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An earnings miss from Westpac and a contraction in Chinese factory activity capped gains as the share market rebounded from Friday’s bloodbath.
The S&P/ASX 200 struggled to build on positive leads from the US, recouping less than half of Friday’s 107-point loss. At the midway mark, the Australian benchmark was ahead 50 points or 0.68 per cent.
Takeover activity in the media and infrastructure sub-sectors helped offset a 6 per cent dive in Westpac and pressure on mining stocks following soft Chinese economic data. Gains in retailers, CSL and Telstra kept the market ahead.
What’s driving the market
A positive end to Wall Street’s best month since last November was clouded by further evidence of weakening demand from Australia’s largest trading partner. Chinese factory activity contracted for a second month.
The manufacturing purchasing managers’ index from China’s National Bureau of Statistics shrank to 49.2 from 49.6 in September. Readings below 50 indicate contracting activity.
A subindex of output prices climbed to its highest since 2016, sharpening fears of “stagflation” (when prices heat up even as the economy cool).
“The production index has dropped to the lowest level since it was published in 2005, excluding the global financial crisis period in 2008/09 and the COVID outbreak in February 2020,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, told Reuters.
“The output price index rose to the highest level since it was published in 2016. These signals confirm that China’s economy is likely already going through stagflation.”
Westpac was the biggest drag on the index, falling 6.54 per cent after its full-year profit fell short of market expectations. Net profit more than doubled to $5.458 billion as the hit from the pandemic proved lighter than the bank anticipated. The bank was able to unwind most of the $1.371 billion impairment charge it took in FY20 in anticipation of a wave of bad debts. Analysts attributed today’s decline to an increase in costs and signs of margin pressure.
Shareholders will receive a fully-franked final dividend of 60 cents per share. The bank will return $3.5 billion in capital via a share buyback.
Wall Street ended the week at record levels as Microsoft overtook Apple as the world’s most valuable listed company. The S&P 500 climbed 0.19 per cent to extend its rally for the month to 6.9 per cent. By contrast, the ASX 200 slipped around 0.1 per cent during October to a second straight monthly loss.
Going up
Regional broadcaster Prime Media surged 69.57 per cent after striking a deal for Kerry Stokes’ Seven West Media (SWM) to acquire the business for $131.9 million. The Prime board has the support of major shareholders, which hold around 43.5 per cent of shares in the company. SWM shares rallied 9.89 per cent.
“The acquisition means SWM will become Australia’s leading commercial premium broadcast, video and news network, with the potential to reach more than 90% of Australia’s population each month,” Seven West Managing Director and Chief Executive Officer, James Warburton, said.
Poles and wires business AusNet climbed 3.64 per cent after accepting a $10.2 billion offer from a consortium led by Brookfield. The company said it had ended discussions with APA, which was also interested in acquiring its rival. APA shares bounced 2.93 per cent.
Bond proxies rebounded after long-term interest rates reversed much of Friday’s surge. The yield on ten-year Australian government bonds retreated 13 basis points to 1.96 per cent after rising as high as 2.118 per cent on Friday.
Wesfarmers rose 1.89 per cent, Transurban 1.38 per cent and Telstra 1.96 per cent. CSL added 1.97 per cent, Coles 0.93 per cent and Woolworths 0.97 per cent.
The drop in yields also lifted tech stocks that are valued on future earnings. WiseTech put on 4.37 per cent, Altium 3.16 per cent and Xero 3.81 per cent.
Going down
Mining stocks retreated in the wake of China’s manufacturing contraction. BHP declined 0.72 per cent, Rio Tinto 0.12 per cent and OZ Minerals 1.87 per cent.
A soft end to a losing week for gold pulled Newcrest down 1.97 per cent, Silver Lake Resources 2.65 per cent and St Barbara 2.9 per cent.
Macquarie Group dropped 0.39 per cent to $197.03 after raising $1.5 billion from institutional investors at a discount. A bookbuild set the placement at $194 per share, a 1.9 per cent discount to Thursday’s closing price.
ANZ fell 0.8 per cent. NAB dipped 0.7 per cent. CBA was the pick of the litter with a rise of 0.8 per cent.
Other markets
Asian markets were mixed. The Asia Dow gained 0.33 per cent and Japan’s Nikkei 2.07 per cent. China’s Shanghai Composite shed 0.46 per cent and Hong Kong’s Hang Seng 1.23 per cent.
S&P 500 futures improved ten points or 0.2 per cent.
Oil added to last week’s loss. Brent crude dropped 25 US cents or 0.3 per cent to US$83.47 a barrel.
Gold eased 90 US cents or 0.05 per cent to US$1,783 an ounce.
The dollar faded 0.12 per cent to 75.09 US cents.
