Wednesday 27th April- Australian market wrap

ASX 200 soars on CPI news then crashes back to earth in a remarkable 100-point turnaround day. The market closed down 32.9 points at 5187.7 after being up as much as 61 at 5281. Banks turn red, energy and resources turn red. Asian markets mixed with Japan down 0.36% and China down 0.27% as the commodity margin crackdown continues. AUD falls to 76.17 with US Futures down 50.

A very volatile day once again with the banks the major swing voters. After a tepid start we limped into the CPI number at 11.30am with a measly 10-point rise on the Richter scale. But a shock CPI number showing the spectre of deflation has returned was enough to jump-start a significant, with the banks leading the charge. Once again volumes were on the low side for a move of this magnitude and we hit 5281 at its peak before the traditional lunch break. Something seemed to break after 12.30pm as aggressive selling in the banks came back online. Whether it was news that Westpac had stopped lending to foreign buyers or something else remains to be seen. There are some nerves about the FOMC meeting tonight, with not much expected, but then again we expected little from the CPI number today.

For the record, the quarterly CPI dropped 0.2% compared to estimates for a rise of 0.2% and YOY inflation is now well and truly below the RBA target of 2% at 1.3% and core inflation at 1.70%.

The big question now preying on economist’s minds: Is this a game changer for Glenn Stevens? Will he act next week and cut rates on Budget day or will he remain cool and relaxed as he heads into retirement?

Moves from Chinese commodity exchanges to increase margin requirements, higher fees and shorten trading hours led to a 4% drop in iron ore in China today. Steel rebar also fell 3.2% and coking coal down 4.6%

Iron ore price forecasts from the World Bank have been revised higher for the five years through 2020. Iron ore is expected to trade at $US50 a tonne this year, $US51.50 in 2017 with gains to $US56.20 by 2020,

The Aussie dollar dollar slumped on the CPI and the market jumped, but it lost all momentum and traded down to a low of 5179 for a huge range day. Not a bullish sign at all. After rejecting the high today. Confidence will be hard to find. No one will want to get sucked in again.

ASX 200 Index & Aussie dollar charts – Today

STOCKS AND SECTORS

Resources finished the day in negative territory with BHP -0.56%, RIO -2.06% and Fortescue Metals (FMG) -2.86%. Further moves in China to curb commodity speculators hurt iron ore and coal. Other metal stocks took a serious breather Galaxy Resources (GXY) -6.58%, Pilbara Mineral (PLS) -8.00% and other lithium stocks fell to earth. Base metals stocks were mixed with OZ Minerals (OZL) -0.70%, Sandfire (SFR) -0.35% and Independence Group (IGO) +1.53%
Energy started with the best intentions but withered on the vine, Woodside Petroleum (WPL) -2.83% the worst but Oil Search (OSH) +0.14%. Super star in the sector Sino Gas (SEH) +36.99% after announcing that its JV partner intends to sell its 51% stake for US$220m.
Gold stocks gained as the AUD weakened. We even had a gold company hedge again with news that Oz Minerals had hedged its stockpile at Prominent Hill of 370k oz, St Barbara (SBM) +3.72%, Evolution Mining (EVN) +1.63% and Newcrest (NCM) +2.71% all to the good.
Financial and banks reversed all engines today. After a 1% rise following the CPI, the big four slumped to a 2.0-2.5% loss. ANZ the best with a 1.53% loss. Media reports of possible Chinese interest in the sector were bulldozed in the after-lunch rush for the exits. Macquarie Group (MQG) -1.13% suffered a similar fate although diversified and insurers escaped the sell-off. Challenger Limited (CGF) +1.47%, Henderson Group (HGG) +1.67% and Medibank Private (MPL) +2.93%.
Industrials were generally mixed with Woolworths (WOW) -1.12%, Murray Goulburn (MGC) -42.06%. Consumer stocks were positive with the ASX 200 Industrials up 0.19%.
Speculative stock of the day: St George Mining (SGQ) +48.0% after intersecting a high grade nickel and copper sulphide interval at Mt Alexander

CORPORATE NEWS

Broadspectrum (BRS) -5.83% slipping away as investors withdraw their shares from the 150 cents offer from Ferrovial. The acceptances have dropped from 16.14% to 13.79%. Worries that the bid will not proceed are weighing with the closing date next Monday. Also weighing on the stock was news out of PNG that the detention centre it runs on Manus Island is ‘unconstitutional and illegal’. The fear is that it may lose this contract if the PNG government closes the centre.
ResMed (RMD) -3.68% reported a 3% drop in 3Q profit to $US88.5 million ($114.2 million) as acquisition costs and weaker margins impacted the bottom line. Revenue for the three months ended March 31 rose 7% to $US453.9 million, a 9% increase excluding currency movements. ResMed’s third quarter net income was $US95.4 million. ResMed declared a quarterly dividend of US 30 cents per share,
Murray Goulburn (MGC) -42.06% today after announcing a huge profit downgrade due to falling milk prices. The company also announced that the farm gate price for milk would fall from around $5.60 to between $4.75-5.00 with a price support mechanism kicking in which the farmers would pay for in 2017-2019. It looks like there was some significant crying into the milk with the CEO also leaving as his stubborn acceptance of reality comes home.
Westpac (WBC) -2.03% announced today that it will stop lending to foreign buyers and was also tightening the lending requirements on Australians who depend on overseas income. It is strange that a local bank would lend to an overseas buyer in the first place given the documentation requirements and the ease of falsifying overseas income.
Beach Energy (BPT) +0.0% announced costs savings of around $40m from its recent merger with Drillsearch Energy. The Sydney office is to close this week with more job losses taking it to 88 jobs since the merger.
Fortescue Metals (FMG) -2.86% announced it was moving to cut another US$577m off its debt bill by repaying some more notes, slashing interest rate costs by US$48m.
Henderson Group (HGG) +1.67% after a trading statement. Assets under management increased to GBP92.7bn from GBP92.0bn77% of funds outperforming.

ECONOMIC NEWS

ANZ-Roy Morgan consumer confidence index fell 3.5% in the week ending April 24, reversing the previous week’s gains and falling back below the long-run average.

CPI numbers today from the ABS showed deflation for the first time in seven years.

Headline CPI fell 0.2%, first decline since final quarter of 2008 vs. median forecast 0.2% rise.

CONSUMER PRICE INDEX BREAK UP

Demand from foreigners for Australian housing is slipping.

IN ASIA

China may have $1.3 trillion of loans to borrowers without sufficient income to cover interest payments, with potential losses equivalent to 7% of GDPt, according to an IMF report this month.
Industrial & Commercial Bank of China Ltd, Bank of Communications Corp, and Agricultural Bank of China report first-quarter profit on Thursday.

EUROPE AND THE US

Apple – Apple results obviously in focus tonight. Not a good number with Chinese sales dropping 26%. Sales fell across every geographic region except Japan. An increase of $50 billion to the Company’s program to return capital to shareholders. Under the expanded program, Apple plans to spend a cumulative total of $250 billion of cash by the end of March 2018.

Donald Trump has swept all before him in the primaries with another 5 eastern states.
Comcast Corp., the parent of Universal Pictures, is in talks to acquire DreamWorks Animation SKG Inc. for more than $3 billion.
Following on from the collapse of BHS yesterday, upmarket gentlemen’s retailer Austin Reed has followed suit with the loss of 1200 jobs.

FINANCE SUMMARY