Markets Live: No relief for ASX as banks slide again

That's it for Markets Live today.

Thanks for reading and your comments. 

Have a great weekend and see you all again Monday morning from 9.

The prospect of a US Presidential impeachment sent shockwaves throughout financial markets this week, though distaste for the big banks was the main weight on the ASX.

Investors cautiously bought up mining and telco stocks on Friday, though a pickup in commodity prices wasn't enough to push the bourse into the black.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each fell 0.2 per cent on Friday to 5727.4 points and 5768.9 points respectively. The ASX200 was off 1.9 per cent for the week while the All Ordinaries was off 1.7 per cent.

US investors provided moderate buying support on Friday after the shock selloff on Thursday afters news there is an official investigation into whether President Trump interfered in an FBI investigation.

Australian investors were more cautious, looking to next week's risk events rather than market entry points. 

"No one is out of the woods yet, but it looks like we could be just shaking off the jitters," said Janna Sampson, co-chief investment officer at OakBrook Investments, in a note to clients.

Next week former FBI director James Comey will testify at a Senate hearing and OPEC meets in Vienna to discuss oil supply. 

Investors are still shunning financials as they attempt to price in just how much of an impost the new tax by the government will have on the bank's bottom line. 

National Australia Bank was the worst performer, closing down 6 per cent for the week, while Westpac was down 5.3 per cent.

ANZ closed down 2.5 per cent and Commonwealth Bank of Australia closed down 1.7 per cent. 

A pickup in iron ore provided solid buying support for the resources giants; BHP Billiton, also buoyed by a stabilising oil price, lifted 2.5 per cent over the week and rival Rio Tinto soared 5 per cent higher. Fortescue Metals leapt a whopping 10.6 per cent. 

In other equities news, Fairfax, publisher of this most excellent blog, soared 16.4 per cent over the week after a second private equity bid was launched for the entire business. 

And here's your whizz-bang, Fairfax-of-the-future video graphic of how the day went on the ASX.

Enjoy!

From one of your Eds' weekend column:

For now, what's bad for Trump is seen as bad for markets. But as the chatter around impeachment grows, investors may eventually decide they are better off without him.

This week's revelation of memos that seem to offer prima facie evidence of the Trump obstructing justice jolted markets. Added to recent reports of the US president revealing secrets to the Russian foreign minister and ambassador, the interpretation was the chance of an impeachment had jumped from improbable to possible.

"The thought of President Trump being impeached has traders (and us) spooked," CBA bond strategists Adam Donaldson and Philip Brown wrote on Thursday, the day after the S&P 500 index had suffered its worst night of trading in eight months.

"One point is stunningly self-evident," CLSA strategist Christopher Wood says. "The latest developments have not encouraged hopes of a speedy implementation of tax reform."

My favourite line to emerge over the past couple of days is the idea that even if Trump is impeached and/or resigns, well, wouldn't we really all prefer vice-president Mike Pence anyway? As a GaveKal analyst says, in that instance "markets may quickly focus on 'Trump without the bad stuff'".

Let's call it the everything-will-be-peachy-if-Trump-gets-impeached trade. Or, more economically, the Impeach Trade. When heightened chances of impeachment start to correlate with rising sharemarkets, then you know the script has well and truly flipped, Trump is seen as a liability rather than a potential source of support for the market, and the Peach Trade is on.

That may sound ridiculous, but looking back at the most common historical reference of recent days – Richard Nixon and the Watergate scandal in the 1970s that led to his resignation on August 9, 1974 – there is some evidence to support it. Indeed, investors back then had also cottoned on to the idea that the dead duck president was weighing on the sharemarket.

At an institutional investor conference held in March of 1974, The New York Times interviewed a dozen attendees on what they thought would happen to the stockmarket if Nixon were to resign. Eight said that it would "have an immediate effect of sending stock prices higher", the Times reported. Two were undecided.

