AMP shares rose 8.9 per cent to $2.44, Insurance Australia Group climbed 5.9 per cent to $7.57 after reassuring investors it was on track to hit its forecast earnings, Steadfast Group closed 19.7 per cent higher at $2.98 and CYBG shares advanced 10.9 per cent to $3.57 after announcing greater-than-expected savings on the back of its purchase of Virgin Money.
The royal commission report wasn’t without its victims, however, as recommended changes regarding the broker industry hurt local stocks. Mortgage Choice closed the week 18.4 per cent lower at 84¢, while Australian Finance Group slid 23.1 per cent to $1.
The major miners were stronger this week, continuing their solid start to the year, buoyed by rising iron ore prices. BHP Group rose 0.9 per cent to $35.33, Rio Tinto climbed 3.4 per cent to $90.57, South32 lifted 4 per cent to $3.64 and Fortescue Metals Group closed at $6.04, up 3.4 per cent.
Viva Energy energy shares climbed 22.4 per cent to $2.24 after announcing a new deal with Coles which will see it set pump prices at the group’s service stations. As part of the announcement, Coles said its convenience division earnings would fall 62 per cent for the year, sending its shares 1.7 per cent lower to $12.39.
Insurance Australia Group
Macquarie downgraded its price target on Insurance Australia Group, saying the group continued to look overvalued at current levels due to ongoing pressures with revenue growth and attritional margins. The broker said the group’s first-half result was mixed but did note improvement in the underlying margin. «However, New Zealand provided the majority of the margin uplift, only half of the promised 250 basis points reinsurance benefits have crystalised in the underwriting expense line, and investment income has provided small respite versus. consensus estimates,» said analyst Andrew Buncombe in a note on Wednesday. The broker downgraded its cash earnings estimates by 7 per cent, reduced its price target from $6.85 to $6.70 and retained its underperform rating.
What moved the market
The probability the Bank of England lowers its rate below 0.75 per cent within the next months continues to increase, buoyed by an indication from the central bank that less policy tightening would be required to meet its 2 per cent inflation target. The new forecasts in Bank’s inflation report initially sent the British pound lower, however it was able to recover some of its losses on a more upbeat press conference from Governor Mark Carney. While there is roughly only a 25 per cent probability the bank cuts rates, the likelihood is increasing as global central banks adjust their bias.
The iron ore market finally had a chance to react to the regulatory response to the dam collapse at Vale’s Feijao after returning from the Chinese New Year holiday on Thursday. Brazilian regulators issued a court order restricting the use of Vale’s Laranjeiras dam, a move which could sideline 30 million tonnes of iron ore. Iron ore prices shot up following their two day pause, climbing 4.4 per cent to $US90.50 a tonne on Thursday. Analysts still believe the price of the bulk commodity could top $US100 a tonne in the coming days, with Vale facing a mountain of legal work in order to resume normal production.
The Australian dollar extended its losses for this week on Friday after releasing its quarterly statement on monetary policy. The Aussie had been trading near US71¢ during the morning session but fell further as the Reserve Bank of Australia detailed its rising concerns about falling consumption and the lower expectations for economic growth that had led to its notable change in tone earlier in the week. The local currency had already been trading more than 2 per cent lower for the week, but extended its weekly slide to nearly 2.4 per cent, the worst week for the Aussie since November 2016.
Despite acknowledging the change in tone from the Reserve Bank of Australia, HSBC chief economist Paul Bloxham has held firm against the changing tide, reaffirming on Friday his belief that the central bank’s next move will be a hike. «While acknowledging the downside risks, our central case therefore remains that the RBA’s next move is likely to be up,» he said. «However, given the shift in the RBA’s tone, the slow progress in lifting inflation back to target, and that the RBA is likely to be tolerant of some lift in price pressures, given a long period of below target inflation, we push back the timing of expected hikes.»
William is a UTS journalism graduate and has worked at The Sydney Morning Herald. He now covers markets at The Australian Financial Review and keeps a close eye on IPOs.