Australian shares have rebounded from last week’s $50 billion fall to close the week higher despite some of the major financial stocks weighing the index.
The S&P/ASX 200 index advanced 21.5 points, or 0.4 per cent, this week to close on Friday at 6165.3, with strong gains from the energy and technology sectors.
A strong rise in oil prices this week on the back of strengthened demand and potential supply disruptions pushed energy stocks higher.
Origin Energy was one of the index’s best performers this week, advancing 7.9 per cent to $8.33. Viva Energy rose 8.6 per cent to $2.39, Woodside Petroleum lifted 3.3 per cent to $36.91 and Beach Energy closed the week at $1.95, up 4.8 per cent.
The information technology sector rebounded from last week’s sell-off, led by Afterpay Touch who rose 15.1 per cent to $17.27. Wisetech Global also rebounded, up 3.8 per cent to $21.10, Altium rose 2 per cent to $25.78, Appen advanced 2.8 per cent to $14.13 and NEXTDC closed at $6.15, up 3 per cent.
It was a mixed week for the materials sector with base metal miners advancing while precious metal and mineral miners closed the week lower.
The major miners all closed the week higher. BHP rose 1.3 per cent to $31.82, Rio Tinto closed 4.1 per cent higher at $73.15 and South32 advanced 8.1 per cent to $3.75.
Regis Resources was among the index’s worst performing stocks this week, falling 7.4 per cent to $3.90. Fellow gold miner Resolute Mining closed 4.8 per cent lower at $1.09 and Evolution Mining ended the week down 4.3 per cent at $2.65. Galaxy Resources also closed the week lower, falling 6 per cent to $2.49.
The market was weighed this week by losses from the major financial stocks as the royal commission focused its attention on the insurance industry. QBE Insurance closed the week 1 per cent lower at $10.84, Insurance Australia Group fell 1.2 per cent to $7.38 and Suncorp Group closed the week at $14.34, falling 3.7 per cent.
Citi is remaining cautious on Myer’s changes going forward, maintaining its ‘sell’ rating on the department store and downgrading its price target from 41¢ to 36¢, a decrease of 12 per cent. While Myer’s result for the 2018 financial year was in-line with market expectations, the composition of sales and margins were a surprise, according to Citi. The broker said it was cautious of the retailer pulling back on discounting and online growth, given how accustomed customers are to buying on promotion. “The degree of difficulty is very high when attempting to execute a strategy predicated on reduced promotional intensity, exclusivity and customer experience, without sufficient balance sheet flexibility to execute it,” said Citi’s retail analyst Bryan Raymond in a note.
What moved the market
Growing scrutiny of the major banks’ conduct could lead to further civil proceedings, more customer remediation and fines, according to Morgan Stanley analysts. While analysts admitted that the potential financial impact was hard to quantify, it saw higher conduct costs as a tail risk for the major banks. Morgan Stanley is expecting a reduction in additional compliance costs in the next three years, and why it doesn’t think they will have to pay any fines or customer remediations in the 2019 financial year, the researchers are expecting the banks may have to pay $500 million sometime in the 2020 financial year.
The price of Brent crude declined from its recent four-month high, falling 1.7 per cent on Thursday as deficit concerns left traders cautious. The International Energy Agency (IEA) reported that OPEC oil output has risen by 0.42 million barrels per day in August. The IEA also reported that global economic risks were mounting and could weigh on the price of oil, even as the market tightens and demand lifts. “As we move into 2019, a possible risk to our forecast lies in some key emerging economies, partly due to currency depreciations versus the US dollar raising the cost of imported energy,” the agency said.
Turkey raised its interest rates to 24 per cent on Thursday, the biggest increase in President Tayyip Erdogan’s 15 years in power. The 6.25 percentage point rise was the Turkey central bank’s last ditch effort to stem the country’s currency, which has fallen close to 40 per cent against the US dollar this year. The move was seen as a positive for the lira, which rose a bit over 4 per cent on the back of the announcement. Erdogan has previously opposed increasing interest rates to stem the country’s soaring inflation and had even reiterated his opposition to them in the hours leading up to the central bank’s decision.
The Australian dollar has risen more than 1 per cent this week, rebounding from a poor start to the week when it dropped below US71¢. Market strategists had been forecasting the potential for the Aussie dollar to fall during this week, with some not ruling out the dollar challenging US70¢. The dollar dropped close to US70.85¢ during the start of the week, but rose gradually as the threat of a trade war escalation between the US and China diminished. Some positive labour force statistics released on Thursday gave the local dollar a further boost on the back half of the week and it was trading just below US72¢ on Friday;.