mining and retail stocks pull down the asx 200 index 1290962015

Australian stocks closed lower Tuesday following Wall Street’s lower overnight close, and fresh jitters on the country’s iron ore industry after ratings agency Standard and Poor’s cut its price forecast of the steelmaking material and said it was reviewing the credit ratings of the major miners.

In market action the S&P/ASX 200 moved up to a high of 5,960.30 in volatile trade during the opening hour, but thereafter, moved mostly sideways through the rest of the session. A downtrend commenced around 1 PM that led to the index closing in the red for the day.

Indices and sectors

The benchmark S&P/ASX 200 on Tuesday fell 13.7 points, or 0.2 per cent, and closed at 5,946.6, while the broader All Ordinaries index was down 11.9 points, or 0.2 per cent, at 5,916.2.

The chief gainers amongst sectors were energy (+0.72 per cent), industrials (+0.63 per cent), healthcare (+0.17 per cent) and information technology (+0.12 per cent). The losing sectors were consumer staples (-1.03 per cent), telecommunications services (-0.60 per cent), consumer discretionary (-0.49 per cent) and materials (-0.40 per cent).

Stocks

Australia’s mining sector was under a cloud yesterday on news that Standard and Poor’s had trimmed its 2015 forecast for iron ore to US$45 per tonne and was reviewing the credit ratings of the three largest miners as well as the Western Australian government, according to ABC. "The revision of our price assumptions and the sharp fall of iron ore spot prices reflect the severe supply and demand imbalance in the market, which we believe could persist for the next two years," a statement from Standard and Poor's said.  "In our view, lower iron ore prices may not only weaken producers' operating cash flows and financial leverage, but may also affect the long-term resilience of some companies' business risk profiles."

BHP Billiton Limited (ASX:BHP) fell 1.02 per cent to AU$29.12 and Rio Tinto Limited (ASX:RIO) was down 0.61 per cent to AU$54.96. However, the fourth-largest iron ore miner in the world, Fortescue Metals Group Limited (ASX:FMG), rose 3.38 per cent to AU$1.84 on news that the company could cut up to 700 jobs at its Pilbara iron ore operations after it phased out its current eight-days-on, six-days-off roster in favour of a 14-days-on, seven-days-off system. “While we would prefer not to have to change what has been a successful and differentiating roster for Fortescue, we are taking steps in response to the threat of oversupply in the market over the medium term,” Fortescue chief executive Nev Power said, as quoted by The Australian.

In breaking news, however, The Australian reported this morning that the iron ore price had pushed back past the psychological US$50 per tonne level, despite concerns on Chinese demand as well as downgrades from analysts. The steelmaking commodity traded at US$50.10 per tonne at the end of the latest offshore session, up 2.7 per cent from its previous close of US$48.80 per tonne.

Energy stocks were firm following the steady trend in global crude prices. Woodside Petroleum Limited (ASX:WPL) was up 0.80 per cent to AU$35.25, Origin Energy Ltd (ASX:ORG) gained 0.83 per cent to AU$12.12, Oil Search Limited (ASX:OSH) Ltd was up 2.03 per cent to AU$8.04 and Santos Ltd (ASX:STO) closed higher by 0.65 per cent at AU$7.69.

The four major banks all ended with losses. Commonwealth Bank of Australia (ASX:CBA) slipped 0.32 per cent to AU$93.80, Westpac Banking Corp (ASX:WBC) was down 0.53 per cent to AU$39.56, Australia and New Zealand Banking Group (ASX:ANZ) fell 1.14 per cent to AU$36.32 and National Australia Bank Ltd. (ASX:NAB) dipped 0.35 per cent to AU$39.43.

Retailers closed lower as Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, fell 0.95 per cent to AU$43.80, Woolworths Limited (ASX:WOW) plunged to 1.48 per cent to AU$29.21 and Caltex Australia Limited (ASX:CTX) was down 0.03 per cent to AU$34.91. Myer Holdings Ltd (ASX:MYR) closed flat, however.

However, airlines were a bright spot amongst the day’s bearish gloom. Qantas Airways Limited (ASX:QAN) jumped 3.30 per cent to AU$3.44 and Virgin Australia Holdings Ltd (ASX:VAH) was up 2.97 per cent to AU$0.520.

Economic news, currency and insight

National Australia Bank’s index of business confidence rose three points in March after falling to zero in February, apparently due to expectations of lower interest rates and clarity on the end of Tony Abbott’s leadership, according to news.com.au. "Any positive impact on confidence from the RBA's February rate cut was likely eroded by offsetting factors – such as the government's leadership spill – but, some of these factors have begun to fade," NAB's economists said. However, confidence still ruled much below the long-term average, and they feared that the federal budget next month could make it worse.

"Increased political stability (if sustained) will be welcomed by businesses, although ongoing uncertainty around the economic outlook is likely to continue to hold back business sentiment," said ANZ analysts. "On this front, the budget and its reception will be very important." The ANZ-Roy Morgan weekly consumer confidence survey rose 0.1 per cent, up from a recent eight-month low.

According to the latest housing report from property valuation firm Propell, prices in Sydney have grown at an annualised 25 per cent rate since the date of the RBA’s February rate cut, becoming a major roadblock for any interest-rate cuts the RBA may be considering in the future, according to news.com.au. "Sydney remains the biggest headache of the RBA as it seeks to balance the needs for economic growth against boom conditions in Sydney," the report said. "At the equivalent of 25 per cent per annum growth, it is too much for the RBA, which has put cash rate reductions on hold, primarily because of this market." Economists at National Australia Bank echoed this view and said the rise in house price values in Sydney suggests the RBA’s capacity to further cut rates could be “severely constrained.”

On Wall Street, the Dow and the S&P 500 ended higher Tuesday, led by strength in energy stocks and earnings reports that were turning out better than expected, according to Reuters. The Dow Jones Industrial Average rose 59.66 points, or 0.33 percent, to end at 18,036.7. The S&P 500 gained 3.41 points, or 0.16 percent, to 2,095.84 and the Nasdaq Composite dropped 10.96 points, or 0.22 percent, to 4,977.29, with Apple down 0.43 percent.

The Australian dollar ruled firmer after some disappointing economic data led to weakness in the US dollar. At 07:00 this morning (AEST), the local currency was trading at 76.25 US cents, up from 75.89 US cents on Tuesday.

The Australian stock market is also likely to open higher today given that at 06:45 this morning (AEST) the June ASX SPI200 Index (AP) Futures was trading up by 11 points at 5,949.0.