Home World Business Markets Live: ASX in Tillerson tumble

Markets Live: ASX in Tillerson tumble


The banks are all lower at lunchtime with hearings for the Royal Commission into the financial services sector underway again.

Hearings started in earnest yesterday, with several banks taken to task by the commission for the quality of their submissions and one NAB banker grilled over lending practices.

Banks fell on Tuesday and were lower again today as Westpac fell 1 per cent to $29.00, NAB lost 1.2 per cent to $29.97, CBA is down 0.8 per cent to $76.47 and ANZ is down 0.7 per cent at $28.30.

On Wednesday, the inquiry heard that KPMG had informed NAB in a report that problems with its introducer program were much worse than it thought with bankers falsifying supporting loan documents and transferring money into and out of customer accounts.

KPMG identified “a litany of control issues” in a draft report that was provided to the bank on December 23. The bank would not provide ASIC with a formal notification of its concerns until February 2016.

A task force established by the bank would later identify a group of four introducers or non-bank employees who referred to the bank $139 million of payments and collected around $695,000 in payments. One of them was the owner of a gym.

James Frost reports

Read more on the financial services Royal Commission here and here

The banks are under scrutiny at the royal commission.

The banks are under scrutiny at the royal commission.

Photo: Karl Hilzinger

Southern Cross shares are up today, with the stock moving higher by 2.6 per cent.

Macquarie analysts said they have revisited their investment case for the radio station operator following the release of the first GfK metropolitan ratio ratings survey for 2018.

“Southern Cross had a good first survey,” the analysts noted.

They were impressed with the performance of the Hit network which they said saw gains across all five capital cities compared to the last survey of 2017.

The company’s operating momentum continues to recover, the analysts said.

On the other hand, HT&E performance in the survey was mixed, according to the analysts.

Ratings for the firm’s KIIS Drive radio program fell by 1.7 points in Sydney and 2.0 points in Melbourne following the introduction of new talent Will & Woody, the analysts said.

But Macquarie believes the performance was a good outcome “given Will & Woody are relatively unknown talent transitioning from local Drive to a National slot, replacing established talent Hughesy & Kate.”

HT&E shares were down 1.4 per cent.

Southern Cross Austereo shares climbed.

Southern Cross Austereo shares climbed.

Markets haven’t taken the news that US secretary of state Rex Tillerson has been sacked and will be replaced by CIA director Mike Pompeo well.

US stocks sank overnight and Asia stocks followed Wall Street lower on Wednesday, as Japan’s Nikkei dropped 0.8 per cent. South Korea’s Kospi index declined 0.7 per cent.

Australia’s S&P/ASX 200 fell 0.7 per cent to 5932 and the US dollar index was trading at 89.70, a decline of 0.4 per cent.

Eurasia Group president Ian Bremmer says Tillerson was a “moderating force and fairly independent voice” in the Trump cabinet, but Pompeo will be “none of those things” due to his hardline ideology against China, North Korea and Iran.

“[Under Pompeo] either the US gets what we want on all these issues or you’re going to see a considerable more hawkish policy,” Bremmer says. “It’s a much more dangerous world and much more volatile for the markets.”

Mr Pompeo is a hardline nationalist in close alignment with President Donald Trump’s “America First” gut instincts.

The top-of-the-class West Point military school graduate and former Harvard Law School student is a Tea Party renegade elected to represent conservative Kansas in the House of Representative in the populist revolt against Barack Obama in 2010.

Tillerson, in contrast, is a former ExxonMobil chief executive who lasted just 13½ months as Trump’s top diplomat.

He is the latest ex-business, moderate and globalist casualty to exit the Trump administration after White House economic adviser, former Goldman Sachs executive Gary Cohn, quit last week in protest at Trump’s tariffs on foreign steel and aluminium.

President Trump said that a pro-market economist and television commentator, former Reagan administration official Larry Kudlow, was a “good chance” to replace Mr Cohn.

The sacking of Mr Tillerson adds to signs the nationalists such as protectionist trade adviser Peter Navarro are gaining ascendancy in Trump’s inner circle, as dissenting and independent voices disappear.

National security adviser H.R. McMcaster is rumoured to be on thin ice.

Tillerson was a mainstream Republican foreign policy advocate. He favoured free trade, security alliances, multilateralism, international engagement and US global leadership.

John Kehoe reports

CIA Director Mike Pompeo will be nominated by President Trump for Secretary of State.