They got the timing wrong, but the overall direction right. By August 9 of that year, Nixon did indeed resign. The market continued to fall for a little after the resignation, but reached a clear turning point shortly after, as the charts show. Bond yields trod a similar path.

For now what's bad for Trump looks bad for markets. That's normal and to be expected. But when that relationship is reversed, then markets will really be sending a signal: investors see a path to an early end to his presidency, and they like it.

Read more at the AFR.

The RBA will need to cut interest rates several times this year as this week's labour report understates the slack in the economy, Credit Suisse predicts.

While jobs growth in April surpassed expectations and the unemployment rate fell to a four-month low, the number of actual full-time jobs fell and the weakness in the data's detail would have been bigger if it hadn't been for statistical distortions, Credit Suisse analysts led by Damien Boey said in a note to investors.

The Credit Suisse team's rate cut prediction contrasts sharply with collective market wisdom, which expects the RBA to stay pat at a record low cash rate of 1.5 per cent for the rest of the year.

"The output gap is at levels historically consistent with another cash rate cut," Credit Suisse argued. [The output gap is a measure that shows by how much the GDP of an economy falls short of its full potential.]

"We believe there is a case for multiple cuts, because our measure of the output gap is based on upwardly-biased labour market data, and probably understates the degree of slack in the economy."

That said, the positive headline jobs growth figure means the RBA will still need a trigger to change its policy stance, the analysts explained.

Thursday's labour market data showed Australia added 37,400 jobs in April, smashing expectations for an increase of 5,000.

However, full-time employment fell by 11,600 over the month, while part-time employment surged by 49,000.

"Employment quality was even more questionable considering statistical distortion," Credit Suisse said. "If we were to remove upward statistical biases, the decline in full-time employment in April would have been even greater than officially reported."

Read more.

Commonwealth Bank of Australia, the nation's biggest property lender, is set to announce bigger deposits, smaller discounts and the scraping of some rebates in a bid to discourage borrowers from applying for interest-only loans. 

The moves, which begin to roll-out on Monday, are in response to regulatory concerns that deferring payment of loan principals is encouraging property buyers to take on too much debt, which makes them vulnerable to financial stress as rates rise from record lows.  

CBA, which accounts for one in every four loans, is making changes to interest-only loans for owner-occupied and investment loans.  

"As a responsible lender, we are constantly reviewing our products and services to ensure we meet our customer's needs while maintaining our prudent lending standards and meeting our regulatory requirements," a bank spokesman said. 

"These changes follow Australian Prudential Regulation Authority's announcement in March, for banks to reduce the number of interest-only home loans, and are aimed at encouraging customers to switch to principal and interest, where appropriate, to help them own their homes faster."

From Monday it will be reducing the discounts the bank and mortgage brokers offer for new owner occupied and investment home loans with interest-only payments. 

It will also cancel discounts where the loan is switched from a new home, or investment home loan with principal and interest repayments to an interest-only loan. 

Read more at the Financial Review.

There's nothing like a little geopolitical scare to have investors looking for gold exposure. 

The timing of gold and copper explorer Magmatic Resources' initial public offering is opportune, given concerns about the presidential longevity of Donald Trump have pushed up the price of gold.  

Magmatic is poised to hit the ASX boards on Friday after raising $4 million through Patersons Securities out of Perth. It will begin life as a public company with a $16 million market capitalisation. 

Its main assets are four advanced exploration projects covering 850 square kilometres in the East Lachlan Fold Belt in central New South Wales, home to Australia's largest gold mine, Newcrest Mining's Cadia Valley operation.

Read the rest at Street Talk.

As the big banks examine which parts of their cost base they can squeeze to pay off the banking levy imposed in the budget, mortgage brokers want government regulators to make sure they don't get heavily targeted in response.

Investment bank UBS released a report this week that found the cost of mortgage broking added 16 basis points to home mortgages, and that commissions had risen strongly in recent years, an "illustration of excess built into the financial system". For banks looking to save money, that could make mortgage broking commissions an easy thing to recoup, should the big banks seek to pass on the 6 basis point tax without heavily impacting consumers.

