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Banks keep ASX in the black as Amazon threat hammers retailers (again)

Supermarket owners and major retailers provided plenty of drag to the ASX on Monday, which nonetheless managed to close in the black after strong bank buying.

The benchmark S&P/ASX 200 index rose 31 points, or 0.5 per cent, to 5805.2, while the broader All Ordinaries edged up 0.5 per cent to 5835.5.

In the first trading session since Amazon announced a bid for US grocery chain Whole Foods in the US, opening up yet another competitive front with traditional retail, Woolworths was heavily sold down. 

"It's put the fear of God into retail investors, no doubt about that," said Argonaut executive director of corporate stockbroking James McGlew.

"They're scared that the Amazon behemoth, and the horsepower it carries, can walk into smaller markets like Australia or parts of Europe and apply a loss-leading philosophy to snap up market share."

In a note, Citi analysts, led by Bryan Raymond, played down the threat of a similar entry into the Australian grocery sector, noting the local grocery market is far more concentrated than in the US. Even the smaller independent grocery wholesaler Metcash, given this, was unlikely to be acquired - an assessment shared by investors, if Monday's price fall is any indication.

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"Amazon's penetration in grocery is likely to be small and pricing to be less disruptive as Amazon has (to date) taken a premium approach to grocery, with price points above major bricks and mortar competitors," the analysts wrote. "As a result, we see less risk to Coles and Woolworths from Amazon than discretionary retailers."

That appeared small comfort to investors. Woolworths shed 3.5 per cent - the biggest single drag on the index - while Wesfarmers was 0.2 per cent lower. Metcash fell 2.3 per cent.

Other retailers were also affected. Harvey Norman fell 3.1 per cent, JB Hi-Fi was down 2.7 per cent, Premier Investments lost 1.5 per cent, Myer retreated 2.2 per cent while Super Retail Group closed 3.4 per cent lower.  

Nonetheless, the session ended positively, with the heavyweight big four banks recouping losses made elsewhere. ANZ, CBA, and Westpac all gained around 1 per cent, while NAB was the standout performer, up 1.5 per cent.

The major ASX-listed miners fell early, but gains in Chinese iron ore futures through Monday helped BHP Billiton and Rio Tinto cancel out those losses, while Fortescue Metals Group went from losses to gains, ending the session up 1.3 per cent.

Also rising strongly was in high volume trade was AWE Group, after the oil company recorded positive drilling results at its Waitsia3 well. It also fielded interest in Dawney & Co, which seeks to acquire up a call option on up to 19.9% per cent of its shares. AWE's share price closed up 8.0 per cent. 

Stock Watch: McMillan Shakespeare

Shares in car leasing giant McMillan Shakespeare slumped 6.2 per cent to $13.11 after The Australian Financial Review revealed the company is to be hit with an $80 million class action alleging unfair and unconscionable conduct in its extended car warranty business NWC. The class action will be funded by global litigation funder Vannin Capital, and law firm Quinn Emanuel Urquhart & Sullivan will file the action next month. The class action, which will also allege illusory consideration, will send chills through McMillan Shakespeare, along with the $86 billion car dealership industry which makes a fortune collecting commissions selling car warranty products. The company has made a statement to the ASX "noting" the story and acknowledging the claim might relate to subsidiary Presidian Holdings.

China home prices

China's home prices increased in fewer cities last month in the wake of cooling measures imposed by local authorities, official data showed. New-home prices, excluding government-subsidised housing, gained from the previous month in 56 of 70 cities tracked by the government, compared with 58 in April, while prices fell in nine cities and were unchanged in five. In Beijing, the scene of the tightest property restrictions, prices of new homes were unchanged from the previous month, and prices of existing homes fell by 0.9 per cent, the first decline since February 2015. 

Iron ore

Citi on Monday cut its iron ore price forecasts for this year and next, due to expanding supply, saying the price needed to fall below $US45 a tonne for the market to erase a 100 million tonne surplus. Spot iron ore, which traded at just below $US56 on Friday evening, has dropped 41 per cent from this year's peak. The most-traded iron ore on the Dalian Commodity Exchange is up 1.8 per cent at 437 yuan ($US64.15) a tonne, after touching a seven-month low of 412.50 yuan last week. 

New car sales

The sale of new cars rose strongly in May, a promising sign for a pick-up in consumer spending in the second quarter. Today's ABS data showed national sales rose a seasonally adjusted 2.9 per cent in May, against April gain of only 0.3 per cent. A total of 100,476 vehicles were sold for the month, up 4.9 per cent on May last year and the highest gain since the series began in 1994. Sales of SUVs rebounded by 4.1 per cent after a dip in April, while passenger vehicle sales rose a solid 3.8 per cent. 

Oil

Rising US oil production and the first signs of faltering demand prompted Brent crude oil to start the week down 0.3 per cent at $US47.22 a barrel, hovering close to the 2017 low of $US46.70 it hit last week. The global benchmark is down nearly 13 per cent since late May, when producers extended their pledge to cut production by 1.8 million barrels per day for an extra nine months until the end of the first quarter of 2018. Traders said that the main factor driving the low prices was a steady rise in US production.