CIA Director Mike Pompeo will be nominated by President Trump for Secretary of State.


The bulk of professional stock pickers have once again been unable to beat the market, as shown by Standard & Poor’s scorecard for the industry, which reveals another disappointing year for the industry in 2017.

Over the 12 months to December 31, the average large-cap Aussie equity fund managed to match the S&P/ASX 200’s return of 11.8 per cent, including dividends. But six in 10 of those funds underperformed the benchmark (the performance of which doesn’t include the costs of tracking the index).

Stock pickers typically tell their investors to concentrate on longer-term figures, but there, the results are more disappointing. Over three years, 67 per cent of these so-called “core” Aussie shares funds lagged the market, over five years it was 63 per cent and over 10 years, 74 per cent.

Underperformance by Australia’s professional investment class comes as no surprise and mimics the experience in overseas markets, but more startling is the way portfolios investing in mid- and small cap funds have also struggled to match the market. In this part of the market, lower volumes and less analyst scrutiny should allow professional stock pickers to gain an edge.

Yet S&P’s “mid-small” Aussie equity index recorded a total return of 21.2 per cent in 2017, while the surveyed funds on average earned only 17.9 per cent.

Over the one- and three-year periods, 74 per cent and 75 per cent of mid-small funds underperformed the benchmark, respectively, and over five years 56 per cent lagged. Over 10 years, though, six in 10 funds beat the market.

Patrick Commins reports

The bulk of professional stock pickers have once again been unable to beat the market, S&P's scorecard shows.

The bulk of professional stock pickers have once again been unable to beat the market, S&P’s scorecard shows.

Photo: iStock

A measure of Australian consumer sentiment inched fractionally higher in March as some improvement in the state of family finances just managed to offset concerns about the long-run economic outlook.

A Melbourne Institute and Westpac Bank survey of 1,200 people published on Wednesday said its index of consumer sentiment rose 0.2 per cent in March from February when it fell 2.3 per cent.

The index was up 3.3 per cent on February last year at 103.0, meaning optimists just outnumbered pessimists.

“Sentiment continues to hold in slightly optimistic territory with March marking the fourth consecutive monthly reading above the 100 level,” said Westpac senior economist Matthew Hassan.

“That followed a year in which pessimism dominated. However, the index is still well below levels typically associated with a robust consumer.”

The survey’s barometer of economic conditions over the next 12 months bounced 1.7 percent in March, but the outlook for the next five years dropped 4.1 percent.

Mr Hassan noted recent news coverage of US President Donald Trump’s placing of tariffs on imported steel and aluminium may have caused some jitters.

The most notable shift in news recalled by respondents was around ‘international conditions’ which had the highest recall in 2 1/2 years and was viewed as significantly more negative than in December.

The measure of family finances compared to a year ago added 2.4 percent, while the outlook for the next 12 months rose 2.1 percent.

The index on whether it was good time to buy a dwelling rose by 0.8 percent, to be up 5.0 percent on a year ago.

– Reuters

Australian consumerssentiment inched higher in March.

Australian consumerssentiment inched higher in March.

Photo: Bloomberg

The ASX dropped sharply on Wednesday morning, after the sacking of Rex Tillerson took the wind out of Wall Street’s sails and the banks braced for another day of royal commission hearings.

The S&P/ASX 200 index fell 45 points, or 0.8 per cent, to 5929 while the All Ordinaries index dropped 43 points, or 0.7 per cent, to 6033 and the Australian dollar traded at US78.56¢.

Wall Street fell on Tuesday, with the S&P down 0.7 per cent after a benign inflation print was overshadowed by renewed concerns about the path of global trade with the elevation of ultra-conservative CIA director Mike Pompeo to the post of America’s top diplomat.

“Risk sentiment took a hit following news that President Trump had fired Secretary of State Tillerson and replaced him with CIA director Mike Pompeo,” noted NAB’s economics team.

“After the resignation of Chief Economic advisor Gary Cohn, Tillerson’s sacking reinforces the view that Trump has a ‘my way or the highway” agenda,'” the economists said.

Banks were the worst performers in Australian early trading, with CBA down 1.1 per cent, NAB down 1.2 per cent. ANZ down 1 per cent and Westpac down 0.7 per cent.

Hearings for a probe into the financial sector are set to continue today. They started in earnest yesterday, with a NAB banker grilled for two hours over a home loan referrer scheme that was highly profitable for the bank but involved fraud across five greater Sydney bank branches.

