australian stocks follow wall street and commodities lower 1240262015

Bearish overnight cues from Wall Street, and falls in iron ore and crude oil weighed on Australian stocks in Wednesday’s session. Investors appeared to have relegated to the background speculation that the RBA may reduce interest rates at its meeting next Tuesday, particularly in the context of data that showed house prices, particularly in Sydney, were still on a tear.

The S&P/ASX 200 finally made up its mind to head south after a volatile opening hour of trade and touched its low for the day of 5,843.90 shortly after noon. There was another spell of volatile trading leading into the close for the day, but a last gasp rally in the final hour ensured a close well above the low for the day.

Indices and sectors

The benchmark S&P/ASX 200 on Wednesday fell 30.7 points, or 0.5 per cent, and closed at 5,860.8, while the broader All Ordinaries index was down 29 points, or 0.5 per cent, at 5,832.9.

The main gaining sectors were telecommunications services (+0.40 per cent) and healthcare (+0.30 per cent). The significant losing sectors yesterday were materials (-1.91 per cent), energy (-1.72 per cent), consumer staples (-0.86 per cent) and utilities (-0.66 per cent).

Stocks

A fresh overnight plunge in the price of iron ore took a toll on mining stocks. BHP Billiton Limited (ASX:BHP) fell 2.22 per cent to AU$30.34, Rio Tinto Limited (ASX:RIO) ended lower by 1.43 per cent at AU$56.41, Fortescue Metals Group Limited (ASX:FMG) plunged 3.32 per cent to AU$1.89 and Atlas Iron Limited (ASX:AGO) remained unchanged at AU$0.130. Mount Gibson Iron Limited (ASX:MGX) fell sharply by 4.5 per cent to AU$0.210, while BC Iron Limited (ASX:BCI) was down 2.70 per cent at AU$0.360.

The Australian reported this morning that iron ore prices finally broke down through the key US$50 level for the first time in a decade in overnight trading. Benchmark iron ore for immediate delivery to the port of Tianjin in China was last trading at US$49 a tonne, down 3.9 per cent from its prior close of US$51 a tonne.

According to the Australian, analysts are turning down valuations of South32, the BHP Billiton spin-off company, following the downtrend in the prices of its key output metals. Deutsche Bank expects that, when it lists early June, South32 will likely trade at AU$2.0 per share, or a market capitalisation of AU$10.6 billion.

Energy stocks were also on the losers’ list yesterday following declines in the price of crude oil. Woodside Petroleum Limited (ASX:WPL) fell 1.85 per cent to AU$33.80, Origin Energy Ltd (ASX:ORG) was down 1.24 per cent to AU$11.17, Oil Search Limited (ASX:OSH) Ltd slipped 2.64 per cent to AU$7.01 and Santos Ltd (ASX:STO) cracked nearly 3 per cent to AU$6.90.

All the big banks closed in the red. Commonwealth Bank of Australia (ASX:CBA) was down 0.09 per cent to AU$93.32, Westpac Banking Corp (ASX:WBC) Corporation fell 0.51 per cent to AU$39.18, Australia and New Zealand Banking Group (ASX:ANZ) dipped 0.52 per cent to AU$36.45 and National Australia Bank Ltd. (ASX:NAB) was down 0.31 per cent to AU$38.43.

With the exception of Caltex Australia Limited (ASX:CTX), which gained 0.52 per cent to AU$35.13, retail stocks closed lower too. Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, dipped 0.90 per cent to AU$43.55, Woolworths Limited (ASX:WOW) fell 0.98 per cent to AU$29.20 and Myer Holdings Ltd (ASX:MYR) lost 1.85 per cent to AU$1.33.

Airline stocks offered some relief from the gloom in the market. Qantas Airways Limited (ASX:QAN) ended higher by 2.24 per cent at AU$3.19, while Virgin Australia Holdings Ltd (ASX:VAH) soared 6.80 per cent to AU$0.55.

Telstra Corporation Ltd (ASX:TLS) ended higher by 0.32 per cent at AU$6.33. The company’s health unit reportedly acquired health-analysis firm Dr Foster Ltd for an undisclosed amount.

Shares in early warning provider Aeeris Ltd (ASX:AERXBB), issued to new investors at AU$0.25 apiece, commenced trading yesterday and closed lower by two cents at AU$0.23. The company owns the Early Warning Network and provides warnings of natural disasters, workplace accidents or health issues on a smart watch.

Economic news, currency and insight

Data according to the CoreLogic RP Data Home Value Index shows that house prices in Sydney surged in the first quarter of 2015 driven by low mortgage rates, according to Australian Broker Online. Sydney home prices are up 3 per cent over March, 5.8 per cent over the quarter and 13.9 per cent over the year according to the index. “Over the current growth phase, Sydney dwelling values have increased by 38.8 per cent with Melbourne second strongest at 23.6 per cent, said CoreLogic RP Data head of research Tim Lawless. “On the other hand, total dwelling value growth over the current cycle has been less than 10 per cent in Adelaide, Hobart and Canberra,” he added.

“Despite the headwinds of softer labour markets, very low rental yields, increased oversight on lending conditions and heightened economic uncertainty, historically low mortgage rates appear to be adding further stimulus to the housing market, albeit that stimulus is largely being felt in Sydney,” Lawless said in a significant observation, as quoted by Australian Broker Online.

Data on building approvals from the Australian Bureau of Statistics showed that 18,768 dwellings were approved in February, a 3.2 per cent decline from the January record, but nevertheless higher by over 14 per cent compared to February 2014, according to ABC. "Today's results for February show that activity remains at exceptionally high levels, with a solid pipeline of activity set to remain in play over the coming months," said the Housing Industry Association's senior economist Shane Garrett.

Overnight on Wall Street, stocks ended lower on somewhat disappointing economic data as well as apprehensions of the imminent earnings season which could see profits at multinationals being crimped by the strength in the dollar. The Dow Jones Industrial Average fell 77.94 points, or 0.44 percent, to 17,698.18, the S&P 500 lost 8.2 points, or 0.4 percent, to 2,059.69 and the Nasdaq Composite dropped 20.66 points, or 0.42 percent, to 4,880.23, according to Reuters.

The Australian dollar ruled weak in overnight trading driven down by fresh falls in the iron ore price, as well as expectations that the RBA may implement another rate cut next week, according to Business Spectator. At 07:10 this morning (AEDT), the local currency was trading at 75.99 US cents, down from 76.28 US cents yesterday.

However, the Australian stock market is likely to open higher today given that at 06:59 this morning (AEDT) the June ASX SPI200 Index (AP) Futures was trading up by 23 points at 5,871.