Australia Market falls; energy, healthcare drag

Headline indices of the Australian share market closed down on Monday, 05 November 2018, following a weak lead from Wall Street amid pessimism about the outlook for US-China trade ties, with energy and healthcare stocks being notable losers, offsetting gains in financials. At closing bell, the benchmark S&P/ASX200 index was down 31.06 points, or 0.53%, at 5,818.14 points, while the broader All Ordinaries index fell 31.03 points, or 0.52%, to 5,904.80 points.

Shares of energy companies were down after crude oil prices fell on last Friday and remained subdued on Monday as the start to U.S. sanctions against Iran's fuel exports was softened by waivers that will allow some countries to still import Iranian crude temporarily.. Woodside Petroleum and Santos were down 2.3% to A$33.40 and 1.6% to A$6.37 respectively. Oil and gas explorers Beach Energy and Oil Search shed about 2.6% and 1.3% respectively

 

Healthcare stocks fell as investors factored in recent strength in the Australian dollar. Healthcare stocks do most of their business outside of Australia, and any strength in the domestic currency weighs on their turnover. Hearing devices maker Cochlear declined 4% after a U.S. district court awarded A$268.1 million in damages against the company in a patent infringement lawsuit. The stock led declines on the healthcare index.

Financials were ended mostly higher, despite Ernst & Young releasing a report about Australia's major banks, saying they're seeing a profit squeeze of 5.5%, compared to 2017. On top of that, combined return on equity has fallen by 12.2% for the major banks, on the back of increased remediation and compliance costs. Westpac along with ANZ and NAB all finished in the green, with Commonwealth Bank the only big four to finish in the red. Westpac reported a flat full-year profit of A$8.07 billion after customer compensation and legal costs contributed to a weak second half at its consumer and wealth divisions.

Shares of metals and mining companies inclined. Global miner Rio Tinto's Australia shares rose to a more than one-month high, gaining as much as 2.2%.

ECONOMIC NEWS: Australia service sector continued to expand in October, with a Performance of Service Index score of 51.1, the latest survey from the Australian Industry Group revealed on Monday. That's down from 52.5 in September, although it remains above the boom-or-bust line of 50 that separates expansion from contraction. Among the individual components of the survey, employment, supplier deliveries, capacity utilization and input prices all strengthened further into positive territory.

Growth in Australia's service business activity was sustained in October, supported by further sales growth. Cost pressures meanwhile continued to be strong, driven by Australian dollar weakness and higher energy prices, which prompted companies to raise output charges. Commonwealth Bank of Australia Services Business Activity index was down to 51.7 in September from 52.2 in August. The latest reading was the weakest in the survey's history.

CURRENCY: Australian Dollar was lower against greenback and other major currencies on Monday. The Australian dollar edged lower to 71.93 US cents, down from 72.37 US cents on Friday.

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