lifted the index.
The S&P/ASX 200 index advanced 14.6 points, or 0.2 per cent, to 6268.5, with investors encouraged by Commonwealth Bank and AMP’s results.
Commonwealth Bank reported its first cash profit fall since the global financial crisis as regulatory penalties pushed expenses higher. Investors may have been expecting worse and were likely encouraged by the fact that without the one-off expenses, the bank would have recorded a $10.01 billion cash profit. Its shares rose 2.6 per cent to $74.81 and led the market on Wednesday.
AMP shares lifted 3.9 per cent to $3.48 despite the company recording a fall in profit. The financial services giant recorded an underlying interim profit of $495 million, beating market expectations of $487 million.
Tabcorp’s underlying earnings for the year came in below analyst expectations, but the company’s share price still rose 7.6 per cent to $4.84. The gaming company said that its $11 billion merger with Tatts Group was still on track and that this merger would allow for greater synergies in the next financial year.
SkyCity Entertainment reported a record annual profit, driven by soaring volumes of Asian high-roller gamblers who returned to its venues during the financial year. The company reported that normalised profit rose more than 10 per cent to nearly $170 million. Its shares rose 2.5 per cent to $3.72.
Eclipx recovered some of yesterday’s losses, rising 10.6 per cent to $1.99 on Wednesday. Despite the jump, the company still has some headwinds with law firm Bannister Law mulling over a shareholder class action as it investigates whether Eclipx breached its continuous disclosure obligations.
Amcor shares continued to soften after it confirmed it will buy US rival Bemis and switch its primary listing to the United States. Its Australian market cap is expected to more than halve as part of the deal. Its shares closed 2.5 per cent lower at $14.03.
Infigen Energy shares continued their poor performance for the week, dropping to a more than four-month low as Morgans slashed its target price for the company by 44 per cent to 35¢. It closed 5.7 per cent lower at 57.5¢.
Morgans upgraded BHP Billiton’s target price on the back of the miner’s $US10.8 billion sale of its US onshore oil and gas business. The company has outlined its intentions to return all net proceeds top shareholders in a timing and manner that will soon be determined by the board. Morgans are now factoring in a share buyback utilising a portion of the net proceeds and this is the key driver behind its price target increase from $35.79 to $37.09. It says it believes the remainder of the proceeds will be distributed via a special dividend. It expects the special dividend to be paid during the 2019 financial year while a share buyback is expected to occur at some point during the 2019 or 2020 financial year. The broker has retained a “hold” rating on rival Rio Tinto, saying that BHP will be less impacted by rising cost pressures.
What moved the market
Global steel output
Local iron ore miners have benefited from a strong year of global steel output, with China and India helping to drive strong Australian commodity exports. Global steel output has risen by 5.1 per cent for the 12 month ending June 2018. China led the lift in output, increasing 6 per cent while India lifted its output by 5.1 per cent. The lift in China’s output is particularly pertinent to Australia, with the country purchasing over 80 per cent of Australia’s iron ore shipments. While exports to China are expecting to continue to lift further in the next 12 months, the result is set to be softer with China’s steel consumption expected to be lower than last year.
Oil pushes higher
The US resumption of sanctions against Iran moved oil prices slightly higher although the result was largely already priced in. The market is still trying to gauge whether the global supply losses due to the sanctions can be offset by rising output from OPEC nations and Russia. CBA analysts believe that the sanctions will sideline approximately 1.5 per cent of global supply. While OPEC and China have been able to add an estimated 1 per cent to global supply in the last two months, that supply only offset losses in Venezuela and Angola. The analyst are expecting a deficit in global oil markets in the coming months and believe Brent crude could list as high at $US90 a barrel by mid-2019.
The Australian dollar strengthened against the US dollar on Tuesday night following the Reserve Bank of Australia’s decision to keep rates unchanged. The Australian dollar lifted against most major currencies, helped in part by a slightly weakened US dollar. The Reserve Bank’s statement yesterday was broadly positive and suggests there will be no changes to its forecasts in the upcoming Statement on Monetary Policy on Friday. In a speech on Wednesday, RBA governor Philip Lowe reiterated expectations that the next move in the interest rate would be up and not down. In his speech, he said that Australian policymakers had been slow to react to population increases.
Housing finance fell sharply in June, dropping 1.2 per cent for the month, offsetting a 0.5 per cent rise in May, and taking the yearly decline in housing finance to 8.4 per cent. ANZ senior economist Jo Masters said that first home buyers were continuing to enter the market, assisted by falling house prices. “Tighter credit conditions continue to impact, reflecting APRA’s earlier supervisory measures as well as additional tightening in the wake of the Royal Commission into Financial Services,” she said. “We expect credit conditions to tighten further over this year and, as a result, to see further weakness in house prices and building approvals.”