ASX declines as CBA and AGL shares slump; Miners, Tyro advance

Welcome to your five-minute recap of the trading day.

The numbers

The Australian sharemarket declined on Wednesday, ignoring fresh records on Wall Street overnight after the rally in the nation’s largest bank ran out of steam and shares of the biggest power generator slumped following both companies’ results.

The S&P/ASX 200 dropped 53.7 points, or 0.6 per cent, to 8817.10 points, led lower by financial stocks and utilities. The ASX had added 0.4 per cent in the previous session as the Reserve Bank cut interest rates. The Australian dollar was up 0.1 per cent at US65.35¢ at the time of the sharemarket close.

The lifters

The big mining companies all finished higher on the back of a rise in iron price overnight. BHP gained 1.1 per cent, Fortescue Metals rose 1.4 per cent and Rio Tinto added 1 per cent.

Meanwhile, gold miner Evolution climbed 3.9 per cent, having jumped as much as 7 per cent during the session, after saying its profit for the year to June 30 more than doubled to $926 million amid rising bullion prices. Fellow gold miner Northern Star Resources gained 1.1 per cent.

Penfolds maker Treasury Wine Estates rose 1.2 per cent after revealing a 15.5 per cent lift in underlying profits to $470.6 million, having sold more than $2.9 billion worth of wine over the past financial year. The result was helped by Asian demand for its luxury red wine, and price increases.

Tyro Payments jumped 11.5 per cent after telling investors it had received unsolicited and non-binding takeover bids from separate suitors, although so far none of them had been at a level that it considered “representative of Tyro’s intrinsic value”.

The laggards

Shares in the Commonwealth Bank, Australia’s biggest lender, slumped 5.4 per cent even as the banking giant reported $10.25 billion in cash profits for the past financial year, thanks to growth in business loans and mortgages. Meeting expectations, the result failed to provide further fuel to the stock’s rally over the past months.

The other big four banks also declined. National Australia Bank lost 2.6 per cent, Westpac dropped 2.1 per cent and ANZ Bank slipped 0.2 per cent.

AGL shares slumped 13.1 per cent after the power giant reported a $98 million net loss and a 21 per cent fall in underlying net profits for the year ended June 30, citing lower wholesale electricity prices and its decision not to fully pass on higher costs to customers to alleviate the rise in power bills. The company flagged a further fall in earnings for this year.

The lowdown

Futures had predicted a solid day for the local sharemarket on the heels of another record-setting session on Wall Street, but it was the results from Australia’s biggest company by market value – the Commonwealth Bank – which dominated the session.

Meeting market expectations, the banking giant’s earnings couldn’t excite investors and provide further fuel to its stock’s long-lasting rally. Analysts have been questioning the bank’s sky-high valuation for months, with most having “sell” recommendations on the stock, but the share price had continued to rise and rise, racking up a more than 37 per cent gain over the past year.

While CBA’s result was clean, investors found nothing in it to keep the rally going, analysts said.

“The investment case for CBA hinges around the bank being in a strong position and the market
assessing if the strongest in the sector can get stronger,” UBS banking analyst John Storey and his colleagues wrote in a note to clients, suggesting investors “might be disappointed” about the lack of a bullish outlook and the lack of rising demand in the bank’s key retail business.

It was the bank’s first result in two-and-a-half years that wasn’t prompting analysts to upgrade their profit estimates, noted Jon Mott from financial services firm Barrenjoey.

Matthew Davison, portfolio manager at Martin Currie Australia, sounded caution on the stock’s outlook from here. “CBA trades at a significant premium to our valuations and to its key peers,” with its sharemarket value “disconnected from the ROE [return on equity] and growth trends we see in these results,” he warned.

The local reality check came after Wall Street continued to party overnight, sending the S&P 500 up 1.1 per cent to top its all-time high set two weeks ago. The Dow Jones climbed 1.1 per cent, and the Nasdaq composite jumped 1.4 per cent to set its own record.

US stocks got a lift from hopes that the latest inflation report will give the Federal Reserve leeway to cut interest rates at its next meeting in September. US consumer prices increased moderately in July; however, rising costs for services such as airline fares and some tariff-sensitive goods such as household furniture caused a measure of underlying inflation to post its largest gain in six months.

The mixed report from the Bureau of Labor Statistics cemented a change in financial market expectations that the Federal Reserve would cut interest rates in September amid signs of a deterioration in labour market conditions. Traders on Wall Street increased their bets that the Fed would cut interest rates for the first time this year in September. They’re now seeing a 94 per cent chance of that, up from nearly 86 per cent a day earlier, according to data from CME Group.

Lower rates would give a boost to investment prices and the economy by making it cheaper for US households and businesses to borrow to buy houses, cars or equipment. President Donald Trump has angrily been calling for cuts to help the economy, often insulting the Fed’s chair personally while doing so.

But the Fed has been hesitant because of the possibility that Trump’s tariffs could make inflation much worse. Lowering rates would give inflation more fuel. That’s why Fed officials have said they wanted to see more data come in about inflation before moving.

Other central banks around the world have been lowering interest rates, and Australia’s Reserve Bank on Tuesday cut for the third time this year.

Intel’s stock rose 5.6 per cent after Trump said its CEO has an “amazing story,” less than a week after he had demanded Lip-Bu Tan’s resignation.

In an unlikely bid that shows the growing brashness of young artificial intelligence companies, AI start-up Perplexity has made an unsolicited offer to buy Google’s Chrome web browser for $US34.5 billion ($53 billion).

The tiny company made its offer against the backdrop of an upcoming antitrust decision against the tech giant. In a US District Court ruling due as early as this week, Judge Amit Mehta could force Google to sell its web browser as a way of reducing the company’s dominance in the internet search market.

Perplexity CEO Aravind Srinivas said in a letter to Sundar Pichai, CEO of Google’s parent company, Alphabet, that its offer to buy the Chrome browser was “designed to satisfy an antitrust remedy in highest public interest by placing Chrome with a capable, independent operator”. Alphabet shares closed 1.3 per cent higher.

With AP

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