IOOF Holdings shares fell 7 per cent to $4.28 on Monday after the company announced chief executive Chris Kelaher and chairman George Venardos had stepped down from their respective roles. Renato Mota will be appointed as acting CEO and Allan Griffiths will be appointed acting chairman. The changes come following the announcement on Friday that APRA will will take legal action against five of IOOF’s executives.
The healthcare sector also sold off heavily on Monday. CSL closed the session 4 per cent lower at $176.64, Cochlear slid 5 per cent to $165.73 and Nanosonics fell 6.1 per cent to $2.91.
Local tech stocks were among the worst performing on Monday. Wisetech Global slid 4.8 per cent to $17.35, Appen closed 6.2 per cent lower at $12.61, Afterpay Touch slipped 5.7 per cent to $11.97, Altium dropped 4.8 per cent to $20.84 and Xero closed at $37.20, down 4 per cent.
The materials sector was the best performing on the market, led largely by the gold miners. Regis Resources rose 5.2 per cent to $4.44, Northern Star Resources advanced 2.7 per cent to $8.42, Evolution Mining lifted 2.5 per cent to $3.30, Resolute Mining closed 2.5 per cent higher at $1.03 and Newcrest Mining climbed 1.6 per cent to $21.30.
Morgan Stanley downgraded IOOF Holdings heavily on the back of APRA’s “show cause notice” which highlighted the governance issues facing the company. The downgraded the company from ‘overweight’ to ‘equal-weight’ noting the large uncertainties over IOOF’s leadership, acquisition of ANZ wealth and the ongoing commercial viability of its structure. While the broker made no changes to its earnings forecasts, it did call into question the longer-term probability of the company with APRA raising questions about the integrated business model. The sign-off on the ANZ wealth transaction is also unlikely until there is a resolution of APRA’s concerns with the business, according to the broker. Morgan Stanley downgraded its price target on the company by 53.7 per cent, down from $10.80 to $5.00.
What moved the market
Fed funds rate
Investors are expecting the Fed funds target to peak at around 2.6 per cent by the end of 2019, a shift from a month ago when the market was forecasting a peak closer to 3 per cent. The probability of a December rate hike has also fallen below 70 per cent, down from 90 per cent a week ago. The weaker than expected US employment report on Friday only added to the bearish outlook. Capital Economics said in a note on Monday it was still forecasting the Fed would raise rates three times between now and the middle of 2019, with a fund target range between 2.75 and 3 per cent.
The price of crude oil rose over the weekend after OPEC and its allies reached an agreement over oil production cuts. The cartel will reduce its output by 800,000 barrels per day for the six months starting January 2019 while Russia agreed to cut an additional 400,000 barrels per day. The agreement was reached after a compromise was reached that means Venezuela, Iran and Libya will be exempt from the plans. “OPEC will ultimately stem the recent retrenchment and inject some renewed optimism back into a market that has otherwise fallen out of favour over the past two months,” said RBC Capital Markets global head of commodity strategy Helima Croft.
The Canadian dollar was the strongest performing major currency on Friday amid signs the economy was strengthening above expectations. Earlier in the week, the Bank of Canada appeared bearish as it led rate on hold, flagging risks to economic growth both domestically and overseas. The sharp drop in oil prices, one of Canada’s major exports, was also flagged. On Friday however, employment data showed a record increase in the number of domestic jobs. Production cuts from OPEC, announced on Friday, also gave the Canadian dollar strength as it rose more than 1 per cent.
Housing finance rebounded during October but the market remains weak for the year. Total housing finance rose 3 per cent for the month in October, led by a rise in the owner-occupier category which rose 4.8 per cent. The investor category rose just 0.6 per cent and remains 17.9 per cent lower on a year-on-year basis. “Although a solid monthly result, the prospect of further credit tightening is likely to continue to weigh on the housing market and finance approvals from here,” said ANZ senior economist Daniel Gradwell. “Still, a sustained up-tick in this data will be one of the things we are looking at for evidence of stabilisation.”