Banks brighten up ASX

Gains for the big four banks helped the ASX to advance on Wednesday, with the benchmark closing firmly over the key 6000 level for the first time since the middle of November.
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The S&P/ASX 200 index advanced 26 points, or 0.4 per cent, to 6011. The All Ordinaries rose 29 points, or 0.5 per cent, to stand at 6096. The Australian dollar traded at US75.86 cents.

The ASX’s close over the 6000 level was a “very positive sign,” according to AMP Capital’s head of investment strategy Shane Oliver.

“The market had been due for a correction as it had got very overbought,” he said. “That has been now been worked off.”

Banks were one of the main drivers for the market’s solid performance on Wednesday, with the financial sector accounting for 13 points out of the S&P/ASX 200’s 26 point gain.

Of the big four lenders, CBA rose 0.8 per cent, Westpac and NAB were higher by 0.7 per cent, while ANZ rose 0.5 per cent.

The strength in the sector followed sharp gains for US banks in Tuesday’s session after signs of progress on corporate tax cuts and after incoming Federal Reserve chair Jerome Powell indicated that regulation around the banks may be less onerous going forward.

It’s not an unusual situation for Australian bank shares to follow the US financial sector higher, said Mr Oliver, noting that the sectors have tended to move in tandem ever since the GFC.

He also noted that, while the signals from Mr Powell on regulation would directly impact US financials, they may have implications for Australian lenders as well.

“The US often sets the trend in regulation globally so the shift might eventually come to Australia,” he said. “The tide might be going out on regulation.”

Away from the banks and Origin’s 2.7 per cent climb added to the previous session’s gains when it reaffirmed 2018 earnings guidance and said it was targeting cost reductions at its Australia Pacific LNG liquefied natural gas project.

UBS analysts said that they were retaining their buy rating on the stock, saying they had increased confidence that the combination of lower APLNG costs and higher oil prices will lead to lower debt and higher EBITDA, “facilitating the reduction in interest costs and reinstatement of dividends in FY19.”

Seek shares were lower by 3.6 per cent after the job site provider upgraded its earnings forecast for the current financial year while also indicated that its net interest expense is higher than previously anticipated.

Dealmaking provided a bit of a focus as well, with Capitol Health shares up 1.6 per cent after the firm announced plans to create one of Australia’s biggest providers of diagnostic imaging after making a $356 million takeover offer for Integral Diagnostics, which surged 22.8 per cent.

Stockwatch

Slater and Gordon shares have been on a rollercoaster ride this week, rising 36.8 per cent yesterday before falling 23.1 per cent on Wednesday. In a statement to the ASX, the company noted “higher than usual trading volumes” in its shares. Slater and Gordon told shareholders yesterday that its lender creditors scheme of arrangement had been approved by senior lenders. In October, it told shareholders that a 100 for 1 share consolidation will reduce its share capital to 3.5 million shares from 347.2 million shares and that shareholder interests will be reduced to 5 per cent of its total share capital. Today it reminded shareholders that if its recapitalisation isn’t passed then its solvency will have to be reassessed due to unsustainable debt levels.

RBNZ

The New Zealand dollar traded at US68.96 cents after New Zealand’s central bank on Wednesday said it would unwind some restrictions on home loans to partly offset the impact of planned government curbs on the country’s housing market, which has cooled in recent months. In its half-yearly Financial Stability Report, the Reserve Bank of New Zealand said it would undertake a “modest easing” of loan-to-value ratio restrictions from January 1. The restrictions were stepped up last year. The changes would have a “negligible” impact on monetary policy and would help mitigate some of the impact from new government policies on housing, the central bank said. A ban on foreign purchases of existing homes is due in early 2018.

Oil

Oil prices fell on Wednesday on doubts OPEC and Russia will agree an extended crude production cut that the market has priced in, and after a report of an unexpected rise in US fuel inventories. Brent crude futures, the international benchmark for oil prices, traded at $63.17 a barrel, down 44 cents, or 0.7 per cent. Oil prices have received a broad push this year, with Brent up by 40 per cent since mid-2017, due to an effort by the Organization of the Petroleum Exporting Countries and a group of other producers, led by Russia, to withhold 1.8 million barrels per day of output. The deal expires in March 2018, but OPEC will meet on Nov. 30 to discuss its policy.

Iron ore

Iron ore will weaken next year as global supplies increase including from a new mine in Brazil at the same time that steel production risks topping out in China, according to Goldman Sachs, which expects prices to decline back toward $50 a metric ton. The raw material may fall to $60 a ton in three months, $55 in six and $50 in 12, according to the New York-based bank’s projections, which suggest a second year of lower prices after they dropped in 2017. Benchmark ore with 62 per cent content was recently trading at $67.76 a tonne.

Asia

Asian stocks were mixed as Chinese equities added to declines and a North Korean missile test overshadowed Tuesday’s surge in US equities. In Tokyo the Nikkei 225 Stock Average rose 0.4 per cent, while Hong Kong’s Hang Seng Index slipped 0.3 per cent and the Shanghai Composite Index was down 1 per cent. Pyongyang said the new ICBM puts the whole of the US within target range. North Korea’s missile launch shattered a two-month period of relative quiet in its first provocation since US President Donald Trump’s decision this month to label the country a state sponsor of terrorism.

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