The Australian share market has lost more than 1% after a weaker than expected $7.2bn profit from ANZ and a warning from Woolworths about future earnings dragged stocks sharply lower.
Woolworths and its rival, Coles owner Wesfarmers, were among the worst performers on the market after Woolies said its profit was likely to fall by up to 35% in the first half of the financial year.
The retailer’s shares ended the day down 9.8% at $24.70 while Wesfarmers was down 4.3% at $40.20, despite its much more positive sales update last week.
The ASX/S&P 200 lost 1.28% to finish on 5,266 points, not helped by ANZ missing analyst forecasts despite bumper profits.
Shares in the bank were down 2% at $28.17 as its cash profit and steady dividend missed expectations on weaker earnings from its international business following the stock market and currency turmoil in Asia in July and August.
Profit at the bank’s Australian unit rose 7.2% to $3.27bn as the strong housing market helped grow customer numbers along with increased sales and market share.
“In a constrained environment, we have continued to see growth in our core customer franchises in Australia, in New Zealand and in key Asian markets, partly offset by the effect of macro-economic headwinds on the international and institutional banking division,” said outgoing chief executive Mike Smith.
The broader market picture was clouded by suggestions overnight from the US Federal reserve that it could raise rates at its next meeting in December.
Although analysts detected a slight lift for the ASX on the news, the Australian dollar fell as it continued to retreat from recent highs.
The prospect of a hike in US borrowing costs was dampened after the Fed’s September meeting, sparking a rally in the Aussie’s fortunes, but now appeared to be firmly back on the agenda with several fed members known to favour a rise. The dollar was buying US71.02c at 2.30pm.
Figures released on Thursday showed a decline in the number of new house sales in Australia. Housing Industry Association data showed that new home sales fell 4% in September, after rising 2.3% in August. Tighter lending requirements for investors introduced by the banks and the recent rise in mortgage rates were thought be behind the fall.
A softening housing market could give the Reserve Bank of Australia more room to cut rates at its monthly meeting on Tuesday.
Meanwhile, Woolworths has been rocked by the ongoing supermarket price war which has led to the departure of chairman Ralph Waters while chief executive Grant O’Brien will leave once a successor has been found.
The company recently launched a $500m program to lower food and grocery prices in a bid to win back customers and to contain German discounter Aldi, which is aggressively expanding into South Australia and Western Australia.
But CMC Markets chief market analyst Ric Spooner said that while the market expected a weak result, the steep profit warning raised fears that there was more bad news in the pipeline.
“Woolworths appears to have lost more market share to Coles and there are fears there may be worse to come as it progresses its huge investment in lowering prices, which hurt profit margins,” he said.
“Investors are going to be nervous until Woolworths shows signs of things stabilising or of a turnaround.”