AFG, one of the nation's largest mortgage brokers, will ask the Productivity Commission's banking inquiry to "ensure the mortgage broking market remains viable". The ASX-listed company also wants the Australian Competition and Consumer Commission's new banking unit to "keep a watchful eye" on the banks for using the shock budget bank tax as a justification for reducing commissions. 

AFG interim CEO David Bailey said tweaks to broker pay structures are needed - but "not wholesale change". 

A review into mortgage broker remuneration by the Australian Securities and Investments Commission, released in March, found the standard commission model of upfront and trail commissions "could encourage brokers to place consumers in larger loans, even when this may not be in the interests of the consumer". ASIC proposed "lenders change their standard commission arrangements so that brokers are not incentivised purely on the size of the loan".

The share prices of AFG and fellow listed broker Mortgage Choice fell heavily in late March in the wake of the report. This week, Mortgage Choice shares fell by 10 per cent in two trading after the UBS report was released on Wednesday.

It has recovered slightly on Friday morning to be trading up 1 per cent at $2.08, still a far cry from the $2.35 it closed at last week. 

AFG, meanwhile, was trading down 2.5 per cent on Friday at $1.36. 

Read more at the Australian Financial Review.

China's main equity index is looking like it'll just manage its first weekly gain almost five weeks, after a liquidity crackdown sent Chinese shares tumbling last month.

While things could change over the session, Chinese shares opened narrowly higher, which will mean the index could finish up 0.3 per cent for the week if it holds on to gains. 

The liquidity crackdown has caused the Shanghai Composite Index to shed around 6 per cent of its value in the past six weeks. But most professional investors see the government's attempt to clean up the shadow banking sector as necessary, and aren't selling out of the market just yet. 

Many remain very bullish on China, despite the government being focussed on financial risk instead of inflationary policies. In a white paper released this week, Colonial First State Global Asset Management portfolio manager James White outlined why the fund remains on the hunt for strategic buys into sectors of the Chinese economy, particularly if prices were to fall further. Chinese property developers, Chinese banks, and Chinese miners are seen as uniquely placed to benefit from an economic upturn, which the fund thinks is likely to materialise. 

"There are other potential opportunities we are keeping our eyes on," he wrote. "In particular, luxury goods makers, car makers and capital goods providers would offer positive risk-reward outcomes at lower prices."

Could a two-week old, misleadlingly-edited video from far-right website Infowars have caused a spike in the US dollar index overnight?

That's what some US stock analysts believe, after a dodgy clip made its way around Wall Street trading floors overnight after being featured on Zero Hedge, a popular sharemarket blog. Daily Beast has the story:

As a video circulated that appeared to partially absolve President Donald Trump in the administration's Russian meddling scandal on trading floors on Thursday, stocks surged for the first time in days on the apparent breaking news.

The video, it turns out, was actually two weeks old, misleadingly edited with the intention of falsely accusing former FBI director James Comey of perjury—and was initially aired by conspiracy website InfoWars on Thursday around noon.

Trump wasn't cleared. In fact, since the video had been around since May 3rd, nothing had changed at all. But by the time traders found out, the dollar index had spiked anyway.

The fallout of the story is leaving analysts wondering how to absorb information in a market that is suddenly waiting on baited breath for the latest rumors to come out of the White House—even when those rumors are intentionally misleading or untrue.

"The market is used to trading on rumours," Adam Button, the chief currency analyst at ForexLive, told The Daily Beast. "There are always rumours of takeovers or bankruptcies. In those situations, when you bet on a rumour, you lose big time."

"With political rumours, they don't have to be true."

In other words, the news can be fake, but the rally it creates in the stock market is very real.

Button was one of the first to trace the bump in the American dollar back to InfoWars on Thursday. "It's an unprecedented time. The market is getting a taste of what the post-truth world looks like," said Button.

You can read the full story here.

