Australia Shares End Down 0.2%; Financials Offset Resources Recovery

The Australian share market hit a four-month low Thursday as offshore funds sold financials after the sector outperformed in the face of rising fears that Greece may exit the euro zone.

Resources had a reprieve as expectations of a meltdown on Wall Street proved premature in spite of continued weakness overnight and, in another encouraging sign, defensives lost ground as safe-haven buying eased.

The benchmark S&P/ASX 200 closed down 0.2% at 4157.4 after falling to 4136.9. Volume rose to A$5.1 billion versus the 2012 average of A$4.1 billion.

Traders said offshore hedge funds sold Australian banks on Thursday, mainly because of their outperformance in the past month but also because of worsening fears about Greece.

Commonwealth Bank of Australia shed 1.5%. CBA's third-quarter cash profit rose 3% to A$1.75 billion, missing expectations of A$1.8 billion.

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CBA was only 1.8% lower month-to-date, versus 5.4% for the S&P/ASX 200 and 7.8% for BHP.

"As things get worse with Europe, there's going to be impacts on credit spreads and capital availability," said a senior Credit Suisse trader.

Macquarie analysts reiterated their underperform rating and A$48.90 price target on CBA. "There is little pre-provision profit growth, with the 3Q pre-provision number similar to 1Q and 2Q indicating a lack of earnings momentum," Macquarie analysts said in a report. "Given investors are being asked to pay a premium for CBA relative to the rest of the sector, we maintain our underperform rating, waiting for evidence of restoration of balance sheet and earnings momentum."

Evans & Partners' head of sales trading, Nick Burmester, said: "Australian banks are well capitalized, but I wouldn't be surprised to see a run on a European bank some time in the next two weeks, so buying financials in light of that seems hazardous."

Meanwhile, Burmester said resources attracted some bargain hunting Thursday but some analysts said the buying could prove short lived.

"I think the early buying was a function of the underperformance of Asian markets yesterday," CMC Markets chief strategist Michael McCarthy said. "Wednesday's 2.4% drop in the Australian market was partly anticipating further slaughter around the globe. I wouldn't be surprised to see a pause in the downtrend before the selling resumes. But until we see the election outcome in Greece (next month), other news could be overshadowed."

IG Markets institutional dealer Chris Weston took an optimistic view despite Thursday's concern about banks.

"There's been heavy offshore selling of SPI futures by offshore accounts because they think the banks need to catch up with resources on the downside," Weston said. "If we do see Europe go to the dogs, banks will take a hit if confidence is lost domestically and funding markets freeze up offshore. But I think we are going to have a snap-back rally in risk assets because I still sit in the camp that something positive will happen at the last minute."

Australian RBA Sold A$366M In Forex Market In April

Reserve Bank of Australia sold A$366 million in the spot foreign exchange market in April, the central bank said Thursday.

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The data, included in the RBA monthly bulletin, reflect foreign exchange transactions against the Australian dollar undertaken by the Reserve Bank with authorized foreign exchange dealers in Australia or banks overseas.

The central bank also bought A$385 million from the government during April.

Taking the Reserve Bank's spot foreign exchange market transactions and business it did with the government together, the central bank bought a net A$19 million.

Australian Dollar Up Late, Asian Stocks Recover Ground

The Australian dollar was higher in late trading Thursday as Asian shares won back some of the ground lost in heavy selling Wednesday. Still, markets remained jittery overall with any fresh news on Greece's political crisis likely to dent risk appetite again.

Comments by a former Australian central bank policy maker also held back the Aussie dollar from rising too far Thursday. Warwick McKibbin, a member of the Reserve Bank of Australia's policy-making board up until mid-2011, said the level of global risk is extreme and interest rates will have to be cut further.

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In an interview with Dow Jones Newswires, McKibbin said a full blown crisis in Greece is now unavoidable, and the global shock will insure the Reserve Bank of Australia cuts interest rates "pretty low."

McKibbin also criticized the government's tight budget, announced a week ago. He said it would cut 1% from economic growth at a time when the global economy is very uncertain. The budget contraction is "very badly timed because it is a massive fiscal consolidation," he said.

Traders were also on alert amid news that JPMorgan's trading losses have ballooned by a further 50%. A New York Times article reported the loss is now US$3 billion, not the US$2 billion originally reported.

At 0700 GMT, the Australian dollar was at US$0.9945 from US$0.9893 late Thursday, while against the Japanese yen it was at Y79.90 from Y79.45.

Elsewhere, Japan's economy grew for a third straight quarter, expanding at an annualized 4.1% in the first quarter, compared with 3.5%.

Richard Grace, senior currency strategist at Commonwealth Bank of Australia, said now could be the time to start buying Australian dollar crosses.

"The U.S. dollar is likely to remain firm in the short term, as political and economic developments continue to play out in the euro-zone, he said.

"The strength in the U.S. dollar is likely to cap near-term upside in the Australian dollar. However, Australian dollar crosses are likely to begin to move higher over the next two weeks," he added.

The size of the fall in the Australian dollar over recent weeks, the likelihood the RBA will keep rates steady in June, a lack of meaningful China data in coming weeks, Greek elections still a month away and the potential for interest cuts in other major economies, should support the Australian dollar on crosses, Grace said.

