Westpac shares rose 7.4 per cent to $26.70, Commonwealth Bank climbed 4.7 per cent to $73.60, ANZ lifted 6.5 per cent to $26.86 and NAB closed 3.9 per cent higher at $24.97, despite Commissioner Kenneth Hayne singling out the bank by criticising its senior leadership.

Financial services companies AMP and IOOF Holdings were among the market’s best performers on Tuesday despite Bell Potter analysts flagging concerns over the broad range of issues facing both companies. AMP shares closed 10 per cent higher at $2.43 and IOOF Holdings advanced 8 per cent to $5.27.

Insurance companies also closed in the green on Tuesday, despite threats the regulatory regime governing insurers would be intensified. Despite changes being flagged in the report, most are dependent on the outcome of a review by the Australian Securities and Investments Commission in 2022, giving the industry time to prepare or persuade the regulator reforms are not needed. Suncorp Group rose 0.8 per cent to $13.29 and QBE Insurance advanced 1.9 per cent to $11.01. Insurance broker Steadfast Group was among the market’s best performers, rising 11.5 per cent to $2.91.

Mortgage brokers could not avoid a major sell-off, however, as the commission recommended mortgage brokers be subject to a “best interests” duty and the the government said it would ban trailing commissions from July next year. Australian Finance Group shares slid 29.1 per cent to 90¢ and Mortgage Choice fell 25.2 per cent to 78.5¢.

 

Outside of the financials, the materials sector was the next best performer. BHP Group rose 1.1 per cent to $35.39, Rio Tinto climbed 3 per cent to $89.26, Fortescue Metals Group advanced 4.7 per cent to $6 and South32 closed 1.7 per cent higher at $3.51.

Stock watch

Boral

Morgan Stanley retained its overweight rating on Boral despite the company downgrading its earnings for the 2019 financial year. The broker downgraded its own forecasts on the company’s earnings by 7 per cent and reduced its price target from $7 to $6.50, but it still believed in the company fundamentals. “While the downgrade is disappointing, it does set a more realistic base for earnings, in our view,” said analyst Andrew Scott in a note on Tuesday. “This should allow investors to focus on an attractive value proposition.” Morgan Stanley said it still liked the company’s Australian infrastructure exposure and saw upside from its US operations. It also highlighted developments with the USG Boral joint venture that could provide upside to Boral if a favourable deal were reached.

What moved the market

Trade balance

Australia’s trade balance widened to its second largest surplus on record on Tuesday, soaring past market expectations. Economists had been expecting a $2,225 million surplus but the December balance printed at $3,681 million, up from $2,256 million in November. “This was down to a large fall in imports, led by sharply lower imports of cars, civil aircraft and petrol,” ANZ economist Jack Chambers noted. “As car and aircraft imports had increased the month before, the sharpness of this move was likely transitory. But we think car imports will continue trending lower, as car sales have fallen materially.”

Iron ore

Iron ore prices have risen following the tailing dam collapse at Vale’s Feijao mine in Brazil. Trading close to $US75 a tonne before the collapse, the price of ore has now risen to almost $US90 a tonne. A court order from Brazilian authorities to shut down an additional 30 million tonnes of iron ore production a year could push the price to about $US100 a tonne, according to CBA mining and energy commodities analyst Vivek Dhar. However, he noted he expected such a price spike to be temporary as Vale challenges the court order.

 

Australian dollar

The Australian dollar traded with some volatility on Tuesday, as a flurry of economic events pushed the Aussie around. The dollar was trending lower through the morning before dropping below US72¢ on the back of December’s much weaker than expected retail trade print. The dollar was able to recover slightly through the afternoon session before soaring to US72.5¢ following the RBA’s decision to keep rates unchanged. Westpac said the dollar’s jump was due to the central bank’s keeping rates unchanged, and saying in final paragraph of its statement that the current interest rate was consistent with sustainable growth in the economy.

Credit growth

Credit growth will continue to slow on the back of the banking royal commission, according to Capital Economics who said the changes recommended in the final report are unlikely to have any major effect on the way the finance industry operates. “The final report by the royal commission may add to the changes in bank behaviour that are already underway,” said economist Ben Udy. “However, the report did not recommend much that is likely to cause an upheaval for the finance industry. We therefore expect credit growth to continue to ease, contributing to the housing downturn and a softening in the wider economy.”

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