australian stocks close flat as investors tread water pending fed news 1173422015

Fortescue’s decision to pull its refinancing proposal does not bode well for the iron ore sector

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By :  ,  Financial Analyst

Australian stocks ended mostly unchanged in Wednesday’s trading as investors preferred to wait until news emerged on the monetary policy meeting of the US Fed, expected to give clues into its thinking on the future course of interest rates. While overnight losses on Wall Street were a bearish factor, energy stocks were weighed down by fresh bearishness in the crude oil price. Meanwhile, the decision by Fortescue Metals Group Limited (ASX:FMG) to pull its US$2.5 billion (AU$3.2 billion) refinancing deal affected market sentiments negatively.

In interesting market action, shortly after 13:00, the S&P/ASX 200 index took a sharp spike downwards in response to a likely ‘fat finger’ trade in the ASX 200 SPI futures market worth almost AU$580 million and comprising about 4,000 futures contracts. As a result, the index touched the day’s low of 5,788.60, before rebounding sharply higher and neutralising all of the day’s losses by the end of the session.

Indices and sectors

The benchmark S&P/ASX 200 on Monday rose 0.2 points, or 0.0 per cent, and closed at 5,842.3, while the broader All Ordinaries index was down 3 points, or 0.1 per cent, at 5,808.

The significant gaining sectors were healthcare (+1.24 per cent), telecommunications (+0.62 per cent), industrials (+ 0.42 per cent) and materials (+0.36 per cent). The biggest losing sectors were utilities (-1.21 per cent), consumer staples (-0.86 per cent), consumer discretionary (-0.56 per cent) and energy (-0.45 per cent).


Mining stocks fared mixed. Though BHP Billiton Limited (ASX:BHP) gained 1.44 per cent to AU$30.20 and Rio Tinto Limited (ASX:RIO) was up 0.66 per cent to AU$58.22, Fortescue Metals Group Limited (ASX:FMG) plunged 5.33 per cent to AU$1.87.

Fortescue decided to defer its US$2.5 billion offering, a day after its opening, on grounds of unfavourable debt capital market conditions. “Whilst we have no debt maturing until April 2017, the objective of the refinancing was to extend Fortescue’s maturity profile and minimise interest costs,” said chief executive Nev Power. “Debt capital markets were not favourable at this time and, as a result, we think it is a disciplined and prudent decision to defer the voluntary refinancing at this stage,” he said.

With the exception of Woodside Petroleum Limited (ASX:WPL), which gained 0.78 per cent to AU$34.86, other prominent energy stocks all ended in the red as crude oil prices lurched south again. Origin Energy Ltd (ASX:ORG) fell 1.29 per cent to AU$11.48, Oil Search Limited (ASX:OSH) fell 1.18 per cent to AU$7.56, and Santos Ltd (ASX:STO) was down 1.67 per cent to AU$7.06.

The big banks ended mixed. While Commonwealth Bank of Australia (ASX:CBA) and National Australia Bank Ltd. (ASX:NAB) declined 0.02 per cent and 0.10 per cent respectively, Australia and New Zealand Banking Group (ASX:ANZ) and Westpac Banking Corp (ASX:WBC) gained 0.03 per cent and 0.36 per cent respectively.

Amongst retailers, Woolworths Limited (ASX:WOW) closed unchanged at AU$28.67 turning ex-dividend, Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, fell 0.07 per cent to AU$43.90, and Myer Holdings Ltd (ASX:MYR) plunged 2.24 per cent to AU$1.53.

Economic news, currency and insight

The Deloitte Access Economics Retail Forecasts said retail sales are expected be healthy during 2015, driven by low interest rates, cheap petrol and rising asset prices. The report expects that retail sales, after adjusting for inflation, may grow 3.4 per cent in 2014-15, up from 3.1 per cent in 2013-14. However, the report warns that the latest financial year would be the peak of the cycle for retail, and that sales growth in 2015-16 may moderate to 2.3 per cent, according to The Sydney Morning Herald.

The Westpac-Melbourne Institute Leading Indexes of Economic Activity for the month of February showed a positive 0.45 per cent reading, a substantial improvement on the previous month’s reading of a negative 0.32 per cent. "After showing persistently weak, sub-trend momentum over the last 12 months, this is the most promising result in quite some time," said Westpac senior economist Matthew Hassan. "It suggests that the Australian economy will start to regain some momentum towards the end of this year, although it remains to be seen how well this pick-up is sustained," he said.

The Federal Reserve’s policy statement last night removed any references to being “patient” on interest rates thereby signalling that it was moving closer to hiking interest rates for the first time since 2006. However, Fed Chair Janet Yellen hinted that she might hasten slowly on rate hikes. "Just because we removed the word 'patient' from the statement doesn't mean we're going to be impatient," she said. That, taken with a cut to the inflation outlook for 2015, as well as economic growth, sent an overall dovish message to the markets sending stocks as well as oil prices surging higher, and pushing the dollar down against major currencies, according to Reuters.

The Dow Jones Industrial Average rose 227.11 points, or 1.27 percent, to 18,076.19, the S&P 500 gained 25.14 points, or 1.21 percent, to 2,099.42 and the Nasdaq Composite added 45.39 points, or 0.92 percent, to 4,982.83.

The decline in the US dollar had a salutary effect on the local currency which jumped past the 78 US cents level in offshore trade, according to The Australian. At 07:40 this morning, however, the Australian dollar was trading somewhat lower at 77.86 US cents.

The stock market is likely to open higher today given that the March ASX SPI200 Index (AP) Futures was up 27 points at 5,880.00 at 06:59 this morning (AEDT).

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