Viva Energy shares rose after signing a new 10-year deal with Coles which will see it control the retail price of fuel and collect the full retail margin.

In November, Viva blamed Coles for weakness in its retail business, saying they needed to improve their pump prices. Viva’s share price rose 13.8 per cent to $2.19, while Coles shares slid 2.5 per cent to $12.41.

The supermarket giant warned shareholders its convenience store earnings would fall 62 per cent this year and would barely break even unless fuel volumes improved. Fuel volumes at Coles locations have declined through the December half, falling to 62.4 million litres a week compared with 100 million litres a week a few years ago.

Insurance Australia Group shares climbed 4.3 per cent to $7.61 despite the company reporting a net profit fall of 9.3 per cent to $500 million in the first six months of the fiscal year. The company moved to reassure investors following the result, saying $262 million worth of one-off hits had disguised a 16.2 per cent increase in underlying performance.

 

The major banks led the market losses on Wednesday after Commonwealth Bank reported a lower profit number than some analysts had been expecting. The bank said its net interest margin had been hit by higher funding and the performance of its core retail division had fallen. Its shares fell 1.4 per cent to $72.60.

Westpac shares closed 1.2 per cent lower at $26.37, ANZ slid 1.7 per cent to $26.41 and NAB declined 1.4 per cent to $24.62.

Stock watch

James Hardie Industries

UBS downgraded its forecasts for James Hardie Industries on the back of its third-quarter result on Tuesday but maintained its outperform rating on the stock. The broker cut its profit forecasts for 2019-20 and 2020-2021 by 7 per cent and 11 per cent, respectively, reflecting lower US housing starts and lower margins but remains positive on the company. “We think the Hardie share price can rally from here, but we remain cautious as the challenges that faced the business prior to the third quarter update still remain,” said analyst James Brennan-Chong in a note on Wednesday. “While the building materials sector remains challenged…we think Hardie’s ability to grow above market while maintaining strong margins is appealing.” UBS lowered its price target from $22 to $20.20, at a 33.5 per cent premium to its Monday closing price of $15.13.

What moved the market

Rate futures

The market is continuing to price in the increased prospect the Reserve Bank of Australia will cut rates at some point this year. The implied probably that the central bank will lower its rate to 1.25 per cent at its December meeting is close to 50 per cent and remains the most likely outcome for that meeting, with the probability of no change now at 41.7 per cent. The jump came just moments after Governor Philip Lowe’s told the National Press Club the probability of a rate cute and rate hike was now even. The Australian dollar dropped more than 1 per cent in response to the statement.

 

Nickel

Nickel prices slid on Tuesday as traders cashed in after a surge on Monday amid concerns that Brazilian miner Vale could be forced to reduce production. Nickel, which rose 5 per cent to a four-month high in the previous session, shed 1.7 per cent to $US13,040 a tonne on Tuesday as investors traded cautiously. A Brazilian state court ordered Vale to stop using eight tailing dams following the collapse of one of its dams last month that reportedly killed more than 300 people. Vale should be able to maintain its nickel production however with just one of its nickel asset located in Brazil.

British pound

The British pound was the weakest G10 currency on Tuesday as Brexit concerns returned in the lead up to Prime Minister Theresa May returning to Brussels on Thursday to renegotiate a deal. Those concerns weren’t helped by a soft Purchasing Managers’ Index result as services and composite PMIs dropped more than expected in January, hitting their lowest levels since July 2016, reflecting a softer economic outlook for the UK. Investors could also be factoring in the increasing possibility of a ‘no-deal’ Brexit, which remains a real possibility, particularly if a Parliamentary vote on Ms May’s ‘Plan C’ fails on February 14.

Oil

Russia’s slow response to cut its out production means it could be compliant with OPEC-led cuts for just a matter of weeks. While the country reported a decline in output in January, it has said it will only reach its output reduction target in May, just a month or two before the OPEC deal is set to expire. “The reduction in oil output suggests that Russia is looking to comply with their commitment to the OPEC-led supply deal,” CBA mining and energy commodities analyst Vivek Dhar noted on Wednesday. “However, we think the country is still far away enough from their target to warrant scepticism. Russia still needs to cut an additional 181,000 barrels per day of oil production from October levels.”

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