While OPEC members do their best to limit supply in order to keep oil prices high, Papua New Guinea-focused Oil Search representatives have at the ASX-listed company's AGM said they'll continue their focus on controlling costs and maintaining a strong financial position, in order to counter weak oil prices.

"With prices appearing to have stabilised in the $US50-55 per barrel range, the board and management still believe it is sensible to follow a 'plan for the worst, hope for the best' approach," Chairman Richard Lee told shareholders on Friday.

Oil Search has ample capacity to fund all committed expenditures, scheduled debt repayments and dividends even if oil and gas prices remain constrained in the short-term, he said at the company's annual general meeting in Port Moresby.

His comments came as oil was headed for a second weekly gain, as Algeria supported a pledge by Saudi Arabia and Russia to extend supply cuts.

Futures were little changed in New York after rising to a three-week high Thursday. Algerian Energy Minister Noureddine Boutarfa said most OPEC members back the proposal to prolong output curbs nine months through March, and the rate of compliance should increase. The supplier group and its allied producers will extend the cuts for at least six months, according to 24 of 25 analysts polled this week.

The Organization of Petroleum Exporting Countries and its partners are scheduled to meet on May 25 in Vienna to decide if the supply deal will be rolled over when it expires in June. OPEC's Kuwait, Iraq and Venezuela, and non-members Oman and South Sudan support the proposal to extend curbs for nine months.

Seeking an informational edge on where currencies from the euro to the yen to the Mexican peso are headed? Take a look at flows into equity exchange-traded funds.

Strategists at Deutsche Bank have found that a one standard-deviation shock to ETF inflows -- passive money moving into stocks at an above-average rate -- is associated with a five basis point appreciation for riskier currencies over the following day; a two basis point appreciation for the euro; and a three basis point depreciation for the yen, all versus the dollar.

"We wanted to work out whether flows contain information for predicting future currency returns beyond simple trend following behavior," said strategist Nicholas Weng, referring to a report co-authored with Rohini Grover last month. "The results suggest that ETF flows can predict currency returns -- the beta of the major risk-on currencies to flow data are all positive."

The study by the German bank, the world's fourth-largest currency trader by market share according to a Euromoney Institutional Investor survey published last year, uses a technique known as vector auto-regression to adjust for lagged effects.

In other words, purchases of equities using passive instruments can contain highly useful information about appetite for currency risk, as reflected in notable exchange-rate moves the following day -- over and beyond the usual correlation observed between capital flows and currency gains when markets move in lockstep, according to Deutsche Bank.

"The information content derived from ETF flows is strong -- investors may use these instruments earlier to express a bullish view on a currency," Weng said.

The study looks at ETFs without currency hedges that are holding about $250 billion in assets combined and are domiciled outside the 18 target countries, both developed and emerging. Incorporating flow data to keep track of short-term currency gyrations may complement fundamental models to value exchange rates, Weng said.

ETF equity flow data shed light on the "risk on/risk off relationship in currency markets," and the signals the figures provide about the appetite for country risk will be increasingly investigated as the passive revolution shows no sign of abating, according to Saeed Amen, founder of macro advisory firm Cuemacro Ltd.

"Over the past few years, there has been a proliferation of ETFs, and as a result ETF fund flow data has become available often on a relatively high-frequency basis," he said.

ETF flow data are typically available on a daily basis, and their high level of institutional ownership provides clues as to the sentiment of smart-money investors, in contrast to mutual funds, which are typically more skewed toward a retail demographic.

An apology to our regular readers, who may be wondering where the comment box has gone! We forgot to enable it this morning but it's back up now - Eds

Yesterday's big ASX loser was Sirtex Medical, whose shares plunged 28.33 per cent after it reported disappointing results from its colon cancer drug trials.

Shares had been placed in a trading halt on Wednesday pending the release, and were punished savagely once trade started, heading to a four-year low, after it said its SIR-Spheres drug, used in combination with chemotherapy, did not improve survival rates when compared to the use of chemotherapy alone. 

