australian stocks crushed in the stampede out of the banking sector 1384192015

The Australian share market experienced its worst one-day fall in over two years after the Commonwealth Bank of Australia (ASX:CBA) reported indifferent results and retailer Woolworths Limited (ASX:WOW) revealed that sales declined during the March quarter of this year and that it was cutting costs by shedding 800 jobs.

Bank stocks caved in after the Commonwealth Bank of Australia (ASX:CBA) became the second major bank after Westpac Banking to face investor wrath following soft quarterly results. “The major banks are accounting for around half of the losses on the broarder market – without the banks, the index would be down by only around 1 per cent,” said CommSec market analyst Steve Daghlian, as quoted by The Australian. Other analysts pointed to the possibility of the end of the highly popular yield play on Australian banks considering the low-interest environment now that the RBA had cut the official cash rate to a record low 2 per cent.

According to The Sydney Morning Herald, Australian shares shaved off nearly AU$40 billion of value in the day’s selling rout.

Indices and sectors

The benchmark S&P/ASX 200 on Wednesday fell 134.3 points, or 2.4 per cent, and closed at 5,692.2, while the broader All Ordinaries index was down 125.3 points, or 2.2 per cent, at 5,690.9.

There were no gaining sectors. The top losing sectors on the day were financials (-3.36 per cent), utilities (-2.91 per cent), consumer discretionary (-2.61 per cent), consumer staples (-2.46 per cent), real estate investment trusts (-2.32 per cent) and telecommunication (-2.15 per cent).

Stocks

Banks were unceremoniously dumped by investors yesterday following the debacle of the quarterly result from Commonwealth Bank of Australia (ASX:CBA) which fell the most amongst the larger banks and closed at AU$82.98, down 5.85 per cent. This was the bank’s largest daily loss since the days of the global financial crisis, according to The Australian. Westpac Banking Corp (ASX:WBC) plunged 3.66 per cent to AU$33.99, Australia and New Zealand Banking Group (ASX:ANZ) shed 2.67 per cent to AU$33.21 and National Australia Bank Ltd. (ASX:NAB) slipped 2.68 per cent to AU$35.20.

Amongst retailers, Woolworths Limited (ASX:WOW) fared the worst after it reported a 2 per cent decline in sales during its third-quarter, driven chiefly by lower petrol sales and poor performance of its Big W stores. The stock fell over 5 per cent to AU$28.14, while rivals lost comparatively less. Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was down 0.52 per cent at AU$44.35, Caltex Australia Limited (ASX:CTX) slumped 2.38 per cent to AU$34.40 and Myer Holdings Ltd (ASX:MYR) closed unchanged at AU$1.40.

Woolworths said it will adopt a lean operating model that will entail the loss of another 400 full-time staff from its backroom and office functions, according to ABC. The company had already cut 400 staff in July last year and now expects to save over AU$500 million through this reduction in manpower.

Amongst mining stocks, BHP Billiton Limited (ASX:BHP) slipped 0.64 per cent to AU$32.35, Rio Tinto Limited (ASX:RIO) fell 0.61 per cent to AU$59.12, but Fortescue Metals Group Limited (ASX:FMG) headed higher by 4.88 per cent to AU$2.58. BC Iron Limited (ASX:BCI) also gained 4.17 per cent to AU$0.500.

In breaking news this morning The Sydney Morning Herald reported that iron ore has bounced back above US$60 per tonne for the first time since early March. On Wednesday, iron ore delivered at Qingdao, China, last traded at the US$60.89, up 3.7 per cent.

Shareholders of BHP Billiton voted overwhelmingly on Wednesday in favour of the proposal to split the mining giant into two different companies, according to Dow Jones. Over 98 per cent of shareholders, voting at concurrent meetings in London and Perth, supported the AU$13 billion spinout and formation of South32, a company that will hold mining assets related to commodities such as aluminum, nickel and manganese.

