The Australian sharemarket rose for the first week in four and even North Korea’s latest provocation was not enough to offset a strong performance from the banking sector over the past five days.
The S&P/ASX 200 Index finished the week ahead 0.4 per cent, despite a 0.8 per cent decline on Friday to rule off the week at 5695 points.
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.
Global equities climbed to a record high this week as earnings and faith in economic growth overshadow the escalation of tensions on the Korean Peninsula.
The latest missile, which was launched at 6:57am Friday and flew over the northern island of Hokkaido before landing in the Pacific Ocean, comes after the UN Security Council on Monday approved harsher sanctions against North Korea.
Fortescue Metals Group outgoing chief Nev Power. Photo: Trevor Collens
Meanwhile, Fortescue Metals Group chief executive Nev Power will step down from the role in February, after more than six years at the helm of the iron ore producer. Fortescue’s news pushed shares in the group 4.5 per cent lower to $5.55.
Mr Power is the second CEO exit flagged this week after QBE Insurance Group said on Tuesday John Neal would be replaced by Pat Regan; QBE closed at $10.47.
Materials stocks fell 2.2 per cent over the week and energy 1 per cent.
Credit Suisse equity strategy is trimming its exposure to commodity stocks, removing South 32 from its hypothetical long portfolio and introducing Computershare. “What else can go right for the miners,” asked strategist Hasan Tevfik.
Financials added 2.9 per cent over the week, the best performing sector after information technology.
Commonwealth Bank of Australia, which ended the week at $76.28, marked a successful return to global funding markets.
A hawkish turn from the Bank of England on Thursday has fuelled further speculation central banks are entering a coordinated tightening cycle. The Australian dollar fell 0.7 per cent this week, falling for the first week in five, to US80.03¢.
What moved the market
Deutsche Bank gaming analysts are encouraged by “robust” Chinese visitation trends to Australia. Total short-term arrivals into Australia in the first half of calendar 2017 alone are ahead 8 per cent, and 10 per cent from China. However, the holidaying Chinese visitor average spend was down 7 per cent to $2,216 in 2016 from 2015. The broker has a “buy” recommendation on Aristocrat, Star, Tabcorp, Tatts and a “hold” on Crown. It sees the outlook for the sector improving after a “disappointing” year.
America’s Climate Prediction Centre predicts “an increasing chance” of around 55-60 per cent of La Niña during the Northern Hemisphere autumn and winter. What that means for the US natural gas market, according to RBC, is large areas of central North America can expect increased storminess, precipitation, and frequency of cold air outbreaks. Natural gas storage levels in the US are high, “a strong La Niña could produce a colder winter that translates to lower inventory and higher prices. The broker’s standing forecast for 2017-18 is $US3.16 per million british thermal units.
Pound’s big week
The strongest performing major currency over the past five sessions is the British pound, which rallied 1.4 per cent against the US dollar in a week which saw higher than expected UK inflation and a strong hawkish impulse from the Bank of England. The pound was trading at $US1.34 on Friday, after the BoE voted 7-2 to keep rates on hold but signified that “over the coming months” it may adjust policy. The market is now implying a 52 per cent chance of a November hike and that could rise amid what is described as a period of coordinated global tightening.
Bias versus reaction
ANZ’s RBA Bias Index indicates 50 basis points of rate hikes in the first half of 2018, more than the RBA’s “reaction function” suggests. “We think the divergence reflects the fact the Bias Index is capturing the RBA’s increased focus on financial stability,” ANZ’s economists suggest, which is a factor missing from the reaction function. But with macro-prudential tools targeting stability, should the bias reading be disregarded? “The only problem with this is that the bank has made it clear that concerns over financial stability have impacted the setting of the cash rate already. So these concerns do matter.”
Broker UBS finds the share price too high for “quality” stock Regis, whose market cap is testing $2 billion, but has raised its price target to $3.38 from $3.16. It does not see the company heading into the top 100 unless gold rallies or the McPhillamys project expands, and questions whether the “shine will come off” in light of timing risks. Regis is still to deliver a definitive feasibility study in December. The broker’s valuation is $2.94 a share, which includes 54¢ for McPhillamys assuming an Australian dollar gold price of $1,733 an ounce (Regis’ own valuation is $1.05 a share for the project). One of the risks to the project is an increase in power supply costs, the broker notes. UBS has a “sell” recommendation on Regis and sees better value with Evolution Mining and Northern Star Resources.