australian stocks make it three losing sessions in a row 1355542015

Banks and financial stocks led the Australian share market to its third successive daily loss on Thursday, while the overnight bearish close on Wall Street also weighed on share prices. Investors appeared to shrug off increasing speculation that the strength in the Australian dollar and a slowing economy would force the Reserve Bank of Australia to cut interest rates at its forthcoming monetary policy meeting on Tuesday.

Investors offloaded bank stocks, deterred by comments from the APRA chief that the large banks may have to put up additional capital reserves against mortgage lending. "It's in front of investors' minds – if capital requirements go up then return on equity suffers and you start to question the sustainability of their dividends," said Watermark Funds Management analyst Omkar Joshi, as quoted by The Sydney Morning Herald. “This is of particular concern when by all other measures the shares are trading at ‘extreme valuations’," he added.

In market action, stocks started to fall right from the opening hour of trade and the S&P/ASX 200 touched 5749.90, its lowest point for the day, shortly before 1 PM. A rally emerged thereafter, and the index closed well off its lows, though with most of its losses intact.

Indices and sectors

The benchmark S&P/ASX 200 on Wednesday fell 48.6 points, or 0.8 per cent, and closed at 5,790.0, while the broader All Ordinaries index was down 44.5 points, or 0.8 per cent, at 5,773.7.

The only sectors to end with gains were consumer staples (+1.23 per cent), industrials (+0.33 per cent) and utilities (+0.23 per cent). The top losing sectors on the day were financial REITS (-1.64 per cent), financials (-1.55 per cent), telecommunications (-1.39 per cent) and consumer discretionary (-0.61 per cent).

Stocks

Investors continued to stampede out of banking stocks. Commonwealth Bank of Australia (ASX:CBA) fell 1.88 per cent to AU$88.87, Westpac Banking Corp (ASX:WBC) was down sharply by 2.51 per cent to AU$36.46, Australia and New Zealand Banking Group (ASX:ANZ) plunged 2.19 per cent to AU$33.99 and National Australia Bank Ltd. (ASX:NAB) was down 1.84 per cent to AU$36.77.

According to a report in The Sydney Morning Herald, the big four Australian banks have lost nearly AU$20 billion in value over the past week on increasing apprehension that the Australian Prudential Regulation Authority (APRA) will soon crackdown on banks’ lending that has triggered rampant property speculation. Given that APRA chairman Wayne Byres has made no secret of his intentions to implement, sooner rather than later, the recommendations from an enquiry into the financial system, primarily by way of holding additional capital reserves against mortgage lending, the big four banks would lose a competitive edge opposite the smaller, regional banks. "The level of competition would change," said Vince Pezzullo, a portfolio manager at Perpetual Funds Management. "Regionals will have an ability to compete on mortgages, the banks' most profitable product, for the first time since pre-GFC."

Mining stocks were also sold off. BHP Billiton Limited (ASX:BHP) fell 0.22 per cent to AU$31.97, Rio Tinto Limited (ASX:RIO) was down 0.97 per cent to AU$57.15 and Fortescue Metals Group Limited (ASX:FMG) slumped 4.41 per cent to AU$2.17. BC Iron Limited (ASX:BCI) lost 4.44 per cent to AU$0.430 and Mount Gibson Iron Limited (ASX:MGX) shed 2.38 per cent to AU$0.205. Fortescue Metals was the fifth largest loser on the S&P/ASX 200.

Telecommunications was a sea of red too. Telstra Corporation Ltd (ASX:TLS) fell 1.42 per cent to AU$6.23, TPG Telecom Ltd (ASX:TPM) dipped 0.78 per cent to AU$8.94, M2 Group Ltd (ASX:MTU) was down 0.81 per cent to AU$10.98 and iiNet Limited (ASX:IIN) fell over 1 per cent to AU$9.94.

Energy stocks closed mixed. Woodside Petroleum Limited (ASX:WPL) lost 0.40 per cent to AU$35.05 and Origin Energy Ltd (ASX:ORG) was down 0.16 per cent to AU$12.74. However, Oil Search Limited (ASX:OSH) Ltd was up 0.25 per cent to AU$8.09 and Santos Ltd (ASX:STO) gained 0.24 per cent to AU$8.30.

The retailers too, closed mixed. While Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was up 1.65 per cent to AU$43.71 and Woolworths Limited (ASX:WOW) rose 0.89 per cent to AU$29.48, Caltex Australia Limited (ASX:CTX) fell 0.87 per cent and Myer Holdings Ltd (ASX:MYR) dipped 0.36 per cent to AU$1.38.

Qantas Airways Limited (ASX:QAN) swam against the tide and shot up 4.63 per cent to AU$3.39, while rival Virgin Australia Holdings Ltd (ASX:VAH) closed unchanged at AU$0.510.

Economic news, currency and insight

Andrew Harding, the Chief Executive of the iron ore division of Rio Tinto Limited (ASX:RIO), added to the mounting war of words in the iron ore industry when he told the Australian Financial Review that Fortescue Metals Group Limited (ASX:FMG) founder Andrew Forrest should get his own house in order before indulging in a blame game against Rio Tinto for the global iron ore glut.

Harding said, as quoted by the Australian Financial Review: "I can understand, if you are not a low-cost producer, and you have made your investment at an irrationally high time in the marketplace, well above the average price for the past many decades, that you would be troubled by current circumstances. But that is your responsibility, your business decision. The response to that is to fix your own business – not give business advice to others, and definitely not create an environment in Australia where this long-term strategy, which is good for the country, and good for the company, is cast into question."

However, Lourenco Goncalves, Chief Executive of US iron ore miner Cliffs Natural Resources Inc (NYSE:CLF) added fuel to the fire by claiming that BHP and Rio were “basically terrorizing” the market by their drumbeat of higher production growth. Claiming that the two mining majors had determined to shut down Fortescue Metals Group Limited (ASX:FMG), Goncalves said they were “playing the game of scaring everybody else” by threatening to make huge additions to their supply capacity.

On Wall Street, the major indices ended lower with the NASDAQ index chalking up the largest loss due to a decline in Apple’s share price and disappointing results from tech and biotech companies. "Biotechs and tech were leaders and now they've reversed," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York, as quoted by Reuters. "Earnings don't really support the valuations at this time, and I think the market needs to correct a bit. As we go into May I would say the best prescription would be to sell in May and go away."

The Dow Jones Industrial Average fell 195.01 points, or 1.08 percent, to 17,840.52, the S&P 500 lost 21.34 points, or 1.01 percent, to 2,085.51 and the Nasdaq Composite dropped 82.22 points, or 1.64 percent, to 4,941.42.

The Australian dollar has weakened following better-than-expected US economic data, and the looming RBA meeting scheduled for next week. At 07:00 this morning (AEST), the Australian dollar was trading at 79.06 US cents, down from 79.68 US cents on Thursday, according to the Business Spectator.

The Australian stock market is likely to open lower today given that at 06:57 this morning (AEST), the June ASX SPI200 Index (AP) Futures was trading down by 4 points at 5,753.0.