ASX drops on NAB and Telstra losses

Australian shares have fallen in Tuesday's trade after closing just half a point off a 10-year high in the previous session.

The S&P/ASX 200 index closed 37.5 points, or 0.6 per cent, lower at 6097.8 as index heavyweights Telstra and NAB recorded losses.

The Australian market fell away from 10-year highs on NAB and Telstra losses.
Photo: Peter Braig

Telstra's share price fell to a seven-year low on Tuesday after analysts warned the telco's dividend could be cut in 2019. Citi analyst David Kaynes said the company would need to take drastic action in order to minimise the next dividend cut and that Telstra's current strategy wasn't working. Its shares fell 5.6 per cent to $2.87.

NAB shares fell as it traded ex-dividend, the only major bank to end the day in the red. A note from Macquarie also showed that the bank had recorded the worst underlying revenue of the four majors for the first half of the year. It closed the day at $27.52, down 3.4 per cent.

Automotive Holdings shares fell sharply following a trading update in which the company said retail margins were challenging and that second half results were below company expectations. The company said its NPAT forecast would be $75 million, down from $87.3 million in 2017. Its shares fell 8.8 per cent to $3.10.

GWA shares eased from yesterday's rise following a note out of Macquarie. While the broker was positive on the sale of the company's door and access system's business, its target price of $3.52 was well below Monday's close, causing the shares to fall 4.8 per cent to $3.74.

Link Administration jumped despite the company outlining a worst case scenario revenue impact on the back of last week's federal budget. The shares rose 5.3 per cent to $7.15.

Sandfire Resources advanced on the news that initial drilling at its joint venture project Morck's Well East had revealed copper mineralisation and massive sulphides. The company had entered a trading halt on Monday but returned on Tuesday to record a gain of 4.5 per cent to finish at $8.62.

Afterpay Touch shares soared on the news that the company would expand into the US market this week through fashion retailer Urban Outfitters. The company also announced that two former Uber executives would help drive the expansion, sending Afterpay's stock up 7 per cent to $7.45 apiece.

A short squeeze sent Blue Sky Alternative Investment stocks higher. The company on Tuesday made a series of downward asset revisions including one fund that saw its value slashed by 35 per cent. Blue Sky shares rose 6.7 per cent to $2.86.

Stock watch

Specialty Fashion Group

Citi analysts have upgraded their recommendation for Specialty Fashion Group following the sales of Autograph, Katies, Millers and Rivers to Noni-B for $31 million. The broker had previously given the company a "neutral" recommendation, upgrading it to a "buy" and increasing the target price from 48¢ to 75¢. Citi says that the sale would be good for SFG as it retains ownership of its strongest brand, City Chic. The broker values City Chic at $117 million and says that sales are growing at 5-10 per cent with the potential for the business to generate EBITDA of $19-20 million in FY18e. City Chic has an expanding international business, primarily in the US and Citi says it expects continued expansion for the business's online sales and offshore distribution.

What moved the market

Bank performance

The major banks' first-half results were mixed as they operate in what Macquarie called a "challenging operating environment." According to analysts the banks' results were supported by stable underlying margins, sound credit quality and strengthened capital positions. Macquarie said that results for the second half of the year were likely to remain soft however as regulatory costs rise and volume growth slows. CBA delivered the strongest adjusted underlying pre-provision profit growth for the half while NAB recorded the worst growth, as its expense growth far outweighed its revenue growth. Westpac also experienced negative growth for the half as its revenue growth fell below that of its peers.

Aussie dollar

The Australian dollar traded lower against the US dollar on global economic growth concerns. Geopolitical and trade policy developments are affecting global economic growth concerns, supporting the greenback. Today's release of the RBA May meeting Minutes along with Deputy Governor Guy Debelle's speech did little to surprise analysts. The minutes and the speech, as predicted, reiterated a positive view on the domestic and global economies but reinforced the notion that monetary policy was unlikely to change for a while. The Aussie dollar dipped briefly following the release before falling further in the afternoon to finish the day at US75.10¢.

Nickel

Increasing demand for nickel is dwindling warehouse stocks and pushing the price of the commodity higher. Nickel rose 3.1 per cent on the London Metal Exchange on Monday to be now trading at $14,431 a tonne. Mine output from New Caledonia and Indonesia mines, two of the largest nickel producing countries in the world, are staggered. Total mine output for nickel has actually risen 9.2 per cent this year as prices reached multi-year highs in late April. While the price has fallen since then, prices remain historically high. A fall in the 30 day London Metal Exchange nickel warehouse stocks in the past few days is also supporting prices.

RBA minutes

The May RBA Board Minutes revealed very little new information following the release Tuesday. The minutes reiterated the outlook of the RBA's Statement on Monetary Policy. The minutes showed that "members agreed that it was more likely that the next move in the cash rate would be up, rather than down" and that inflation was gradually returning to the midpoint of the RBA's target range. Deputy Governor Guy Debelle's speech was more enlightening for investors as he suggested that any tightening of mortgage lending standards was more likely to impact house prices rather than household consumption growth. Mr Debelle also said that the unemployment rate would need to drop to generate wage growth.