The sharemarket staged a comeback after a two-day slide, but a lack of conviction in bank stocks and selling in healthcare detracted from a strong lift in energy stocks.
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The benchmark S&P/ASX 200 briefly traded above the 5500 mark before steadily losing steam throughout the session, closing 10 points or 0.2 per cent higher at 5475.8, while the broad All Ordinaries ended 12 points or 0.2 per cent higher at 5563.4.
Sluggish June retail sales figures from the Australian Bureau of Statistics failed to inspire confidence in the economy. Capital Economics economist Paul Dales said the retail sales result combined with the weak terms of trade data may lead to a soft second quarter GDP read to less than 0.5 per cent.
Energy stocks outperformed, with the sector posting a 2 per cent gain for the day. Santos enjoyed a strong session, up 6.7 per cent, while Origin Energy added 2.4 per cent.
Earnings results were mixed. Downer EDI was the day's second best performing stock behind Bellamy's Organic, up 7.7 per cent.
The banks endured a topsy-turvy session as bargain hunters swooped but the buying was unconvincing. Commonwealth Bank of Australia finished 0.5 per cent lower while National Australia Bank was the strongest, up 0.2 per cent, as Prime Minister Malcolm Turnbull announced bank CEOs are to be hauled annually before parliament to explain their actions.
The picture remains challenged for the banks ahead of results from CBA next week and trading updates from its competitors, and Watermark Funds analyst Omkar Joshi is not expecting good news. While bank shares have rallied as much as 10 per cent from their recent lows, their operating conditions haven't improved, he said.
Capital requirements within the next one to two years, bad debts moving higher, lower interest rates pressuring funding costs and scarce credit growth mean shares are more likely to move lower than higher in the near term.
"It's not a good environment," he said.
The yield is the strongest argument for buying the shares, but compared to capital losses, is hardly compelling.
"If earnings are under pressure in the banks that would suggest dividend growth is under pressure," Mr Joshi said.
Healthcare stocks were the weakest, with the sector down 1.2 per cent. CSL slipped 1.7 per cent, while Japara Healthcare, Cochlear and Virtus Health languished in the bottom 10 stocks.
Stock watch: South32
Shares in base metal and coal mining company South32 hit their highest point since June last year on Thursday, continuing its strong run this year. The BHP Billiton-spin off has surged 120 per cent from its low in January when commodity stocks hit their nadir, and its cost cutting strategy is behind Morgan Stanley's move to an overweight position on the company. Together with the continued rally in commodity prices, the investment bank sees the potential for South32 to outperform its expectations. "S32 is a quality company with a net cash position, allowing it to withstand commodity price volatility for an extended period of time", the analysts said.
What moved the market
Crude oil
The strong correlation between equity markets and the price of oil that dominated markets early this year appears to have returned, for now. Brent crude oil prices bounced 4 per cent to $US43.38 a barrel, rising with US oil after the Energy Information Administration said inventories slid 3.3 million barrels last week, while production fell. The bounce lifted US markets as well as emerging markets through the Asian session. The energy sector was the strongest performer on the ASX.
Retail sales
Data on Australia's retail industry painted a disappointing picture of the start of the winter season, with retail sales in June up 0.1 per cent, lower than consensus estimates for a 0.3 per cent rise and its slowest annual pace in three years. Sales in the household goods and food retailers fell in the month, with clothing and soft goods the strongest category. JP Morgan said the pressure on margins in the sector was an ongoing theme, a key driver of RBA easing and is set to continue to drive monetary policy into next year.
Australian dollar
The Australian dollar appears to continue to wilfully ignore attempts to push it lower, as even flat retail sales figures failed to inspire much trade. Two days after the RBA cut the official cash rate to an historic 1.5 per cent, the Aussie sat more or less where it was before the move, buying US76¢ in late trade. CBA analysts said reasons for the stability included its still relatively high yield globally, the policy move was because of inflation, not economic weakness, and the case for more US dollar strength was unconvincing.
Gold miners
Gold prices slipped for a second day after the greenback climbed on strong US data. The ADP national employment report estimate of private sector payroll growth in July was 179,000, better than the expected 170,000, adding to weight to the resilience of the US economy. The precious metal fell 0.6 per cent to $US1356, and gold mining names littered the bottom 10 stocks. Saracen Mineral Holdings was the day's worst performing stock, down 3.2 per cent, followed by St Barbara.
