ASX hits six-month low as sell-off continues

The Australian sharemarket faced another investor sell-off on Monday as the major banks pushed the ASX 200 to dip below 5,800 points for the first time since April.

The market fell sharply inside the opening two hours of trading, hitting a low of 5,796 just before midday before rallying more than 40 points through the afternoon.

The S&P/ASX 200 Index still closed the session lower, falling 58.6 points, or 1 per cent to 5837.1, a six-month low for the benchmark index.

"[It was a] disappointing performance from the ASX 200 index today," said CMC Markets chief market strategist Michael McCarthy. "The volume surge, up 20 per cent on an average day, suggests a real commitment from sellers. One off the few positives was the bounce off 5,800 – for now."

Commonwealth Bank was the biggest laggard on the market, falling 2.1 per cent to a five-year low of $65.63 while Westpac also slid to a five-year low, falling 1.6 per cent to $26.03. ANZ closed the session 1.9 per cent lower at $25.43 and NAB went down 1.6 per cent to $25.50.

The financials sector was among the worst performing on Monday. Outside the major banks, QBE Insurance fell 1.6 per cent to $11.13 and Insurance Australia Group closed 2 per cent lower at $6.83.

The major mining stocks were also trading lower despite a lift in base metal and iron ore prices over the weekend. BHP Billiton closed 1.5 per cent lower at $33.34, Rio Tinto fell 0.7 per cent to $77.50 and South32 dropped 1.6 per cent to close at $3.82.

Nine Entertainment and Seven West Media were among the worst performing stocks on the market on Monday, extending their losses from Friday. Last week, Nine noted the advertising market has been slightly softer than expected during the 2019 financial year, causing both Nine and Seven West to fall. On Monday, Nine Entertainment closed 1.4 per cent lower at $1.82 and Seven West Media fell 2.9 per cent to 83¢.

Domain Holdings also extended its losses from Friday, as analysts downgraded their price forecasts for the company. Last week, the company had announced a slowdown in listings as auction numbers and auction clearances fall. On Monday, its shares fell 4.7 per cent to $2.64.

Shares across Asia also fell, with equities in Japan and Hong Kong leading the region's losses. Japan's Nikkei 225 fell 1.5 per cent, Hong Kong's Hang Seng dropped 1 per cent, South Korea's Kospi lost 0.7 per cent and China's Shanghai Composite sank 0.8 per cent.

Stock watch

Domain Holdings Australia

Morgans downgraded its target price for Domain on the back of poor market growth during the first quarter of the 2019 financial year. The broker said a downturn in residential ad volumes in both NSW and Victoria had led to revenue growth for the first quarter coming in well below market expectations. "Domain is paying a heavy price for its over-exposure to NSW, where the drop off in ad volumes is more severe than in other states," said analyst Ivor Ries. The broker downgraded the companys' profit forecasts, forecasting revenue in 2018-19 to be below revenue for 2017-18, with EPS growth set to soften 4.1 per cent. Morgans dropped its target price for Domain from $2.81 to $2.52, retaining its 'reduce' recommendation.

What moved the market

Aluminium

Aluminium exports from China slipped slightly in September but remain close to their highest level since December 2014. Exports for the past 12 are up 17 per cent, with 4.2 million tonnes exported during the first nine months of the year. The price of aluminium rose one per cent in London on Friday despite the news. Aluminium is trading just above $US2,000 a tonne, still well below its peak in April this year when sanctions against Russian producer RUSAL were announced. RUSAL's total exports for the first nine months of this year have slipped only 0.6 per cent and the US continues to extend the sanction deadline.

Copper

The price of copper lifted one per cent on Friday on the London Metal Exchange and remains one of the best performing metals over the past month, second only to zinc. Demand hopes lifted the price in the back end of last week, as China's unwrought copper and copper concentrate imports soared to a record monthly high of 1.93 million tonnes in September. Stockpiles at the London Metal Exchange have also been falling, with inventories sitting at their lowest level since mid-2016. Codelco, the world's largest copper producer, said it was planning to suspend production at two of its four Chilean smelters from December in order to comply with emission rules.

Norwegian krone

A lift in oil prices has been positive news for the Norwegian krone in recent months however its rally is unlikely to continue much longer, particularly if the price of oil drops away. The krone has been one of the best performing currencies in recent months as the price of Brent crude lifted 22 per cent and the country's central bank lifted rates for the first time in seven years. Capital Economics markets economist Hubert de Barochez believes that the currency will decline, forecasting oil prices to to hit $US55 a barrel by the end of 2020 and the Norges Bank to end its tightening cycle sooner than anticipated.

Trade war fallout

Australia could actually benefit in the near-term from a US-China trade war, according to Capital Economic chief Australia & New Zealand economist, Paul Dales, as the Australian dollar weakened and the Chinese demand for LNG, education and tourism rose. He said he didn't expect the trade war to have a big impact on Australia's economy, forecasting a worst case 0.3 per cent GDP hit. "For that to disappear, all exports from China to the US would need to end," he said. "That's very unlikely even if the US imposed tariffs on the remainder of Chinese imports which haven't been targeted yet."

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