‘Risk off’ return wipes $54 billion from ASX

Australian shares plummeted this week after a “risk off” market sent the market into a nose-dive on Tuesday and Wednesday, wiping $54 billion from the boards in the past five sessions.

The S&P/ASX 200 Index closed the week 191.3 points, or 3.2 per cent, lower at 5730.6 while the broader All Ordinaries Index slipped 188.2 points, or 3.1 per cent, to 5822.8.

“‘Risk off’ returned with a vengeance to financial markets over the last week with most share markets falling and bond yields declining as last month’s worries returned,” said AMP Capital chief economist Shane Oliver. “Tech stocks came under renewed pressure and the continuing plunge in the oil price weighed on energy shares.”

The energy sector was volatile this week as oil prices recorded their steepest one-day loss in three years on Tuesday before recovering on Wednesday. Woodside Petroleum closed 2.2 per cent lower at $33.02, Santos fell 3.9 per cent to $6.17 and Oil Search slid 2.6 per cent to $7.50. Beach Energy was able to close the week higher however, lifting 2.7 per cent to $1.72. 

The major banks were among the biggest weights on the market. Westpac fell 8.8 per cent to $25.27, Commonwealth Bank slid 2.9 per cent to $68.90, NAB closed 4.5 per cent lower at $23.77 and ANZ went down 6.5 per cent to close at $25.36. 

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Index heavyweights across the mining and healthcare sectors also weighed the market. BHP Billiton closed 3.1 per cent lower at $32.36, Rio Tinto fell 2.3 per cent to $79.31 and South32 slid 4.5 per cent to $3.38. Healthcare giant CSL fell 3.6 per cent to $183.67 while Cochlear closed 8.8 per cent lower at $160.63.

Aveo Group was among the worst performing stocks this week, falling 13.1 per cent to $1.62. The retirement operator declined to confirm its earnings guidance this week despite flagging weaker market conditions and sales. 

Healthscope led the market gains this week after the company received a takeover offer from Canada’s Brookfield Asset Management worth up to $4.5 billion. Brookfield’s offer bettered an offer from BGH Capital, sending the company’s shares 11.5 per cent higher to $2.32. 

G8 Education said it intended to offload up to eight loss-making childcare centres to add momentum to an improving outlook, with higher occupancy rates at its east coast centres. Its shares lifted on the back of the improved look, climbing 20.3 per cent to $2.84. 

Appen shares rose 11.9 per cent to $12.98 this week after the company upgraded its earnings before interest, tax, depreciation and amortisation forecast for the full year from $54 million to $59 million to $62 million to $65 million. It said the lift in earnings had been driven by strong revenue growth from existing customers.

Stock watch

IOOF Holdings

UBS retained its neutral rating on IOOF Holdings but downgraded its target price, saying the company was “in the firm grip of structural and regulatory pincers”. The broker cut its 2019-20 earnings per share by 14 per cent after allowing for reduced ANZ Wealth fee and flow prospects, rising fee pressure in the company’s Advice division and softer equity markets. It said that while IOOF’s acquisition of ANZ Wealth was accretive, the upside had declined considerably on the back of rising regulatory scrutiny. It said that IOOF’s Advice division’s funds under advice would come under pressure, compressing gross revenue margins by about 20 per cent over the next three years to 2020-21. UBS downgraded its price target on IOOF Holdings from $9.30 a share to $7.00 a share. 

What moved the market

OPEC production

Saudi Arabia and other OPEC nations led the rise in oil production this year after adopting a “produce as much as you can” approach in May this year. While Venezuela and Iran have seen their production levels shrink slightly, their losses have been more than offset by improved production elsewhere, with the number of barrels produced per day actually rising in the past five months. Forecasts from OPEC this week however suggest the cartel will cut output by roughly 1.4 million barrels per day in order to balance an oil market that is in danger of falling further. 

Palladium

The two platinum group metals were stronger on Wednesday, buoyed by reports the Trump Administration would hold off on imposing new tariffs on automobile imports in Europe and Asia. According to Bloomberg, top US officials are weighing revisions to a report on the national security implications. The news lifted palladium 3 per cent to a record high $US1162 an ounce while platinum rose 1.2 per cent. Shares in Asian car-makersToyota, Honda, Subaru, Mazda and Nissan also jumped on the back of the reports. The spread between palladium and platinum is growing, showing a diverging outlook for gasoline and diesel vehicle markets, respectively.

Aussie dollar

The Australian dollar has enjoyed a strong rally in the past three weeks supported by strong economic data. The labour market report on Thursday was stronger than expected and unemployment remained steady. According to analysts, its poor run this year may be over as it returns to fair value. “We are increasingly convinced this year’s downtrend in the Australian dollar is coming to and end,” CBA senior currency strategist Joseph Capurso said in a note on Friday. “As we have noted before, the Australian dollar looks oversold compared to its fundamental drivers such as commodity prices and interest rate spreads.”

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