australian stocks pull back as investors turn cautious on mining and banking sectors 1346752015

After three straight days of gains in Australian stocks, investors chose to pocket some of the profits Tuesday. They also paid heed to the uncertain Greek situation as well as overnight losses on Wall Street. Despite another surge in iron ore prices, the materials sector ended in the red with key mining stocks giving up some of their recent substantial gains.

Indices and sectors

The benchmark S&P/ASX 200 on Tuesday fell 34.2 points, or 0.6 per cent, and closed at 5,948.5, while the broader All Ordinaries index was down 33.3 points, or 0.6 per cent, at 5,921.5.

Except consumer staples (+0.54 per cent), all other sectors ended in the red. The top losing sectors on the day were healthcare (-1.98 per cent), energy (-0.94 per cent), information technology (-0.93 per cent), materials (-0.65 per cent) and industrials (-0.59 per cent).

Stocks

The larger iron ore miners all ended in the red. BHP Billiton Limited (ASX:BHP) fell 0.46 per cent to AU$32.42, Rio Tinto Limited (ASX:RIO) declined 1.64 per cent to AU$58.79 and Fortescue Metals Group Limited (ASX:FMG) plunged 4.67 per cent to AU$2.45. BC Iron Limited (ASX:BCI) shed 5.66 per cent to AU$0.500 and Mount Gibson Iron Limited (ASX:MGX) closed flat at AU$0.210.

However, amongst gold miners, Newcrest Mining Limited (ASX:NCM) surged 3.56 per cent to AU$14.84, boosted by higher gold prices that appeared to be consolidating around US$1,200. Northern Star Resources Ltd (ASX:NST) was up 5.26 per cent to AU$2.20 and was the top gainer on the S&P/ASX 200. Evolution Mining Ltd (ASX:EVN), the second-largest winner on the S&P/ASX 200, shot up 5.10 per cent to AU$1.03.

In energy, Woodside Petroleum Limited (ASX:WPL) fell 0.86 per cent to AU$35.58, Oil Search Limited (ASX:OSH) was down 2.14 per cent to AU$8.25 and Santos Ltd (ASX:STO) fell 0.60 per cent to AU$8.30. However Origin Energy Ltd (ASX:ORG) managed to close higher by 0.08 per cent at AU$13.07.

The four major banks all faced the brunt of a sell-off. Commonwealth Bank of Australia (ASX:CBA) was down 0.15 per cent to AU$92.58, Westpac Banking Corp (ASX:WBC) shed 1.18 per cent to AU$38.39, Australia and New Zealand Banking Group (ASX:ANZ) closed lower by 0.48 per cent at AU$35.41 and National Australia Bank Ltd. (ASX:NAB) slipped 0.18 per cent to AU$38.38.

In the telecommunications sector, Telstra Corporation Ltd (ASX:TLS) was down 0.31 per cent to AU$6.37, and M2 Group Ltd (ASX:MTU), which entered the bidding war for iiNet Limited (ASX:IIN) two days ago, fell 1.47 per cent to AU$10.74. iiNet Limited shot up 2.24 per cent to AU$10.02, while the other bidder, TPG Telecom Ltd (ASX:TPM), was up 1.78 per cent at AU$9.17. Whichever bidder succeeds in acquiring iiNet, the combined entity would be Australia’s second-largest telecommunications provider. "We're in there having a go at the iiNet​ opportunity," said M2 Group founder Vaughan Bowen, quoted by The Sydney Morning Herald. "Obviously we're realistic about that, we're in a very competitive situation with a very worthy adversary in that one."

Supermarkets and retail turned in a mixed performance. Woolworths Limited (ASX:WOW) jumped 1.95 per cent to AU$29.80 and Myer Holdings Ltd (ASX:MYR) was up 1.88 per cent to AU$1.36. On the other hand, Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, shed 0.05 per cent to AU$43.15 and Caltex Australia Limited (ASX:CTX) dipped 0.14 per cent to AU$35.90.

Economic news, currency and insight

At a Fairfax Media event in Sydney, Westpac deputy chief Phil Coffey warned that banks’ dividend payout ratios had peaked and were unlikely to move higher. He said banks now needed to focus on tightening lending standards and strengthening the balance sheets. “At the end of the day you have to have sufficient capital to back your activity as you look forward and I think we’re not going to see payout ratios move higher from here,” Mr Coffey said, as quoted by The Sydney Morning Herald.

Speaking at the Australian Financial Review’s Banking and Wealth Summit, RBA Governor Glenn Stevens warned that retirees the world over were under a lot of pressure because low interest rates had pushed the cost of purchasing an annual flow of future income very high, forcing them to accept a lot more risk to generate the future income they needed. "How will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low," Mr Stevens questioned. "Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot. Those seeking to make that purchase now – that is, those on the brink of leaving the workforce – are in a much worse position than those who made it a decade ago."

His speech did not offer any indications on what the RBA is likely to decide on the direction of future interest rates. Markets are factoring in a 50 per cent chance that a further rate cut would be implemented at the RBA’s meeting in May, according to adelaidenow.com.au.

Meanwhile, Future Fund Chairman Peter Costello said yesterday: "Given the enormous monetary stimulus around the world, asset prices are generally fully priced and in some cases overpriced." He said the fund would avoid taking "excessive" risk, "particularly important as policymakers globally adjust settings with a view to delivering sustainable growth".

On Wall Street, at the end of a choppy session, the Dow and S&P 500 ended higher, while the NASDAQ declined following Apple’s cue, as the stock ended 1.6 per cent lower a day after reporting phenomenal results. The Dow Jones Industrial Average rose 72.17 points, or 0.4 percent, to 18,110.14, the S&P 500 gained 5.84 points, or 0.28 percent, to 2,114.76 and the Nasdaq Composite dropped 4.82 points, or 0.1 percent, to 5,055.42.

The Australian dollar has shown strength following comments from RBA Governor Glenn Stevens, weakness in the US dollar on softer than expected US economic data, and speculation surrounding the outcome of the US Fed meeting this week. At 07:00 this morning (AEST), the Australian dollar was trading at 80.22 US cents, up from 78.73 US cents on Tuesday, according to the Business Spectator.

The Australian stock market is likely to open higher today given that at 06:45 this morning (AEST), the June ASX SPI200 Index (AP) Futures was trading up by 12 points at 5,938.0.