Banks lead ASX fightback

The ASX opened solidly lower on Monday but recovered throughout the day, almost entirely making up the losses to finish only slightly lower by the close.
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The benchmark S&P/ASX 200 Index finished down 0.1 per cent to 5746.7, while the broader All Ordinaries was also down just 0.1 per cent.

“Weakness in resource stocks was offset by strength in the banks,” said Atlas Fund Management’s Hugh Dive.

The financial sector drove the partial recovery, with the heavyweight big four banks up by between 0.3 and 0.4 per cent, with the exception of CBA, which ended the day flat.

Mr Dive said investors were positioning ahead of the May bank earnings results, which he expected should be upbeat. “Bad debts should be lower, and you’ve got the loan repricing,” he said. “And they’re normally quite strong in the lead-up to May.”

Loan repricing – all four banks raised interest rates out-of-cycle with the Reserve Bank last week – was also the topic of a Macquarie note on the sector, which forecast a 3 per cent boost to bank earnings due to recent “repricing initiatives”.

“In the short term, we see banks’ ongoing ability to reprice and maintain earnings growth as a positive for the sector,” they wrote. While the ability to raise interest rates without RBA movement is positive for the sector, Macquarie remains “neutral” on it given “relatively high regulations and increasing regulatory risks”.

Meanwhile, continuing weakness in key commodity prices dragged on the miners. BHP Billiton fell 2.9 per cent, Fortescue Metals shed 3.0 per cent. while Rio Tinto gave up 1.8 per cent.

Falling on the day it announced a $US500 million ($655 million) share buyback was South32. Mr Dive speculated the lack of “juice” in the announcement – the stock fell 1.8 per cent – might partly be because investors were worried about a repeat of BHP’s top-of-cycle share buyback in 2011.

Myer shares jumped 18.3 per cent towards the end of the day after a big block trade of more than 81 million shares was sold at $1.15 – well above the day’s open at $1.08.

Shares in Downer EDI recovered some ground from Friday’s 21 per cent slump, closing up 3.1 per cent.

Gold miners were, in their usual contrarian fashion, the standouts, after the yellow metal’s price climbed above $US1250 an ounce. Newcrest rose 1.3 per cent while St Barbara added 2 per cent. The All Ordinaries gold index ended the day 1.9 per cent higher.

Stock watch: Funtastic

Struggling toy and confectionary wholesaler Funtastic dropped 47 per cent to less than 1c after it announced it was taking steps to delist from the n Securities Exchange. The delisting announcement came after a decade’s worth of sliding earnings and shares. Funtastic, which distributes Cabbage Patch Kids, Care Bears and Star Wars branded toys and merchandise, has seen its share price fall markedly since a profit warning in 2007. Its shares were trading around $1.57 in December 2006 but fell to 16.6 cents by December 2008. At their peak in 2003, they were at $2.13. Funtastic said that over the past six months less than 2 per cent of its shares have traded in any one month.

Property soars

House prices remained on a tear, jumping more than 5 per cent in Sydney since the start of the year and 4.4 per cent in Melbourne, but BetaShares chief economist David Bassanese is convinced the RBA won’t hike rates in response. Raising rates might well work to at least momentarily cool prices, but won’t tackle the real underlying drivers of their house price boom unless the the central bank tightened policy dramatically. “And were the RBA to tighten more aggressively, the wider-ranging effects on the economy would be disastrous,” Mr Bassanese said.

Japanese Yen

A reassessment on the likelihood of pro-growth policies in the US, and a series of domestic and technical factors, combined to reignite buying interest in the yen – for which analysts see more upside. Rising Japanese real-interest rates, the yen’s haven status from global political uncertainty and technical signals monitored by foreign exchange traders have helped the currency rebound 7 per cent from December lows against the US dollar. A further 2 per cent rise to 108 yen per US dollar is possible by June, according to market participants

Oil review

A joint committee of ministers from OPEC and non-OPEC oil producers agreed to review whether a global pact to limit supplies should be extended by six months, OPEC said in an overnight statement. An earlier draft of the statement had said the committee “reports high level of conformity and recommends six-month extension”. But the final version said only that the committee had requested a technical group and for the OPEC Secretariat to “review the oil market conditions and revert … in April, 2017 regarding the extension of the voluntary production adjustments

Iron and steel

Chinese steel and iron ore futures plunged to their lowest in more than six weeks, extending a five-day losing streak as speculative investors continued their exodus amid mounting concerns about demand and growing inventories – which grew at major ports for the second week in a row. Steel is set for its worst day since early February, with the most-active rebar contract on the Shanghai Futures Exchange down 4 per cent at 3026 yuan ($US440.31) a tonne. Iron ore on the Dalian Commodity Exchange plunged 6 per cent to 545.5 yuan ($US79.37) per tonne.

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