by Jessica Sier (Australian Financial Review)
Gold stocks had a horrific session on Wednesday, leading the market’s fall after the precious metal nosedived on fears of US interest rate rises and a nearing taper of European Central Bank stimulus.
The All Ordinaries Gold sub-index lost 6.4 per cent, or around $3 billion in value, as the volatile sector suffered its worst day in five months.
An article by Bloomberg claiming the European Central Bank was considering unwinding its 80 billion-euro monthly buying program sent financial markets into a tailspin, even though the report was not confirmed.
The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each fell 0.6 per cent to 5452.9 points and 5537 points respectively.
“That uncomfortable feeling in the markets of negative interests and the negative feedback loop they create is still there,” said Romano Sala Tenna, portfolio manager at Katana Asset Management. “It’s created a real distortion in most asset classes and so people are still concerned about that.”
“We get to this stage in the year and most of the major signals and annual reporting is over and after Melbourne Cup things kind of grind to a halt. So most market movement will come from offshore,” said Mr Sala Tenna.
Shares in Australia’s largest gold producer Newcrest were smashed and closed down 5.1 per cent. Evolution Mining, Northern Star Resources and St Barbara all lost more than 8 per cent.
Bank stocks lifted marginally as the ANZ chief faced a banking inquiry in Canberra. Traditionally, bank stocks have enjoyed investor interest throughout October as ANZ, Westpac and National Australia Bank go ex-dividend in the first and second week of November.
“This is traditionally the best performing months for three of the banks in October,” said Mr Sala Tenna. “Generally (we) get a rally this month and certainly this is where selling dissipates again, not many people will sell this close to ex-dividend usually.”
Oil ticked higher over $US51 a barrel and iron ore was largely flat on Wednesday and saw the major resources players sell off slightly. BHP Billiton and Rio Tinto closed down 0.2 per cent and 1.1 per cent respectively.
In other equities news, shares in Universal Biosensors have jumped as much as 28.8 per cent after the US Food and Drug Administration cleared its coagulation analyser, used to measure blood platelet, for sale in the US.
Stock Watch
Shares in Estia Healthcare were put in a trading halt on Wednesday ahead of the company’s first quarter results. Last month chairman Pat Grier said the company was conducting a review into federal government clarifications on what fees aged care operators could charge. Shares in fellow aged care providers Japara Healthcare and Regis Healthcare also slumped on Wednesday, down 7.7 per cent and 4.8 per cent respectively. Analysts CLSA, Bank of America Merrill Lynch and Mcquarie downgraded their earnings forecast for Estia, Japara and Regis last month following the government’s announcement. Stocks in Estia are frozen at $3.30.
Market Movers
ECB taper
Reports that the European Central Bank is thinking about winding down its bond purchasing program before the conclusion of quantitative easing sparked a sell-off in global bonds and equities as well as a mini-rally in the euro, but NAB reckons the market may have over-reacted to the headlines. “Discussion on how to go about ending the program doesn’t necessarily mean it is about to happen,” it said, adding that the story by Bloomberg also said officials did not exclude the asset purchase program could still be extended.
Retail
Retail spending rose 0.4 per cent in August to $25.1 billion, better than market expectations. Department stores were the best performing sector of the retail industry, where sales leapt 3.5 per cent, after plunging 5.8 per cent in July, while there was a 1.2 per cent lift in the value of cafe, restaurant and takeaway food sales. The better than expected figures will help ease concerns that slowing consumption growth in the second quarter of 2016 was the beginning of a significant slowdown, Capital Economics said.
Syrah Resources
Managing director Tolga Kumova of much-hyped graphite company Syrah Resources announced his resignation, sending the shares plunging 22.8 per cent. The company, whose shares surged from just 8¢ in 2011 to hit a high of $6.66 in June, plunged as much as 26.3 per cent to $3.20. The stock was worth $3.35 at Wednesday’s close. The company is currently constructing its graphite mine in Mozambique and should be in production in the second quarter of 2017. It will be the biggest producer in the wold of high purity graphite, a key ingredient in the new wave of lithium batteries.
Banking Inquiry
ANZ chief executive faced the banking inquiry on Wednesday and was forced to justify his million-dollar pay packet which was unaffected despite falling profits and lower customer satisfaction at the bank. Elliott took over as chief executive last year, with his new salary reportedly $6.1 million, which includes fixed remuneration of $2.1 million along with incentives. In May the bank reported a 22 per cent fall in its half-year profits, which fell to $2.8 billion, which led to a cut in dividend.