The Australian sharemarket ended the week underwater, led down by mining and bank stocks as investors prepare for an interest rate hike in the US and investment banks turned negative on miners.
News from the US, including a fiery presidential debate between candidates Donald Trump and Hillary Clinton as well as the release of minutes from the Federal Reserve that pointed to an imminent rate hike influenced the market, as well as local pessimism towards the prospects for resources and energy stocks after their recent rallies.
![Mining stocks weighed on the ASX this week.](/web/20161014083138im_/http://www.smh.com.au/content/dam/images/g/h/g/6/f/t/image.related.articleLeadwide.620x349.gs224f.png/1476427944347.jpg)
The S&P;/ASX 200 Index finished the day flat, down 0.03, or 1.5 points lower, but the week down 0.6 per cent at 5434. The All Ordinaries ended Friday higher by the merest of margins, up 0.2 of a point, but 0.5 per cent lower for the week at 5518.5.
Resources stocks were the biggest drag this week, with BHP Billiton the worst hit among the big caps, falling 3.6 per cent, while Rio Tinto lost 1.8 per cent.
It came after analysts for Citi and UBS downgraded the biggest resources stocks, which have outperformed the broader market this year.
"The big story in the back half of the year will be the weakness in the resources stocks, they've run very hard and ahead of fundamentals," Aurora Funds Management portfolio manager Hugh Dive said.
Energy shares were also lower, with Oil Search and Santos down 4.7 per cent and 4.8 per cent respectively for the week respectively. On Friday Credit Suisse downgraded the two stocks to "underperform" in a broader note which said the valuations of the entire sector looked stretched. Brent crude oil eased a little from its high of $US53.14, fetching $US52.09 a barrel on Friday.
The financials sector also underperformed, with ANZ Banking Group down the most, falling 2.6 per cent for the week, followed by National Australia Bank, down 1.5 per cent. Commonwealth Bank however finished the week in the green, up 0.3 per cent.
Mr Dive shrugged off the weakness, which he attributed partly to the rising expectations of an interest rate hike in the US, and said the banks tend to do well in rising interest rate environments.
"We're moving into reporting season and the banks tend to outperform in October," he said. "Overwhelmingly the bad debt numbers that will come out in October and November won't be as bad as people are expecting."
Telcos, led by a strong week from Telstra, and consumer staples were the best performing sectors for the week.
The Australian dollar pushed higher on better than expected inflation from China, briefly climbing above US76¢ before buying US75.81¢ late on Friday.
Market movers
Mining stocks
The impressive run of mining stocks stumbled this week amid a flurry of analyst downgrades from Citi and UBS which have called the top. The ASX 200 mining and metals index has rallied 42 per cent this year against the broader market's 5 per cent gain, and Citi downgraded the two biggest miners, BHP Billiton and Rio Tinto to sell. The materials sector lost 1 per cent this week. BHP has risen around 60 per cent from its 12-year low of $14.06 in January as commodity prices including iron ore bottomed.
Fed expectations
Minutes released from the Federal Open Market Committee's September meeting confirmed that the board was divided on whether to raise its key interest rate for the first time since December, making a hike in December all the more likely, according to market pricing. Investors are giving a rate rise in December a 70 per cent chance. Key data due over the weekend, retail sales, will be closely watched for further clues. Recent US data has come in "goldilocks" territory: not too hot or cold.
Mergers and acquisitions
M&A; activity in recent weeks has seen a flurry of activity in the form of foreign interest in local companies. At the beginning of the week Spanish-based Cimic made a $525 million bid for UGL, sending its shares soared 50 per cent on the news. On Friday, Fantastic Holdings shares rallied 40 per cent after it agreed to a takeover from South African-based owner of the Snooze and Freedom chains in a deal worth $361 million. The company was believed to also be interested in Woolworths' Big W chain and The Good Guys which was ultimately acquired by JB Hi-Fi.
Chinese data
China returned to centre stage for markets this week following disappointing trade data, adding further pressure to mining stocks amid fears of another stumble in its slowing economic growth. Official September trade export data reported a 10 per cent fall in growth year on year, much lower than the consensus estimates of a 3.3 per cent decline. However, consumer prices released on Friday came in better than expected, however, rising 1.9 per cent year on year, compared with an expected 1.6 per cent.
Stock watch: Woolworths
Consumer staples has been one of the standout sectors this week, helped by a strong performance by retailer Woolworths. The stock rose 1.6 per cent to $24.28 this week, however the catalyst is not clear. Bell Potter's Richard Coppleson said short interest in the stock had also fallen, from 9.2 per cent last month, the highest in six months, to 7.6 per cent
Mr Coppleson points to a turnaround in UK counterpart Tesco's fortunes, as well as news that Aldi had ceded some East Coast market share as potential sources of optimism in Woolworths. He also notes suppliers attitudes are changing with the new CEO on board. "They can see the company turning, the new CEO Brad Banducci has been doing all the right things and may are impressed by him as well," he said.