Australian equity markets by Friday gave up the week's gains, despite enjoying the best day of the year on Tuesday, as a bond sell-off weighed on local equities.
The benchmark S&P;/ASX 200 dropped 55 points, or 1 per cent, to 5704, ending the week 18 points, or 0.3 per cent, lower. The broader All Ordinaries index shed 0.4 per cent over the five trading days, to 5743.9.
The losses came despite almost $10 billion in dividends paid to investors over the week, which traders had hoped would provide support to the index in what is traditionally a strong month. Listed property stocks were the worst performing corner of the market, falling 4 per cent as Australian 10-year government bond yields reached 2.73 per cent on Friday afternoon, their highest in over three months.
The market volatility is long overdue, said Argonaut executive director of corporate stockbroking James McGlew. "This has been one of the more volatile weeks we've had a while, but this was a long time coming."
The big four banks drove a $28 billion rally on Tuesday as the South Australian opposition announced its plan to vote against that state's bank tax, but ended the week mixed. ANZ lost 1.3 per cent on Friday and 0.4 per cent over the week. CBA shed 1.1 per cent, taking its weekly losses to 0.8.
NAB was down 0.9 per cent Friday but still up 0.7 per cent over the five sessions. Westpac shed 0.8 per cent on Friday but held on to a 0.3 per cent gain over the week.
Gains in the iron ore price helped the big miners limit losses in the index mid-week. But the sector came under some pressure on Friday, as the Department of Industry, Science and Innovation lowered its price forecasts for both coal and iron ore.
"Global resource and energy commodity demand growth, particularly for steel making commodities, is expected to slow in the next two years, driven largely by a slowdown in infrastructure spending and construction activity in China," the department's chief economist, Mark Cully said.
Pure-play iron ore miner Fortescue Metals Group fell 1.3 per cent on Friday, and 0.6 per cent over the week.
BHP Billiton managed to close 1.2 per cent higher on Friday, making it one of the week's biggest gainers. It rose 5.6 per cent over the five sessions as analysts and investors warmed to the idea the miner would hive off assets. Rio tinto added 1.1 per cent on Friday and 2.8 per cent over the week.
Also helping on Friday were the ASX200's largest lithium miners. The ASX's most highly-shorted stock, Orocobre Limited, as well as Galaxy Resources, got a small boost on Friday as South Australia's government announced that Tesla would be building the world's largest lithium battery in the state. Orocobre rose 2.2 per cent on Friday and 8.9 over the week.
Galaxy Resources added 5.0 per cent on Friday. It's been on something of a rally of late, gaining 26.9 per cent over the five sessions, the largest gain on the ASX200.
Stock watch: Coca-Cola Amatil
Shares in Coca-Cola Amatil were dumped for the second day in a row on Friday, dipping 2.7 per cent (and 6.1 over the week) to $8.67, its lowest point in since June 2015. The stock has been hammered with bad news this week. Woolworths said it wouldn't stock the beverage retailer's latest sugar-free variety of Coca-Cola, while Dominos said it would switch to Pepsi to cut costs. The loss of the Domino's contract was a "turning point", said Morgan Stanley analysts. Meanwhile Macquarie's analysts described the launch of a new Coke variety as "overly ambitious". Coca-Cola was already on the nose with investors after having lowered its guidance in April, citing weak sales in its core local beverages arm. Soft drink sales have been falling in Australia for a decade.
Mortgage repayments
Sydney home owners now spend 45 per cent of their household income servicing their mortgage repayments, despite benefiting from record low interest rates. The deterioration of housing affordability is best seen in the NSW capital, where the contrast between dwelling price growth and wage increases has been stark, new figures from CoreLogic and the Australian National University show. "Capital cities are generally more expensive across all measures than regional markets despite household incomes generally being higher in capital cities," CoreLogic residential analyst Cameron Kusher said. "Sydney is the least affordable housing market across most measures."
Bellamy's halt
Organic milk company Bellamy's Australia put its shares in a trading halt on Friday as it determines the impact of the suspension of a key licence by Chinese authorities overnight at its recently acquired Victorian cannery, Camperdown Powder. Last month, it raised $60 million to help fund the purchase of the cannery, which was supposed to deliver the company a key licence to allow its products to be sold into China, where regulations change in 2018. The acquisition of a 90 per cent interest in Camperdown settled earlier in the week.
Bond selloff
The drop in global government bonds gathered pace through the week, spilling over to equities. German yields climbed to their highest level in 18 months in a sign that a hawkish shift by central bankers is penetrating the market. While analysts described the moves as technical, most remain bearish on bonds, as investors adjust to comments by European Central Bank President Mario Draghi last week that spurred speculation policy makers will announce a tapering of bond purchases before the end of the year. In the US, 10-year Treasury yields reached their highest since May.
Yen v USD
The yen fell to an eight-week low against the US dollar as the Bank of Japan sought to curb an increase in the nation's bond yields by announcing an unlimited debt-purchase operation. Japan's currency is headed for a fourth weekly loss, the longest streak since May, as the central bank signalled its resolve to keep 10-year yields at around zero per cent. "We are modestly bullish on dollar-yen, looking for no change in the yield-curve control policy but higher US Treasury yields in the weeks ahead, driven by better incoming US data," said NAB's Ray Attrill.