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Banks drag ASX to two-month low

A slide in banking stocks has driven the Australian share market to its lowest level since March as investor nervousness about regulatory activity weighs on financial stocks.

The benchmark S&P/ASX200 finished Monday down 0.78 per cent at 5,707.1 with a hefty selloff in the banking sector accounting for most of the decline.

The big four banks all retreated by 1.3 to 1.9 per cent, with ANZ taking the heaviest fall with a 53 cent drop to $27.69.

Shaw and Partners chief investment officer Martin Crabb said the slide in the banks was driven by uncertainty around the Australian Prudential Regulation Authority’s expected move to lift capital reserve requirements on local institutions to bring them in line with its dictum that they be “unquestionably strong” in the face of any downturn.

“The market is still nervous about when and what the APRA requirements for ‘unquestionably strong’ will be,” Mr Crabb said.

Trading was thin ahead of the US Memorial Day holiday, which will keep Wall St markets closed overnight, amplifying the impact of the banks’ move.

Mr Crabb said a fall in the iron ore price to around $US57.90 had affected mining stocks.

Rio Tinto dropped 1.5 per cent to $62.67 while BHP Billiton gave up 0.7 per cent to $23.84 and Fortescue Metals slid 3.1 per cent to $4.70.

Australian investors will be monitoring official building approvals figures on Tuesday and retail trade data on Thursday but Mr Crabb said most of the data momentum for the week was likely to come from the US payrolls figures on Friday night, local time.

A solid rise in jobs added will increase the likelihood of the Fed hiking rates in June.

In companies news, pizza giant Domino’s closed $2.36 or 3.8 per cent lower at $59.19 after dropping as low as $58.22 in volatile trading.

Some attention was focused a Morgan’s Stockbrokers analyst report that downgraded the stock to a hold, according to reports in some media outlets.

However CMC Markets chief market analyst Michael McCarthy said Domino’s was typically heavily shorted and ascribed the latest fall to the ongoing “tussle between shorts and investors” rather a shift in fundamentals underpinning the stock.

The Australian dollar finished at 74.30 US cents, slightly below Friday’s level against the US greenback as resources weakness weighed on the local currency.

ON THE ASX:

* The benchmark S&P/ASX200 closed down 44.6 points, or 0.78 per cent, at 5,707.1 points.

* The broader All Ordinaries index was down 44.4 points, or 0.77 per cent, at 5,747.7 points.

* The June SPI200 futures contract was down 44 points, or 0.76 per cent, at 5,712 points.

* National turnover was 1.8 billion securities traded worth $5.3 billion.

CURRENCY UPDATE AT 1700 AEST:

One Australian dollar buys:

* 74.30 US cents, from 74.38 on Friday

* 82.66 Japanese yen, from 82.78 yen

* 66.53 euro cents, from 66.34 cents

* 57.93 British pence, from 57.78 pence

* 105.18 New Zealand cents, from 105.65 NZ cents

BOND SNAPSHOT AT 1200 AEST:

* CGS 4.50 per cent April 2020, 1.6674pct from 1.6561pct

* CGS 4.75pct April 2027, 2.4105 from 2.4114pct

Sydney Futures Exchange prices:

* June 2017 10-year bond futures contract at 97.555 (implying a yield of 2.445pct), from 97.56 (1.44pct) on Friday

* June 2017 3-year bond futures contract at 98.29 (1.71pct) from 98.30 (1.70pct).

(*Currency closes taken at 1700 AEST previous local session, bond market closes taken at 1630 AEST previous local session)

Published on: Monday, May 29, 2017

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