Political instability in the nation’s capital has pushed the Australian sharemarket to its lowest level in three weeks, weighed down by the finance and utility sectors.
The S&P/ASX 200 index closed 21.6 points, or 0.3 per cent lower at 6244.4 on Thursday, falling for a third straight session.
Investors were remaining cautious amid the political turmoil in Canberra, with the prospect of a change of government growing increasingly likely. The most vulnerable sectors on the market were the finance and utilities sectors, who face an uncertain regulatory future under a new government. ANZ recorded the largest dip of the major banks, falling 2.4 per cent to $28.41.
APA Group managing director Mick McCormack acknowledged that the recent political turmoil left the future of the company’s $13 billion takeover deal with CK Infrastructure Holdings in the dark. Its shares fell 7.8 per cent to $9.35, despite reporting earnings above the upper end of its guidance.
Qantas flagged an 18 per cent rise in fuel prices in their results released on Wednesday, sending its shares lower. Chief executive Alan Joyce allayed some investor fears though, saying that the airline would be able to largely absorb the rising cost. The company’s shares closed 3.4 per cent lower at $6.50, rallying from a big loss earlier in the session.
Flight Centre shares tumbled despite the company reporting a 13.9 per cent profit growth of $262.93 million. The company was hit with allegations of ripping off customers, underpaying staff and harassment of employees on Wednesday evening, just before it reported its results on Thursday. Its shares fell 7.7 per cent to $61.98.
Santos announced a return to divided payments and strong underlying profit for the first half of the year on Thursday, lifting its shares up 11 per cent to $6.96. The company will pay shareholders an interim dividend of US3.5¢ per share, its first in three years.
oOh!Media and APN Outdoor shares lifted after their respective acquisitions were given the green light from the corporate regulator. The ACCC approved APN Outdoor’s $1.2 billion acquisition by JCDecaux, and oOh!Media’s $570 million deal for Here, There & Everywhere’s Adshel. APN Outdoor shares rose 6.2 per cent to $6.69 while oOh!Media shares closed 8.5 per cent higher at $5.12.
Technology stocks rose for another session with a slew of positive results from the sector causing a short squeeze. Wisetech Global shares rose 20 per cent to $23.88 while Appen closed 12.4 per cent higher at $14.45.
Bell Potter downgraded Western Areas from ‘hold’ to ‘sell’ and reduced its target price for the miner, following the release of its results on Wednesday. The broker said that the company’s revenues, EBITDA and NPAT were all below its forecasts and were driven by higher-than-expected operating costs and slightly higher depreciation & amortisation charges. Bell Potter said that the miner’s FY19 guidance showed steady production but a 14 per cent increase in costs. It said that Western Areas is now a much more leveraged play than previously valued by the market and that with ex-growth production and shortening mine lives, the market will have to reassess its outlook on the miner. The broker has reduced its financial forecasts for the company, downgrading its target price from $3.20 to $2.60.
What moved the market
The ASX SPI futures have had one of the strongest reactions to the political turmoil seen in Canberra in the past few days. The futures have dropped significantly whenever a Liberal leadership spill has been rumoured. AMP Capital chief economist, Shane Oliver, says that the market is beginning to factor in the growing likelihood of a change in government. “Its weighing on sectors that are seen as vulnerable,” he said. “Utilities were down 3 per cent, financials down over 1 per cent, driven by the banks. They’re the most vulnerable because of the threat to further regulate energy and the housing sector. I think investors are worried that this increases the chance of a Labor victory.”
The Russian ruble is closing in on its lowest price in two years against the US dollar, with Russia’s economy minister Maxim Oreshkin saying on Wednesday that new US sanctions would pressure the currency and fuel capital outflows over the next 12 months. “The issue of the sanctions theme, the crisis that we see in Turkey, the ongoing problems in Argentina and Brazil, all these will clearly affect the Russian market,” Mr Oreshkin told reporters. During Wednesday’s trade, the ruble dropped close to its lowest level in two years as traders priced in the risk of more US sanctions. The Russian ruble is currently fetching 67.96 to the US dollar.
Brent crude oil prices shot higher on Wednesday after US oil stockpiles fell more than expected last week. The market has had a tough time of predicting stockpiles recently, with most results surprising investors. In the week ending August 17, US oil inventories fell by 5.84 million barrels, blowing expectations of a 1.86 million barrel drawdown, out of the water. US oil supply has been a critical driver of oil prices in recent months and will continue to be in the next few months. Oil inventories are remaining well below where they were a year ago and CBA analysts believe the price is set to continue to lift to $US90 a barrel by mid-2019 as Iran’s exports fall and US supply disappoints.
The Australian dollar had remained relatively unfazed by recent political turmoil in Canberra but plummeted on Thursday morning as the Liberal leadership crisis hit its peak. The Aussie dollar fell well outside of a range it had been trading in since the start of the week, falling from US73.57¢ at the start of the day, to a low of US72.84¢ in the early afternoon. The prospect that economic growth could be affected by a change in government, further threatening an interest rate hike in the next few years. CBA currency strategists said on Thursday that they didn’t expect there would be a lasting impact on the Australian dollar as a result of the turmoil.