Big bank anxiety pulls ASX below 5700

Investor sentiment soured on Tuesday, as steep bank losses ahead of the release of new capital requirements combined with a rally in the Australian dollar, which weighed on exporters, to pull the benchmark index below 5700 points.

News that a second attempt to pass a revised Republican healthcare bill in the US Senate collapsed after two Republican Senators announced their opposition further damaged global sentiment, amid growing fears President Donald Trump will fail to deliver other election promises such as tax cuts.

The benchmark S&P/ASX 200 Index slid 1.1 per cent to 5687.4 points, to shed more than $18 billion in value as all sectors closed in the red apart from property. 

Shares around the region also slipped, ending a six-day surge that had had bumped Asian shares to their highest levels since 2008. 

“While investors began the session responding to another good session for commodity prices and a robust round of economic data from China yesterday, there’s been a rapid deterioration throughout the afternoon thanks to a slump in global risk-on sentiment,” said Ric Spooner, chief market analyst at CMC Markets. 

The big four banks were the biggest drag on the market. Commonwealth Bank lost 1.9 per cent, Westpac was off 1.7 per cent ANZ slid 1.6 per cent and National Australia Bank was down 1.8 per cent.

Traders said anxiety around just how tough banking regulator APRA’s new capital requirements – expected after the market closed – would be had kept investors away. 

Shares in Rio Tinto finished down 1.5 per cent after the company sought to lower expectations about what its Australian iron ore division can achieve this year, after a slow start to exports in 2017. 

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Fellow mining giant BHP Billiton also closed down 0.3 per cent, despite enjoying early buying support that boosted the price to a three-month high of $25.43. 

CSL dropped 1.2 per cent, as its exposure to a stronger Australian dollar saw the company fall back towards its $129 chart support. 

In other equities news, Spotless shares closed flat after the board recommended shareholders accept Downer EDI’s hostile $1.2 billion takeover offer after its stake rose to 67 per cent, while gold miners Saracen jumped 8.2 per cent after reporting record quarterly production.

Stock Watch: Wellard

Shares in embattled cattle exporter Wellard plunged 25.6 per cent to 14.5¢ after the company announced it expects trading losses in the second half will be significantly higher than the $16 million loss it reported in the first-half of FY 2017. Wellard has blamed the loss on a reduction in demand from South East Asian markets due to sustained high cattle prices in Australia. The stock plummeted to an all-time low, the lowest it’s traded at since it listed on the ASX in December 2015, at $1.35 a share. Wellard said feeder and slaughter cattle exports for the six months to June were 38 per cent lower compared to the previous corresponding period, while the price of cattle in Australia has remained uneconomically high. 

Market movers

Australian dollar

The local currency staged a remarkable rally following the release of the RBA’s minutes in which the board stuck with its ‘glass half-full’ view of the local economy but also surprised by discussing the level of an appropriate neutral interest rate, which could be seen as a sign the central bank is mulling a rate rise. Officials revealed that they now believe a cash rate of 3.5 per cent – well above today’s 1.5 per cent – would be the rate at which the economy would expand at a pace consistent with stable inflation. The Aussie jumped more than 1 US cent to a fresh two-year high of US79.24¢, after rallying 3 per cent last week.

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Chinese steel

China’s giant steel sector churned out 72.78 million tonnes of the stuff in June. That was equivalent to annualised production of 891 million tonnes. The previous monthly output record was set in May 2014 at 71.16 million tonnes. This year, however, that historical landmark has been exceeded in every month since February. Analysts said there may be some statistical smoke and mirrors at work behind this record-breaking production run, but added the underlying reality is that China’s steel mills are being incentivised to lift production rates by strong prices. 

China’s house prices

Average new home prices in China’s 70 major cities rose 0.7 per cent in June from the previous month, in line with growth in May as policymakers battle to rein in a red-hot market. Compared with a year ago, new home prices rose 10.2 per cent in June, slowing from an 10.4 per cent gain in May. It was the first month in three that the number of cities with price increases has climbed. The release came after data on Monday showed a resilient real estate industry helping to propel China’s economic growth even as mortgage rates rise and home-buyers grapple with an array of curbs. 

Kiwi inflation

New Zealand inflation slowed more than economists forecast in the second quarter, dropping below the midpoint of the central bank’s target band and adding to signs that interest rates won’t be increased anytime soon. Consumer prices were flat in the second quarter and rose just 1.7 per cent over the year. The kiwi dollar fell sharply against the Aussie and other currencies. “Today’s result should put a severe dent in market expectations that the RBNZ will be hiking rates by mid-2018,” said Satish Ranchhod, an economist at Westpac.

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