The share market started a new month with solid gains on the eve of the most significant Reserve Bank meeting since the early days of the pandemic.
The S&P/ASX 200 climbed 47 points or 0.64 per cent. The rally reversed almost half of Friday’s 107-point loss.
Gains in Telstra, CSL and Fortescue Metals offset a 7 per cent plunge in Westpac after the bank’s full-year result was marred by tightening margins and a rise in costs.
What moved the market
A sharp decline in bond yields helped soothe concerns about rising interest rates ahead of tomorrow’s RBA meeting. The yield on ten-year Australian government bonds retreated 18 basis points to 1.913 per cent.
Friday’s explosive move in yields above 2.1 per cent triggered a panicky sell-off on the ASX as traders prepared for “official” rates rising sooner than the RBA’s guidance. The bank meets tomorrow for what will be the most closely-watched policy meeting in at least a year.
Westpac today called on the bank to abandon its rates guidance and yield control policy (a technique whereby the bank bought bonds to suppress three-year bond yields). The bank also expects the RBA to revise its economic forecasts.
“Tomorrow’s RBA Board meeting should be used to abandon the specific guidance that rates are on hold until 2024. Associated with that would be to abandon the Yield Curve Control Policy. This guidance was adopted at a time of an extreme emergency which has now passed,” the bank’s chief economist, Bill Evans, said.
Westpac was itself in the spotlight today for less positive reasons. Its share price tumbled 7.36 per cent after its full-year profit fell short of market expectations. Net profit more than doubled to $5.458 billion as the hit from the pandemic proved lighter than the bank anticipated. The bank was able to unwind most of the $1.371 billion impairment charge it took in FY20 in anticipation of a wave of bad debts. Analysts attributed today’s decline to an increase in costs and signs of margin pressure.
Shareholders will receive a fully-franked final dividend of 60 cents per share. The bank will return $3.5 billion in capital via a share buyback.
ASX gains were kept in check by further evidence of weakening demand from Australia’s largest trading partner. A report yesterday showed Chinese factory activity contracted for a second month.
The manufacturing purchasing managers’ index from China’s National Bureau of Statistics shrank to 49.2 from 49.6 in September. Readings below 50 indicate contracting activity.
Wall Street ended last week at record levels as Microsoft overtook Apple as the world’s most valuable listed company. The S&P 500 climbed 0.19 per cent to extend its rally for the month to 6.9 per cent. By contrast, the ASX 200 slipped around 0.1 per cent during October to a second straight monthly loss.
Regional broadcaster Prime Media surged 73.91 per cent after striking a deal for Kerry Stokes’ Seven West Media (SWM) to acquire the business for $131.9 million. The Prime board has the support of major shareholders, which hold around 43.5 per cent of shares in the company. SWM shares rallied 14.29 per cent.
“The acquisition means SWM will become Australia’s leading commercial premium broadcast, video and news network, with the potential to reach more than 90% of Australia’s population each month,” Seven West Managing Director and Chief Executive Officer, James Warburton, said.
Poles and wires business AusNet climbed 3.64 per cent after accepting a $10.2 billion offer from a consortium led by Brookfield. The company said it had ended discussions with APA, which was also interested in acquiring its rival. APA shares bounced 2.56 per cent.
Bond proxies rebounded after long-term interest rates reversed much of Friday’s surge. The yield on ten-year Australian government bonds retreated 13 basis points to 1.96 per cent after rising as high as 2.118 per cent on Friday.
Telstra rose 2.62 per cent, CSL 2.03 per cent and Wesfarmers 1.82 per cent. Goodman Group added 1.6 per cent, Coles 0.58 per cent and Woolworths 0.24 per cent.
The drop in yields also lifted tech stocks that are valued on future earnings. WiseTech put on 5.46 per cent, Xero 4.17 per cent and Megaport 4.24 per cent.
Macquarie Group rose 0.42 per cent to $198.67 after raising $1.5 billion from institutional investors at a discount. A bookbuild set the placement at $194 per share, a 1.9 per cent discount to Thursday’s closing price.
Mining stocks were mixed in the wake of China’s manufacturing contraction. BHP declined 0.46 per cent. Rio Tinto overcame early weakness to advance 0.75 per cent. OZ Minerals dropped 2.19 per cent and Iluka 1.38 per cent.
A soft end to a losing week for gold pulled Newcrest down 1.77 per cent, Silver Lake Resources 2.65 per cent and St Barbara 4.1 per cent.
NAB fell 0.91 per cent. ANZ inched up 0.04 per cent. CBA was the pick of the litter with a rise of 1.54 per cent.
Asian markets were mixed. The Asia Dow gained 0.51 per cent, Japan’s Nikkei 2.41 per cent and China’s Shanghai Composite 0.07 per cent. Hong Kong’s Hang Seng shed 1.1 per cent.
S&P 500 futures improved nine points or 0.2 per cent.
Oil added to last week’s loss. Brent crude dropped 18 US cents or 0.22 per cent to US$83.54 a barrel.
Gold firmed US$1.20 or 0.07 per cent to US$1,785.10 an ounce.
The dollar faded 0.16 per cent to 75.05 US cents.