Energy stocks put in a mixed performance, even though global crude prices remained firm. Woodside Petroleum Limited (ASX:WPL) fell 0.20 per cent to AU$35.43, Origin Energy Ltd (ASX:ORG) closed higher by 0.15 per cent at AU$13.21, Oil Search Limited (ASX:OSH) fell 1.36 per cent to AU$7.96 while Santos Ltd (ASX:STO) gained nearly 4 per cent at AU$9.10.

In telecommunications, TPG Telecom Ltd (ASX:TPM) ended in the green and closed 4.21 per cent higher at AU$9.16. However, Telstra Corporation Ltd (ASX:TLS) was down 2.35 per cent at AU$6.23, iiNet Limited (ASX:IIN) slumped 2.80 per cent to AU$9.72 and M2 Group Ltd (ASX:MTU) fell 0.09 per cent to AU$11.10. According to ABC, iiNet Limited has recommended the enhanced takeover bid from TPG Telecom Ltd in preference to the competing offer from M2 Group Ltd. iiNet's board said it had undertaken "thorough and extensive analysis of both offers in conjunction with its advisers, and has determined the revised TPG offer to be more favourable to iiNet and iiNet shareholders than the M2 proposal."

Economic news, currency and insight

According to data from the Australian Bureau of Statistics, retail sales rose by 0.3 per cent in the month of March, missing analysts’ expectations of a 0.4 per cent growth. "Overall the report was a disappointing one with retail sales growth holding flat around a 4 per cent annualized pace for nominal pace and around a 3 per cent annualized pace for real sales volumes," wrote Westpac's Matthew Hassan in a note, according to ABC. "Neither is particularly weak, but sales growth is not showing the sort of convincing strength the RBA would be looking for to confirm its suggestion of "improved trends in household demand." Nevertheless, Australian retail spending did rise for the tenth consecutive month, and CommSec economist Savanth Sebastian had a more positive view on the retail statistics: "The lift in the share market and rising house prices, that's all supported equity and in turn the household balance sheet looks a little bit moreattractive. Lower interest rates means there's a little bit less in terms of repayments on mortgages. As a result of that you're starting to see a modest lift in retail activity."

According to Sky News, the government may include a budgetary proposal to impose GST on internet downloads such as, music and movies, a tax akin to the so-called ‘Netflix tax’ which the government introduced in April.

According to Property Wire, the Housing Industry Association’s New Home Sales report showed that new home sales rose by 4.4 per cent in March, touching their highest sales volume in over four years. There was an 11.3 per cent rise in multi-unit sales and a 2.6 per cent rise in detached home sales. “The monthly rise in both the detached and multi-unit segments of the market is an encouraging result. However, the broader trend is that growth over the past year has been driven by multi-unit sales, while detached house sales have tracked sideways,” said HIA economist Diwa Hopkins. “The residential construction sector continues to be the main bright spot in the broader domestic economy, with updates to the sector showing its ongoing strength. Lower lending rates will provide added support to residential construction activity, which is emerging as a key area of growth mitigating the effects of the downturn in mining investment and construction,” sheadded.

On Wall Street, stocks ended lower following the warning on high valuations by US Fed Chair Janet Yellen as well as a global sell-off in government bonds. The Dow Jones Industrial Average fell 86.22 points, or 0.48 percent, to 17,841.98, the S&P 500 lost 9.31 points, or 0.45 percent, to 2,080.15 and the Nasdaq Composite dropped 19.68 points, or 0.4 percent, to 4,919.64.

The Australian dollar has turned somewhat softer as a correction to the rally that saw it pass 80 US cents for the second time since January, according to Business Spectator. At 07:00 this morning (AEST), the Australian dollar was trading at 79.68 US cents, down from 79.72 US cents on Wednesday, according to the Business Spectator.

The Australian stock market is likely to open lower today given that at 06:50 this morning (AEST) the June ASX SPI200 Index (AP) Futures was trading down by 24 points at 5,631.