The sharemarket's seemingly relentless rise towards the elusive 6000-point threshold suffered a setback on Wednesday, as heavy selling in the big banks and major miners handed the ASX its worst session in six weeks.
The benchmark S&P;/ASX 200 index dropped 58 points, or 1 per cent, to 5892.
Investors continued to take profits in the major lenders after ANZ Bank's disappointing half-yearly profit figure on Tuesday. ANZ shed another 2.8 per cent while NAB, which reports on Thursday, lost 2.7 per cent and CBA down 1.7 per cent. Macquarie Group fell 1.3 per cent ahead of its earnings result on Friday.
"It's time to get off the bank bandwagon," Bell Potter director of institutional Sales and trading Richard Coppleson said ahead of what is a traditionally poor month for the major lenders' stock.
"I still see the banks higher by the end of the year, but a period of consolidation is ahead and from a trading view I'd be now taking profits and waiting."
The pessimism extended to blue-chip miners BHP Billiton, which lost 2.3 per cent, and Rio Tinto, which fell 1 per cent. Fortescue dropped 0.9 per cent and South32 was 1.1 per cent lower. Meanwhile, Woolworths gave up some of its recent gains, dropping a hefty 2.7 per cent. Wesfarmers, owner of Coles, climbed 0.2 per cent.
"Stocks are vulnerable to a correction after their sharp gains since February last year," AMP Capital head of investment strategy Shane Oliver said. That said, their relative attractiveness compared to bonds "along with the favourable outlook for growth and profits, suggests that any short-term pullback in shares will simply be a correction in a still rising trend".
Also dragging on the index was a 27 per cent plunge in the share price of Vocus, as the telecommunications company revealed its second profit downgrade in the space of less than seven months.
Brokers were harsh in their response. Citi analysts led by David Kaynes wrote that they "no longer have confidence that Vocus will be able to deliver on the full potential of its recently combined businesses".
Energy stocks were among the winners on the day after global oil prices rebounded from six-week lows early Wednesday morning. Origin Energy climbed 2.3 per cent, Oil Search added 2 per cent, and Santos 2 per cent.
Content marketing firm Isentia was the day's best performer, jumping 13 per cent after revealing an upbeat sale update at an investor conference in Sydney.
Market Movers
Kiwi jobs
New Zealand employment grew a much-stronger-than expected 1.2 per cent in the first quarter, as full time jobs rose 13,000 and part-time jobs rose 17,000. The unemployment rate declined to 4.9 per cent from 5.2 per cent. The report was unambiguously strong but also consistent with Reserve Bank of New Zealand expectations, noted TD Securities. The New Zealand central bank is set to decide on interest rates at a meeting next week and is unanimously expected to leave the cash rate on hold at 1.75 per cent.
Asian stocks
Asian stocks rallied to a fresh 22-month high, with South Korea's KOSPI index breaking new ground in the wake of another session of strong gains for the tech-heavy Nasdaq Composite Index. The export-heavy Japanese market got a lift from a weaker yen, with Yamaha rising as much as 17 per cent after forecasting a record operating profit. Footwear retailer Belle International also rallied 17 per cent after it received a $6.8 billion buyout offer.
Beaten up banks
ANZ's profit performance on Tuesday disappointed investors but some analysts are looking on the bright side, on Wednesday pointing to the bank's strong capital position and predicting that the lender could return billions in capital to shareholders by buying back shares. The prospect of selling off more poorly performing Asian assets also boosted the prospects of a cash splash, the analysts said. However, any move to return capital will depend on the banking regulator, and it didn't stop ANZ ending the session sharply lower.
Aussie dollar
The Australian dollar fell around half a cent to trade below 75 US cents ahead of the latest US Federal Reserve decision on interest rates. The Federal Open Market Committee's opening statement is is expected to be cautious after recent weak first-quarter GDP numbers, noted CBA economist Michael Workman. CBA sees the Federal Reserve leaving policy unchanged in May before increasing the funds rate in June. RBC on the other hand, thinks markets should prepare for a big letdown on US growth, after placing too much emphasis on 'soft' data such as sentiment surveys.
Stock of the day
Pact downgrade
Pact shares fell as much as 12.6 per cent, its worst day in three years on Bloomberg data, as investors reacted to a statement from the packaging company on Tuesday night that performance in its rigid packaging business was particularly weak in April. The firm also said that its fiscal year 2017 earnings before acquisitions will be generally flat compared to a year ago. Deutsche Bank cut its rating on the firm to hold from buy and lowered its price target to $6.80 from $7.20. The stock ended Wednesday down 10.6 per cent at $6.60. Wednesday's share price plunge more than wiped out its gains in 2017, but Pact shareholders are still up 23 per cent over the past 12 months.
