A large slump in Commonwealth Bank held the sharemarket back on Friday, but the ASX still managed to end the first week of earnings season slightly higher.
Investors on Friday moved more aggressively to sell CBA shares as further details emerged of the scope of the civil case being brought against the bank by the anti-money laundering regulator. CBA shares dropped a sharp 3.9 per cent to drag the benchmark S&P/ASX 200 index down 0.25 per cent to 5720.6 points.
The index still ended the week 0.3 per cent higher despite a mixed batch of earnings reports.
“The start of reporting season was a bit of a fizzer really, with Navitas, ResMed, Rio Tinto and Suncorp all disappointing so far,” said Citi equities director Karen Jorritsma.
Citi upgraded ResMed to a ‘buy’ despite missing expectations, following Wednesday’s 6 per cent sell-off on a flat margin outlook.
“Valuation looks appealing again here and we assume that mask growth returns to at least market rates which should leave the full-year 2018 margin guidance looking conservative,” Ms Jorritsma said.
ResMed shares dropped 2.2 per cent over the week, its sixth straight week of losses after a strong start to the year.
Rio Tinto was also a miss, disappointing very lofty expectations. The stock fell the day after it reported, but investors quickly stepped back in to lift the shares 1.6 per cent over the week.
“We stick with the ‘buy’ call based on the strong free cash flow and potential for additional capital management when the Coal & Allied sale closes, particularly at current iron ore prices,” Ms Jorritsma said, adding she saw potential for $US2.6 billion in additional capital management in 2018 and $US3.8 billion in 2019 even if gearing was kept at a very conservative 10 per cent.
In a relatively quiet day of reporting Friday, Tabcorp revealed a $21 million loss thanks to costs related to its proposed acquisition of Tatts, as well as legal costs and spending related to its new UK business. Nonetheless, Tabcorp shares lifted 1.4 per cent on Friday.
Investors smashed Sims Metal Management following the abrupt news that CEO Galdino Claro and CFO Fed Knechtel had resigned, with the stock ending the session down 12.5 per cent.
Webjet shares jumped 8.8 per cent on its return to trade. The online travel agent had spent tow days in a halt as it completed the institutional stage of a capital raising. Stock Watch: Suncorp
Suncorp shares were one of the big underperformers of the week, losing 4.5 per cent over the five days after Thursday’s results came in well below expectations. The negative reaction was exacerbated by a $100 million investment spend surprise that will depress return on equity for another year, Bell Potter’s TS Lim fears. Lim still sees Suncorp’s results as “credible” given solid insurance top line growth, maintaining his ‘buy’ rating, while cutting the price target to $14.85. Other brokers are less sanguine, with both APP Securities and Goldman Sachs downgrading the stock. “Coupled with higher expenses … Suncorp’s earnings trajectory is less compelling in the near term, and we see less prospect of capital management,” Goldman analysts say. Market movers
Retail sales were uninspiring in June, but retail volumes for the June quarter, released simultaneously, were stronger than forecast, coming in at 1.5 per cent. “The strength in retail sales volumes indicates that the improvement in the labour market is gradually spilling into the rest of the economy,” says Barclays economist Rahu Bajoria .Retail trade rose by 0.3 per cent in June to be up 3.8 per cent over the year. Non-food retailing rose by 0.5 per cent in June. Non-food retailing has risen by 2.4 per cent in the past three months and is up 3.8 per cent on a year ago.
The Reserve Bank remains confident the economic recovery is broadly on track, with headline inflation slightly higher than expected, but warns that uncertainties over the rising n dollar, housing prices and China’s economic policies could cloud this outlook. In its quarterly monetary policy statement, the central bank lowered its forecast economic growth by half a percentage point for this year (to 2-3 per cent), and a quarter-point in the first half of next (to 2.5-3.5 per cent), saying the Aussie dollar “had a modest dampening effect” on GDP growth.
Traders sold oil on Friday, with US crude remaining below $US50 a barrel, restrained by rising output from the United States as well as producer cartel OPEC. Brent crude was fetching $US51.88 a barrel late on Friday, with US West Texas Intermediate was trading at $US45.91 a barrel. Traders said prices were being pulled down by rising output, although strong demand prevented bigger drops. “Developments this week have seen some pessimism return to markets,” National Bank said in its August outlook.
The blue-chip Dow Jones Industrial Average closed over the 22,000 mark for the first time on Wednesday, driven by strong earnings results from Apple and Boeing. The Dow is dominated by large multinational companies with a higher-than-average share of international earnings. The Dow is a price-weighted index, meaning names like Apple, with its $US157 price tag, and Boeing, which is trading at $US238 per share, will generally have more of an influence over the index.