Miners saw a bit of buying after sharp losses yesterday after a drop in iron ore prices dampened sentiment toward the sector, with Rio Tinto up 1 per cent, Regis Resources up 2.6 per cent and Evolution Mining higher by 1.4 per cent.

Best and worst performers.

Best and worst performers.

Natixis’ chief economist says that an “each country for itself” theme is emerging following recent protectionist developments.

Philippe Waechter said that global growth has made a comeback but each country already wants to take its own path.

“Unity is no longer on the cards and the world economy is fast going down a very different road,” he said.

Over 2016 and 2017 the worldwide economy was relatively stable without any major imbalances and central banks were prepared to be flexible to make it through bumpy patches, the economist said.

“This approach worked fairly well as the pace across the various areas of the world became more uniform, driving growth and trade momentum, and economists were constantly forced to upgrade their forecasts,” he added.

However, Mr Waechter believes that the three large geographical areas are no longer taking a coordinated and cooperative approach.

“The US and China want to set their own rules for international trade, with the danger that they will move away from WTO rules and resume a bilateral strategy all round, which will not be fair for parties across the board.

“Meanwhile in Europe, the lack of political initiatives raises a lot of questions. Economists put forward solutions but these are just castles in the air if they do not have political support.

“So the momentum triggered by the recovery has now come to an end and the emergence of a new political order is leading to uncertainty on the world economy’s ability to sustain the pace of growth achieved in 2017 and 2018,” he said.

“The crisis is not over as the political transformation is not complete,” Mr Waechter concluded.

The port of Singapore., a global trade hub.

The port of Singapore., a global trade hub.

Photo: Munshi Ahmed


Here’s IG Markets’ John Kicklighter and Tyler Yell on the markets:

The ASX looks set to open lower, taking its lead from Wall Street, where all the major indices headed into the red amid uncertainty after the ousting of US Secretary of State Rex Tillerson ahead of delicate talks with North Korea.

While the markets were notably free from explicit trade war escalation rhetoric over the past session, concern over a trade war has nevertheless imposed restraint on risk-taking.

The United States’ announcement of its steel and aluminum tariffs last week has global investors and political leaders extremely uneasy about what the future holds.

If President Trump commits to the aggressive taxes on foreign steel and aluminum, the chances of retaliation driving forward a growth-killing trade war are high.

In advance of its meeting next week on March 19 and 20, the G20 released a draft communique calling on commitments to avoid protectionist policies – essentially calling on its members to abide by the commitment they made at the Hamburg summit last summer.

There is much to lose given the stretch in speculative interests across the globe and the explicit dependency on stable markets.

Read more here


After wittily describing the sacking of Rex Tillerson as “Rexit”, RBC commodity strategists said that the news may roil oil markets given that the incoming secretary of state has in the past expressed very different views on the oil producing nations of Iran and Venezuela.

Tillerson’s replacement, former CIA director Mike Pompeo, has staked out a much more hawkish position on Iran than Tillerson and has repeatedlly denounced the nuclear deal signed with Iran, the strategists noted.

For example, in November 2016, he tweeted “I look forward to rolling back this disastrous deal with the world’s largest state sponsor of terrorism,” they said.

Trump is due to make a decision on whether to extend sanction waivers for Iran on May 12 and has indicated that he wants major changes to the existing deal.

“The Iranians will likely balk at accepting such sweeping amendments to the agreement,” the strategists said.

In the event of a snapback of US extraterritorial sanctions, Moscow could be a key beneficiary, as Russian firms have been deepening their Iranian ties, the strategists said.

“We also see Tillerson’s departure as setting the stage for more US measures to isolate the Maduro government in Venezuela and to potentially promote a leadership change there.

Pompeo has previously signalled that the US was seeking to change the character of the Venezuelan regime, the strategists noted.

The US could exercise oil sanctions options if Maduro does proceed with plans to hold controversial elections in May, they said.

“Hence between Iran and Venezuela, May may prove a monumental month for the oil markets given the changed landscape in Washington.”

A pumpjack operates on an oil well in the Permian Basin near Crane, Texas.

A pumpjack operates on an oil well in the Permian Basin near Crane, Texas.

Photo: Daniel Acker

Here’s a chart showing the potential path of US inflation:

US CPI matched economist forecasts.

US CPI matched economist forecasts.

Photo: RBC


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