Big bank relief rally drives ASX 0.8pc higher

The sharemarket shot back above 5700 points on Wednesday, lifted by a rally in bank shares, which enjoyed their best day in eight months on relief that new capital requirements weren’t as tough as many had feared.

The S&P/ASX200 climbed 0.8 per cent to 5732.1, with gains in the big four banks alone adding more than 50 points to the benchmark index.

ANZ soared 3.9 per cent, Westpac gained 3.8 per cent, NAB rose 3.1 per cent and Commonwealth Bank closed 3 per cent higher, for a cumulative gain of about $14 billion in value.

The announcement by banking regulator APRA on Wednesday morning removed some of the uncertainty weighing on bank shares which had led to a more than 10 per cent slump in the sector from recent highs in early May.

“We believe the major banks will be able to comfortably meet the changes to capital requirements outlined today,” said Morgan Stanley equity analyst Richard Wiles who doesn’t see a need for capital raisings. “We view today’s announcement as positive, even though there is still some uncertainty on mortgage risk weight changes.”

The chunky gains in the banks disguised the fact that overall there were slightly more losers than winners on the ASX200 as numerous blue chips ended in the red.

The biggest drag came from BHP Billiton, which fell 1.1 per cent after reporting output declines in coal and petroleum for the year and flagging it expects to book a charge of $US546 million due to a strike at its Escondida copper mine in Chile.

Rio Tinto extended Tuesday’s losses, losing another 0.7 per cent a day after reporting disappointing iron ore production results.

Telstra also continued its recent selloff, falling 1.7 per cent to a three-month low of $4.11 amid growing speculation the telco might announce a dividend cut at next month’s annual results.

“With the market regaining confidence that the banks are likely to maintain current dividend policies in the near term, concerns surrounding Telstra’s ability to maintain theirs are now at the forefront of investors’ minds,” said ASR Wealth Advisers senior adviser Gary Huxtable.

“As such we’re seeing a continued rotation out of Telstra into more favourable yield stories.”

Stock Watch: CSL

Has the music finally ended for CSL? The blood products giant has enjoyed a remarkable rally this year, soaring 27 per cent in 2017 as investors sought the mix of solid growth prospects coupled with the relative safety of the healthcare sector. But since hitting an all-time high of $145 on June 26 it’s been all downhill, with the stock losing another 0.3 per cent to $127.99 on Wednesday. Despite the losses, Shaw and Partners senior investment adviser James Gerrish notes CSL is still trading on a price-earnings ratio of 34x estimated 2017 earnings, “which is very much at the rich end of town”. Gerrish said CSL and most healthcare stocks had been a ‘safe’ place to park funds over recent years “but the music always ends one day”. Seven analysts have a ‘buy’ rating on the stock, four a ‘hold’ and one a ‘sell’, with an average price target of $137.48.

Market movers

Aussie frenzy

The Australian dollar hit a fresh two-year peak of US79.47¢ late on Wednesday, still buoyed by bullish RBA minutes. While some suggested the market may have overreacted, traders said the next test were speeches by key RBA officials on Friday, noting the build up of tactical shorts. The Aussie was also profiting from weakness in the greenback, which wrestled with worries about the prospects for the Trump administration’s economic agenda. The collapse of the Republicans’ push to overhaul healthcare has raised questions over Mr Trump’s ability to pass promised tax cuts. 

Rate hikes

The bullish tone in the RBA minutes released on Tuesday has led to a significant shift in market expectations for interest rates. The yield curve has steepened and bets on another RBA rate cut have all but evaporated. Instead, markets are now seeing a 20 per cent chance of a rate hike in November, moving up to a 50 per cent chance in February. By July a rate hike is fully priced in. Economists are still sceptical, with the vast majority expecting the RBA to remain on hold well into 2018.

Nasdaq record

A Netflix rally boosted the Nasdaq to a record high on Tuesday night, its eighth consecutive session of gains, the longest streak since its 10-day string in February 2015. The movie streaming company rose 13.5 per cent to $US183.60 a day after it crushed Wall Street forecasts by reporting 5.2 million new streaming customers in the second quarter. As the second-quarter earnings season gears up, investors will increasingly shift their focus from politics in Washington to the performance of individual companies, analysts said.

Super returns

Superannuation funds rebounded in the 2017 financial year, with the average balanced option delivering a 10.4 per cent return, according to SuperRatings research. The double-digit returns mark the strongest performance for super funds in four years, and a big jump from the 2.8 per cent return in the 2016 financial year. The gains, which added $140 billion to the national retirement savings pot, came courtesy of a 12 per cent rise in local shares, while international shares were up 15 per cent.

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