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A sharp sell-off in bank stocks dragged the share market to a four-week low.

The S&P/ASX 200 declined 85 points or 1.15 per cent by mid-session. The retreat put the index on course for its heaviest loss of 2023.

The big four high-street banks declined after Commonwealth Bank reported interim earnings and the federal government asked the competition regulator to investigate delays in passing on rate hikes to savers.

Fortescue Metals and Treasury Wine Estates fell after trading updates. Gains in consumer and healthcare stocks helped cushion the index’s fall.  

What’s driving the market

The market plunged after the Federal Treasurer Dr Jim Chalmers asked the Australian Competition & Consumer Commission to investigate how the banks treat interest rates. The competition regulator will explore differential rates paid on different accounts, how new customers are treated and how quickly banks pass on rate increases to savers as compared to mortgage-holders. The regulator will report back by December.

“Australians should see the benefit of higher interest rates flow through to their savings accounts – it should be the silver lining when rates increase,” Dr Chalmers said.

“It’s a fact that banks have been a lot slower to pass on the increases in interest rates to savers than to mortgagees.”

The announcement came as the Commonwealth Bank reported a record half-year profit of $5.2 billion. The largest of the ‘Big Four’ lifted its net profit by 10 per cent from 1H22 as profit margins expanded with higher interest rates.

The bank’s net interest margin increased by 22 basis points from the prior corresponding period to 2.1 per cent. Shareholders will receive an interim dividend to $2.10, a 20 per cent increase on the pcp.

The bank’s share price sank 6 per cent amid questions over the outlook for margins amid increasing competition from term deposits and other lenders. The bank raised its provisions for bad loans to reflect inflationary pressures on customers.

Also this morning, ratings agency Standard and Poor’s warned home loan arrears crept higher in December. The arrears rate for prime loans rose to 0.76 per cent from 0.65 per cent in November. The rate for sub-prime loans rose to 3.2 per cent from 2.66 per cent.

Westpac fell 4.74 per cent, NAB 4.65 per cent and ANZ 3.92 per cent.

Investors were also reacting to the steady creep of bond yields in expectation of higher interest rates. The yield on ten-year Australian government bonds climbed three basis points this morning to a five-week high.

US stocks finished mixed overnight after inflation eased less in January than economists predicted. The S&P 500 finished flat. The Dow lost 0.46 per cent. The Nasdaq gained 0.57 per cent.

“Sticky prices, combined with the latest aggressive commentary of Fed officials, do not bode well for equities, which reflected overnight on Wall Street and is now on display in the Aussie market,” Kunal Sawhney, CEO of research group Kalkine, said.

Going up

Wesfarmers gained 1.03 per cent after benefitting from cost-conscious customers buying more from its Kmart, Target and Bunnings stores. The retail conglomerate increased first-half net profit by 14.1 per cent to $1.384 billion.

“Elevated inflation and higher interest rates are expected to impact demand in parts of the Australian economy and result in households continuing to become more value conscious. In this environment, the strong value credentials and low-cost operating models across the Group’s retail businesses mean they are well positioned to meet changing customer demand as customers adjust to cost pressures,” the company said.  

Record first-half sales revenue helped offset a 10 per cent dip in underlying profit at Cochlear. Shares in the hearing implant specialist jumped 6.03 per cent after sales revenue grew 9 per cent to $893 million.

Superannuation manager Netwealth surged 5.05 per cent on record first-half underlying earnings. Funds under administration increased 10.2 per cent to $62.4 billion. Underlying earnings rose 10 per cent to $47.4 million.   

GUD Holdings flew up 6.65 per cent as acquisitions and strong demand for automotive service and repairs helped first-half revenues expand by 55.7 per cent and net profit by 88.7 per cent from 1H22.

Pact Group gained 2.71 per cent after beating its half-year guidance. Underlying earnings fell 8 per cent, but came in 3 per cent above guidance supplied at the November AGM.  

A guidance upgrade lifted Vicinity Centres 1 per cent. The shopping centre landlord lifted its full-year earnings forecast to 14-14.6 cents per share after reporting $357.1 million in first-half funds from operations.

Redbubble bounced 2.13 per cent after reducing operating expenses and increasing first-half revenue by 2.2 per cent. The share price has been under pressure since a downbeat trading update in October.

In other results this morning, SkyCity gained 3.81 per cent, Seven Group 2.66 per cent and Fletcher Building 1.1 per cent.

Away from earnings, Star Entertainment jumped 7.59 per cent, Magellan 6.63 per cent and New Hope 5.91 per cent.

Going down

Fortescue Metals slid 0.68 per cent after reporting a 15 per cent decline in half-year profits as iron ore prices retreated. The miner left its full-year shipping and cost guidance unchanged.

Treasury Wine Estates slumped 4.43 per cent after its first-half profit fell short of consensus. The wine-maker reported a 75.2 per cent increase in net profit to $188.2 million. Analysts had anticipated a result closer to $205 million.  

Pro Medicus eased 0.68 per cent as investors sniffed at “the strongest half-year in the company’s history”. The health imaging firm reported a 28.3 per cent lift in revenue and a 30 per cent improvement in underlying profit.

Corporate Travel Management fell 8.29 per cent despite forecasting record full-year earnings of $160-$180 million and underlying profit of $120-$140 million. The travel firm reported a 182 per cent lift in first-half underlying earnings from a Covid-affected 1H22.

Aside from the banks and Fortescue, the biggest drags at the heavyweight end of the market were Woodside -2.19 per cent, Newcrest -1.23 per cent and Aristocrat Leisure -1 per cent.

Other markets

A flat morning on Asian markets saw China’s Shanghai Composite edge up 0.01 per cent, Hong Kong’s Hang Seng 0.02 per cent and Japan’s Nikkei 0.06 per cent. The Asia Dow sagged 0.92 per cent.

S&P 500 futures fell nine points or 0.22 per cent.

Oil added to last night’s 1.2 per cent loss. Brent crude declined 18 US cents or 0.2 per cent to US$85.40 a barrel.

Gold firmed US$1.90 or 0.1 per cent to US$1,867.30 an ounce.

The dollar pulled back 0.11 per cent to 69.79 US cents after trading briefly above 70 US cents overnight.

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