Mar­kets ig­nore missile threat

Favourites drag down mar­ket

The West Australian - - WESTBUSINESS - Gareth Costa Gareth Costa

US mar­kets shrugged off the North Korean missile threat, but the Aus­tralian share­mar­ket re­versed an early dead cat bounce as the ral­ly­ing Aussie dol­lar weighed on ex­porters.

The S&P-ASX 200 in­dex bounced 0.3 per cent at the open but quickly ran into sell­ing and it fell to a 0.2 per cent loss be­fore clos­ing up just 0.7 points, or 0.01 per cent, at 5669.7.

The dol­lar was up US0.3¢ be­fore con­struc­tion work data showed an un­ex­pected 9.3 per cent surge in June-quar­ter cap­i­tal ex­pen­di­ture, prompt­ing a spike to US80¢ as traders read the news as be­ing growth pos­i­tive and in­creas­ing the like­li­hood of a rate rise next year.

But it later dropped back to US79.60¢ as econ­o­mists sug­gested the con­struc­tion surge was an anom­aly.

West­pac econ­o­mist An­drew Han­lan said the jump was likely a re­sult of the im­por­ta­tion of Shell’s Pre­lude, a float­ing LNG plat­form built in South Korea, with the cap­i­tal spend­ing off­set by the cost of im­port.

He added that in the past the im­pact of the plat­form on the na­tional ac­counts would have been smoothed by hav­ing it amor­tised over the du­ra­tion of its con­struc­tion.

ANZ econ­o­mist Daniel Grad­well said aside from the strength in engi­neer­ing con­struc­tion from the LNG plat­form im­port that would not flow through to June-quar­ter GDP, housing con­struc­tion de­clined fur­ther, and pri­vate non-res­i­den­tial build­ing was also dis­ap­point­ing.

“The pub­lic sec­tor fared much bet­ter as ex­pected, but the up­shot of these re­sults is that pri­vately-funded con­struc­tion will not pro­vide much, if any, sup­port to June-quar­ter GDP,” he said.

Do­mes­tic build­ing per­mits fell 1.7 per cent last month, less than the fore­cast 5 per cent drop, but re­mained down 13.9 per cent in the past year.

Gov­ern­ment 10-year yields jumped 4.5 points to 2.67 per cent af­ter global jit­ters eased, as West­ern lead­ers kept cool heads in an at­tempt not to es­ca­late sim­mer­ing ten­sions over North Korea’s provoca­tive ac­tions.

The Shang­hai com­pos­ite in­dex lost up­side mo­men­tum and was marginally weaker as the cen­tral bank con­tin­ued to keep a tight rein on in­ter­bank fund­ing to limit spec­u­la­tion in housing and com­modi­ties.

Stok­ing sim­mer­ing con­cerns about China’s es­ca­lat­ing debt risks, UBS an­a­lyst Ja­son Bedford said shadow-bank loans from banks in China’s “rust­belt” re­gions grew al­most 15 per cent to 14.1 tril­lion yuan ($2.9 tril­lion) from a year ear­lier, equal to about 19 per cent of eco­nomic out­put.

“This is a sleeper is­sue,” he wrote. “The re­mark­able level of con­cen­tra­tion in re­gional banks in rust-belt re­gion banks, com­bined with ev­i­dence that these as­sets are in­creas­ingly be­ing used to roll over loans to ex­ist­ing bor­row­ers as well as be­ing swapped be­tween banks with­out a clear trans­fer of risk, are alarm­ing.” Div­i­dend hunters’ favourites Tel­stra and Com­mon­wealth Bank were the big­gest drags on the share­mar­ket yes­ter­day.

Tel­stra dived 24¢ to $3.60 af­ter go­ing ex-div­i­dend 15.5¢ and on news that NBNco would not agree to Tel­stra’s plan to mon­e­tise its NBN in­come.

Com­mon­wealth Bank fell 36¢ to $75.37 as in­vestors con­tin­ued to bail out of the em­bat­tled lender fac­ing a drop to a tech­ni­cal target of $70 af­ter its break be­low tech­ni­cal sup­port last week.

ANZ slipped 6¢ to $29.06, Na­tional Aus­tralia Bank dipped 2¢ to $30.06 and West­pac rose 2¢ to $31.16.

UBS an­a­lyst Jonathan Mott said the near-term out­look for bank earn­ings re­mained sound, but “risks are very el­e­vated”.

He said the medium-term out­look re­mained “chal­lenged” given the highly lever­aged con­sumer, lim­ited house­hold in­come growth, Syd­ney and Mel­bourne housing bub­bles and on­go­ing po­lit­i­cal and reg­u­la­tory pres­sure, as high­lighted at CBA.

“This, in our view, is likely to pre­vent any sus­tained re­cov­ery in share prices,” he said

BHP firmed 8¢ to $26.95, Rio Tinto added 10¢ to $66.70 and

Fortes­cue Met­als fell 11¢ to

$5.87. Spot iron ore dropped one per cent to $US76.36 a tonne on Tues­day and Sin­ga­pore iron ore fu­tures eased yes­ter­day.

Ram­say Health Care slumped $3.78 to $68.10 af­ter de­liv­er­ing dis­ap­point­ing earn­ings. Wool­worths added 6¢ to $25.62 and Brick­works lost 8¢ to $12.99.

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