australian share market pressured by falls in mining and banking stocks 1442972015

Sentiment on the Australian Stock Exchange was adversely affected on news of the collapse of stockbroking firm BBY, now placed under voluntary administration. The market was apprehensive on the likely impact of the unwinding of millions of dollars of the firm’s naked option positions, though regulators and rival broking firms were said to be working to limit the fallout.

A lacklustre opening debut by South32 Ltd (ASX:S32), the BHP Billiton Limited (ASX:BHP) spin-off, pressured BHP’s stock and affected the broad market.

“We haven’t seen a substantial negative move in quite a while, so there is a bit of pressure on stocks with the downward momentum building throughout the day,” Macquarie Equities division director Lucinda Chan said, as quoted by The Australian.

Indices and sectors

The benchmark S&P/ASX 200 on Monday fell 76.3 points, or 1.3 per cent, and closed at 5,659.2, while the broader All Ordinaries index was down 70 points, or 1.2 per cent, at 5,660.0.

There were no gaining sectors. The biggest losing sectors were real estate investment trusts (-2.18 per cent), financials (-1.95 per cent), consumer discretionary (-1.42 per cent), healthcare (-1.18 per cent) and energy (-1.00 per cent).

Stocks

Mining stocks were sold off across-the-board. BHP Billiton Limited (ASX:BHP) slumped 7.26 per cent to AU$30.13, Rio Tinto Limited (ASX:RIO) was down 1.12 per cent to AU$57.45 and Fortescue Metals Group Limited (ASX:FMG) was unchanged at AU$2.29. Mount Gibson Iron Limited (ASX:MGX) fell 2.08 per cent to AU$0.235, while BC Iron Limited (ASX:BCI) shot up 6.98 per cent to AU$0.460.

BHP Billiton Limited (ASX:BHP) was sold off following the subdued trading debut of its South32 Ltd (ASX:S32) mining spin-off. South32 shares opened for trading at AU$2.13 on the ASX, at the lower range of expectations, valuing the company at approximately US$9 billion (AU$11.3 billion). BHP Billiton was the second largest loser on the S&P/ASX 200 yesterday.

Energy stocks were also mostly weak. Woodside Petroleum Limited (ASX:WPL) fell 1.20 per cent to AU$34.58, Origin Energy Ltd (ASX:ORG) was down 1.15 per cent to AU$12.91, Oil Search Limited (ASX:OSH) shed 2.53 per cent to AU$7.33 and Santos Ltd (ASX:STO) fell 3.07 per cent to AU$8.20.

Investors punished banking stocks and three of the larger banks lost over 2 per cent each. Commonwealth Bank of Australia (ASX:CBA) was down 2.06 per cent to AU$83.00, Westpac Banking Corp (ASX:WBC) fell 2.51 per cent to AU$32.22, Australia and New Zealand Banking Group (ASX:ANZ) shed 2.54 per cent to AU$32.28 and National Australia Bank Ltd. (ASX:NAB) closed lower by 1.51 per cent to AU$34.00.

Amongst retailers, Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, fell 1.05 per cent to AU$44.50, Woolworths Limited (ASX:WOW) shed 0.52 per cent to AU$28.85 and Myer Holdings Ltd (ASX:MYR) plunged 2.56 per cent to AU$1.52. However, Caltex Australia Limited (ASX:CTX) moved up 2.39 per cent to AU$32.96.

Telecommunications stocks were not spared the sell-off either. Telstra Corporation Ltd (ASX:TLS) slipped 0.32 per cent AU$6.18, TPG Telecom Ltd (ASX:TPM) was down 2.11 per cent to AU$8.81, M2 Group Ltd (ASX:MTU) fell 0.36 per cent to AU$11.05 and iiNet Limited (ASX:IIN) gave up 0.72 per cent to close at AU$9.72.

In airlines, Qantas Airways Limited (ASX:QAN) was down 1.11 per cent to AU$3.56, while rival Virgin Australia Holdings Ltd (ASX:VAH) did worse and came off 2.00 per cent to close at AU$0.490.

Economic news, currency and insight

Data from the Australian Bureau of Statistics showed that new motor vehicles sales declined 1.5 per cent in April after rising 0.7 per cent in March. Passenger vehicle sales were down 8.3 per cent to 41,194, while other vehicles fell only 0.6 per cent to 19,468. However, sales of sports utility vehicles sales rose 7.5 per cent to 84,225, as reported by 9News.

Speaking at a Corporate Finance Forum in Sydney on Monday, Reserve Bank of Australia deputy governor Philip Lowe indicated that interest rates could still fall further, according to the ABC. Referring to the most recent rate cut about a fortnight ago, and a lack of guidance from the central bank on the likely future course of interest rates, he said: "We still have scope to lower interest rates if we need to. That doesn't mean we're going to, but we have scope to do that. Nothing has changed in that dimension."

It may be noted that the RBA will release its May board meeting minutes at 11.30am Tuesday.

Corporate regulator, the Australian Securities and Investments Commission (ASIC), has struck a warning on the rise in property prices in Sydney and Melbourne. "I think that the Sydney and the Melbourne markets are very hot. If you look at the average price to income ratio, it is very high," ASIC chairman Greg Medcraft told The World Today, according to ABC. "History has shown that often you don't know you're in a bubble until it's over, but you can look at history and look at historical averages and one can draw their own conclusions," he added.

Mid-tier stockbroking firm BBY is now under voluntary administration with KPMG appointed as administrator. "I regret to inform staff that despite exhaustive efforts by the BBY board to secure investors to inject additional capital into BBY we have been unsuccessful," BBY Executive Chairman Glenn Rosewall said in a note to staff cited by the Australian Financial Review. The stockbroker’s efforts to obtain additional funding amounting to AU$2.5 million to AU$3 million from AIMS Financial Group and another backer apparently failed, as reported by Reuters. The ASX suspended BBY yesterday as a market participant but has allowed it to continue settling its trades. Market manager, ASX Clear has directed BBY clients to move their options business and collateral to another stockbroker by 5 p.m. on Wednesday, according to The Australian.

Iron ore for immediate delivery at the port of Tianjin in China fell 3.2 per cent to a two-week low of USAU$59.00 per tonne, according to a report this morning in The Australian. This was the fifth consecutive losing session for iron ore prices, and raised fears that the latest rally may be coming to an end.

On Wall Street, the Dow Jones industrial average and S&P 500 both ended at record highs on Monday, following a rise in Apple Inc.(NASDAQ:AAPL), and renewed expectations that the interest rate hike from the US Fed would be pushed back due to unimpressive economic data, according to Reuters. The S&P 500 racked up its third straight all-time high close, gaining 6.47 points, or 0.3 percent, to end at 2,129.2 points. The Dow rose 26.32 points, or 0.14 percent, to end at 18,298.88, beating its previous record close of 18,288.63 from March 2. The Nasdaq Composite added 30.15 points, or 0.6 percent, to end at 5,078.44.

The Australian dollar was on the back foot following the dovish comments on the RBA’s interest rate policy by deputy governor Philip Lowe, according to Business Spectator. At 07:00 this morning (AEST), the Aussie was trading at 79.90 US cents, down from 80.12 US cents on Monday.

The Australian stock market is likely to open higher today given that at 06:50 this morning (AEST) the June ASX SPI200 Index (AP) Futures was up by 22 points at 5,687.