But investors in Sirtex may be buoyed by the analysts recommendations this morning. Morgans Financial's Derek Jellinek upgraded his recommendation to a 'buy' on the medical company, with a 12-month price target of $13.63. Other analysts covering have price forecasts ranging from $12.00 to $12.45, suggesting some upside from yesterday's close of $10.75. 

Sirtex shares gained 5.6 per cent at the open. 

The benchmark S&P/ASX200 index shed 0.3 per cent at the open, as some mining stocks nad the big four banks continued to weigh on the index after yesterday's sell-off. 

The utilities sector was the biggest support to the index, suggesting investors were still seeking safer assets after yesterday's 0.8 per cent market drop. Financials, industrials and energy stocks provided the drag. The big four banks shed between 0.5 to 1 per cent, with the exception of NAB which was only down 0.1 per cent. 

CSL was a large drag on the index, declining 0.5 per cent after informing shareholders it was delaying its share buyback scheme. 

Gold miners took a hit, posting some of the biggest percentage declines of the morning, with Newcrest Mining off 2.7 per cent, Evolution Mining down 3.2 per cent and Northern Star Resources off 4.5 per cent. This meant the materials index started the day lower. But BHP and Rio both gained at the open, up 0.7 per cent and 0.8 per cent respectively, following a rise in iron ore futures. Medical stocks like Blackmores and Sirtex Medical recovered some ground after poor showings yesterday, up 1.1 per cent and 5.6 per cent respectively. 

"Selling dried up on international markets last night and this is likely to translate into a relatively steady open for the ASX 200 this morning," said CMC Markets chief market analyst Rick Spooner.

"While investors will be relieved that yesterday's selling looks unlikely to be repeated today, it's too early to assume yesterday was a one day wonder. Markets have clearly decided that the US political situation has the potential to knock stock valuations off their relatively high perch. The size of yesterday's downward move and the clear break through index support levels, suggest that more evidence will be required to conclude that last night's market action is any more than a wait and see pause."

oOh!media and APN Outdoor's $1.6 billion merger is understood to have been called off after the competition regulator raised a number concerns around the possible dominance of the new entity in the out-of-home advertising market.

The merger of equals, revealed by The Australian Financial Review in December, would have created a company with 55 per cent of out out-of-home market.

The nixing of the merger will disappoint the two companies and shareholders who had been arguing the out-of-home advertising market was only a small proportion of the overall advertising market.

Key to the Australian Competition and Consumer Commission's statement of issues released on May 4 was that it did not look at the total Australian advertising market, rather it focused on just the out-of-home (our outdoor marketing) sector.

Read more at the Australian Financial Review. 

What'll be the impact on the sharemarket if President Trump is impeached? For the US, an 11 per cent drop is the order of it, according to the world's largest hedge fund Bridgewater Associates.

In a note sent out yesterday, Bridgewater's Greg Jensen and Jason Rotenberg set out their thoughts on "navigating markets during times of extreme political uncertainty."

A day earlier on May 17, US stocks fell by the most in eight months after a report that President Donald Trump in February asked the FBI director whom he fired last week to drop an investigation into former National Security Adviser Michael Flynn.

Jensen and Rotenberg made clear in the note that they're not political experts, and that they're not predicting an impeachment, or in fact making any political predictions. The duo instead cited political prediction markets that put the odds of Trump leaving office before finishing his term at nearly 50 per cent, and focused on the potential impact of such a move on markets.

"Wednesday's market action was a big one-day move, but not a material repricing of likely outcomes," the note said. "While the change in pricing was not big, it was consistent with higher odds of the administration getting bogged down and higher risks of it being unable to deal with any potential shocks effectively."