Australian Dollar Up Late, Asian Stocks Recover Ground

The Australian dollar was higher in late trading Thursday as Asian shares won back some of the ground lost in heavy selling Wednesday. Still, markets remained jittery overall with any fresh news on Greece's political crisis likely to dent risk appetite again.
Comments by a former Australian central bank policy maker also held back the Aussie dollar from rising too far Thursday. Warwick McKibbin, a member of the Reserve Bank of Australia's policy-making board up until mid-2011, said the level of global risk is extreme and interest rates will have to be cut further.
In an interview with Dow Jones Newswires, McKibbin said a full blown crisis in Greece is now unavoidable, and the global shock will insure the Reserve Bank of Australia cuts interest rates "pretty low."
McKibbin also criticized the government's tight budget, announced a week ago. He said it would cut 1% from economic growth at a time when the global economy is very uncertain. The budget contraction is "very badly timed because it is a massive fiscal consolidation," he said.
Traders were also on alert amid news that JPMorgan's trading losses have ballooned by a further 50%. A New York Times article reported the loss is now US$3 billion, not the US$2 billion originally reported.
At 0700 GMT, the Australian dollar was at US$0.9945 from US$0.9893 late Thursday, while against the Japanese yen it was at Y79.90 from Y79.45.
Elsewhere, Japan's economy grew for a third straight quarter, expanding at an annualized 4.1% in the first quarter, compared with 3.5%.
Richard Grace, senior currency strategist at Commonwealth Bank of Australia, said now could be the time to start buying Australian dollar crosses.
"The U.S. dollar is likely to remain firm in the short term, as political and economic developments continue to play out in the euro-zone, he said.
"The strength in the U.S. dollar is likely to cap near-term upside in the Australian dollar. However, Australian dollar crosses are likely to begin to move higher over the next two weeks," he added.
The size of the fall in the Australian dollar over recent weeks, the likelihood the RBA will keep rates steady in June, a lack of meaningful China data in coming weeks, Greek elections still a month away and the potential for interest cuts in other major economies, should support the Australian dollar on crosses, Grace said.

Australian Dollar Down Late; Approaching Major Chart Support

AUD/USD 0.9893 -1.1%
AUD/JPY 79.45 -0.5%
6.25% Apr, 2015 2.569% -0.047
5.50% Mar, 2023 3.325% -0.05
10-Yr Spread To U.S. +145 bps -3 bps
SFE June 3-Year Futures 97.44 +0.05
SFE June 10-Year Futures 96.82 +0.025

SYDNEY (Dow Jones)--The Australian dollar ended below 99 U.S. cents Wednesday for the first time since December after Greece failed to form a coalition government, with new elections expected in June.
The political and economic uncertainty in Europe, coupled with a slowdown in China--Australia's biggest customer for its vast mineral deposits--is weighing heavily on the local unit, which has declined 11 out of the last 13 trading sessions.
In a potential blow to Australia's resource-rich economy, which has become increasingly reliant on exports of iron and coal to China to maintain growth, mining giant BHP Billiton backed away Wednesday from ambitious spending plans that would have led the company to invest around US$80 billion on new projects in the next five years.
Management at BHP have been rethinking its capital expenditure plans laid out last year "every day," as the global economic climate and uncertainty within the Australian mining sector cloud the outlook, Chairman Jacques Nasser told reporters on the sidelines of a business lunch in Sydney.
Asked whether the miner still plans to spend the hefty US$80 billion it had previously estimated, Nasser said: "No." He didn't elaborate further on what the capex forecast may be revised to.
At 0625 GMT, the Australian dollar was at US$0.9893 from US$1.0007 late Wednesday, while against the Japanese yen it was at Y79.45 from Y79.86.
Emma Lawson, a currency strategist at National Australia Bank, pegged support for the Australian dollar at US$0.9870 and resistance at US$1.01. "We're likely to see this (downward) trend extend until we see more information from Greece," she said.
On the charts, the Australian dollar is approaching a major support band defined by the 2011 low at US$0.9395 and the 2008 high at US$0.9849. Having sheered through its 100-day moving average on Tuesday at US$1.0115, the Australian dollar could exert a lot of pressure on the US$0.9395-US$0.9850 band in coming days, according to Dow Jones Newswires technical analysis. However, daily momentum indicators were approaching overbought levels, so upticks to the 100-day average appear possible.
Locally, a consumer sentiment survey showed interest rate cuts, a fall in the jobless rate and a federal budget that included cash payments for families have failed to improve the consumer mood.
Savanth Sebastian, an economist at Commonwealth Securities, said Australians are "in danger of talking ourselves into a recession".
The Westpac-Melbourne Institute consumer sentiment index rose just 0.8% in May from April in seasonally-adjusted terms to 95.3 points. The index is now 8.3% lower than a year ago.
"This is a disappointing result. It follows a surprise 0.5% cut in the official cash rate by the Reserve Bank [of Australia] and extensive media coverage that the unemployment rate had fallen from 5.2% to 4.9%," said Bill Evans, chief economist at Westpac.