Surprise new SA bank tax takes shine off ASX gains

Shares rebounded strongly from Wednesday’s thrashing as investors showed they were willing to jump back into sold-down resources stocks, but late news of a state-based bank tax undercut solid bank gains.

With a dearth of major corporate announcements or economic data on Thursday, investors looked for opportunities to buy back into the market a day after the ASX suffered its worst loss since the US election in November of last year.

ASX winners and losers – a snapshot

The stand out listings traded on the ASX captured at key moments through the day, as indicated by the time stamp in the video.

That helped the benchmark S&P/ASX 200 index end the session up 40 points, or 0.7 per cent, to 5706, while the broader All Ordinaries index climbed by a similar margin to 5742.

Financial stocks were in demand, particularly the large banks which, as usual, accounted for the bulk of the day’s advance. Commonwealth Bank of Australia, National Australia Bank, and ANZ Banking Group all closed 1.3 per cent higher for the session.

But a surprise announcement in late Thursday trade by the South Australian government of a state-based version of the federal government’s bank levy took some of the shine off the major lenders’ gains. Westpac, which owns Bank of South Australia, was the most obviously affected. The bank still closed the day up 1.4 per cent, but in late trade had been on track for an advance more in the order of 2.4 per cent.

Notably among financials, QBE Insurance managed to claw back some of Wednesday’s plunge following an earnings downgrade, recovering by 1.3 per cent on Thursday. Fellow insurer Suncorp added 1.5 per cent.

Resources stocks were well supported, with miners the standout as a continuing rout in global oil prices kept investors wary of energy names. Rio Tinto added 0.6 per cent and Fortescue 3.8 per cent, while gold miners were among the day’s best performers, as Newcrest Mining climbed 1.5 per cent.

Oil and gas producers recorded some tentative gains despite the Brent crude global benchmark slipping below $US45 a barrel for the first time since November and sliding further through Thursday’s trade to fetch $US44.79 by late afternoon. Woodside Petroleum moved 0.1 per cent higher, while Oil Search and Origin Energy climbed around 2 per cent.

Since oil’s most recent peak on April 11, the day-by-day falls in energy stocks has been “almost relentless”, Credit Suisse analysts Mark Samter wrote in a note to clients.

“Perhaps it is an indictment on where valuations were before, but even after the sector has fallen around 13 per cent in the past month or so, it isn’t like the sector is screaming value,” Mr Samter said.

Stock of the day: Domino’s

The days when everyone wanted a slice of Domino’s are clearly over, with the former market darling’s shares down nearly 20 per cent this year. And the bellyache for investors is likely to linger, said Citi, which initiated its coverage of the stock with a ‘sell’ and a price target of $45.50, saying sales growth is set to slow while valuations look stretched. Boosted by acquisitions, Domino’s delivered annual sales growth of 26 per cent over the past three years, but Citi expects that to slow to 14 per cent over the next three years. While most investors will have had a hard time digesting Domino’s this year, six analysts see the stock as a ‘buy’ and five a ‘hold’, with an average price target of $68.30. Shares fell 3.6 per cent to a 16-month low of $52.60.

Market movers

Kiwi rates

The Reserve Bank of New Zealand played down the recent rise in the kiwi dollar and shrugged off weaker economic growth at the start of the year, as it kept interest rates steady at a record low 1.75 per cent. Growth prospects were “positive” thanks to low interest rates and changes in the 2017 budget that would boost family income and infrastructure spending, RBNZ chief Graeme Wheeler said. Analysts said the bank’s main message was unchanged – rates remain firmly on hold and the hurdle to shift from that neutral stance in either direction was very high.


Oil and iron may be struggling but other commodities are doing better. Copper – up 3.5 per cent since the beginning of the year – jumped 1.6 per cent on Wednesday night amid evidence of tightening supply, further buoyed by a drop in the US dollar. “The fundamentals (for copper) look pretty strong. There’s likely going to be a deficit this year. The supply issues we saw in the beginning of the year with Grasberg and Escondida haven’t been resolved … they will resurface,” said Nitesh Shah, commodity strategist at ETF Securities.

New jobs

Employment rose by 133,500 in the three months to May, the biggest quarterly gain in jobs for over two years. But the gains aren’t even. Demand for hospital workers, baristas, app developers and Uber drivers largely explain Australia’s very strong employment growth, Citi says. The snag – these jobs generally have lower wages, while the economy is still shedding high paying jobs in mining or finance. Healthcare remains Australia’s biggest employer with 1.6 million employees, having added more than half a million new jobs over the past 10 years.

Yield curve

The US Treasury yield curve flattened to almost 10-year lows as investors evaluated the impact of hawkish comments by Federal Reserve officials on the economy even as inflation measures are deteriorating. A flattening yield curve is often interpreted as a negative economic indicator as it shows concerns about the future pace of growth and inflation, because buyers of long-dated debt would demand higher yields if they expected higher costs. “The Fed’s optimism has no real counterpart in any of the data that we’ve seen so far,” said BMO rates strategist Aaron Kohli.


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