"If impeachment materialises," Jensen and Rotenberg estimate:

• An 11 per cent drop in US equities
• A 12 per cent drop in European equities
• A 16 per cent drop in Japanese equities
• A 0.8 per cent drop in US 10-year yields
• A 14 per cent increase in the price of gold
• A 16 per cent move in JPY/USD

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Markets have found their feet after Wednesday night's Trump slump, writes IG strategist Chris Weston:

Politics continues to be the dominant driver of financial markets, although some traders were caught in a mini flash crash in GBP/USD, which fell 90-odds points in a minute. For institutional investors though, the focus has shifted somewhat away from Donald Trump to Brazil, where President Temer refuses to step down despite allegations of bribery.

This focus will revert back next week, notably with former FBI director James Comey set to testify to the Senate mid-week and that promises to be an absolute must-watch event.

On the ASX it's all eyes on banks again and after an 8% pullback (in the financial sector) one questions if we do start seeing some brave soul starting to wade back in. The shorts will certainly be watching price action and any signs of buying will likely cause a few to cover.

The massive flows into emerging market funds this year have been partially driven by a goodwill towards reform in Brazil, resulting in the Brazilian stock market gaining close to 90% from January 2016 to February 2017. The BRL (Brazilian real) has performed admirably during that time, and traders who largely bought into the idea of reform have had to do a rethink here. Where else have we felt that? Either way, Brazilian assets have rightful been whacked overnight.

BHP looks like it will open around 1% higher, based on the moves in the American Depository Receipt, while Vale's US-listing closed down over 6%, although this is a reflection of its exposure to Brazil and not indicative to how the Aussie mining sector may trade. Spot iron ore did fall 1%, but Dalian futures are a touch stronger and steel futures have pushed up 2.2% - all a bit messy really.

Read more.

There's not a massive amount of corporate news around this morning, but ASX-listed heavyweight Computershare has issued a statement this morning confirming it is in talks with interested parties about selling its 50 per cent stake in Karvy Computershare.

The release follows reports in the Indian media suggesting as much, which the company says it is aware of.

But, the company warned, "there is no certainty that Computershare will continue to participate in discussions or that a transaction will eventuate".

A report in India's Economic Times newspaper posted overnight said private equity funds Blackstone and General Atlantic are in talks to purchase a 74 per cent stake in Karvy Computershare, which is India's largest share registry company. The discussions come, the paper claimed, as Computershare looked to exit its Indian business. Computershare was not quoted in the piece, while Blackstone and General Atlantic declined to comment. 

In the February reporting season, Computershare lifted its full year earnings per share guidance, and delivered a sharp gain in first-half profits off the back of a successful cost savings program. The company has been divesting of some of its assets, having disposed of its Australian head office and its investment in US-based Inveshare last year. 

And here are the overnight highlights by numbers:

• SPI ASX futures down 3 points to 5727
• AUD -0.2% to 74.21 US cents (Overnight range: 74.08 - 74.67)
• On Wall St, Dow +0.3%, S&P 500 +0.4%, Nasdaq +0.7%
• In New York, BHP +1.4%, Rio +0.8% 
• In Europe, Stoxx 50 -0.6%, FTSE -0.9%, CAC -0.5%, DAX -0.3%
• Spot gold -1.1% to $US1247.47 an ounce
• Brent crude +0.6% to $US52.51 a barrel
• Iron ore -1% to $US61.60 a tonne
• Dalian iron ore +0.4% to 476 yuan
• Steam coal +0.3% to $US74.05, Met coal +0.0% to $US174.50
• LME aluminium -1% to $US1905 a tonne
• LME copper bid down 1.8% to $US5507
• 10-year bond yield: US 2.23%, Germany 0.34%, Australia 2.50%
• Brazil's 10-year yield surged 176 basis points to 11.76%

On the economic calendar today:

• Nothing on the local agenda. Only data of note tonight is Canadian inflation and retail sales figures.

Stocks to watch:

• Oil Search, Invocare and Syrah Resources annual meetings scheduled
• Sydney Airport April traffic data due
• NIB cut to sell at Shaw
• Qube cut to underperform at Credit Suisse
• Independence Group raised to neutral at Goldman
• Western Areas raised to neutral at Goldman, but cut to sell at UBS
• OZ Minerals raised top buy at Goldman