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Sunday, September 22nd, 2019

Markets Live: ASX ends with minor gains

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by January 13, 2018 General

That’s it for Markets Live this week.

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See you on Monday.

Australian shares ended with slight gains on Friday but lost ground over the week, with an advance in the mining sector not enough to offset weakness in consumer staples and real estate stocks.

The S&P/ASX 200 index rose 2 points, or less than 0.1 per cent, to end the session at 6070 on Friday, with the move paring a weekly loss for the index to 0.9 per cent.

The All Ordinaries added half a point during Friday’s trading session to end the day at 6176, while the Australian dollar traded at US78.85¢.

Miners performed well on Friday, with BHP Billiton shares jumping 2.2 per cent to $31.53, Rio Tinto shares up 1.7 per cent to $80.62 and South32 shares higher by 4 per cent to $3.87, pushing the ASX mining index to its highest level in almost five years.

“Miners are getting re-rated and people are starting to recalibrate portfolios to the one sector that could see significant upside,” said Perpetual’s head of investment strategy Matt Sherwood.

He noted that Australian earnings are expected to be fairly subdued this year, with growth at around 5 per cent. However “commodities are the wild card,” he said. 

“It appears that the resources sector in Australia is starting to diverge from the growth outlook in China – prices are gaining but China is slowing down.”

Data out on Friday showed that China’s December imports missed market expectations, rising only 4.5 percent year-on-year, while exports beat forecasts with 10.9 percent growth.

The mining sector was one of a handful of sectors to gain over the week, rising 0.8 per cent, with investors also focusing on iron ore prices after cyclone warnings prompted the closure of a top export hub on Thursday.

While the retail sector ended the week with overall losses, with consumer discretionary stocks down 2  per cent overall, some individual retail names performed strongly over the week after better-than-expected retail sales figures were released on Thursday.

Super Retail climbed 3.6 per cent to $8.70 during the week and Harvey Norman rose 1.4 per cent to $4.38. JB Hi-Fi jumped 8.8 per cent to $28.36 over the week, with a broker upgrade also supporting the stock.

Consumer staples stocks saw a weekly loss of 2.2 per cent, with Woolworths and Wesfarmers sliding 0.6 per cent to $27.25 and Wesfarmers down 1 per cent to $43.73 on Friday. Real estate stocks were also punished, with the sector ending the week down 1.9 per cent, as were industrials, which fell 2.2 per cent. 

Those sectors can act as bond proxies for investors. Bond markets had a turbulent week after US 10 year Treasury yields surged and ignited fears that bonds are headed for a bear market. 

The world economy is taking off, factories are humming again and copper futures prices are jumping. The one thing that’s missing is buyers of the actual metal.

Evidence of the anomaly can be seen in the premiums that purchasers of physical copper pay over futures prices to cover shipping and other costs.

Typically these rise as demand grows and buyers are willing to pay extra to access supply that’s being used up at a quicker rate. Yet, even with factories running at the fastest in years, premiums have been stuck at a low level.

That’s a disconnect with the optimism in futures markets, where hedge funds have been adding to their bullish bets since the middle of December. Such wagers have helped fuel a rally in prices to their highest since early 2014.

“Certainly from a fundamental perspective, I do find it difficult to justify the copper price where it is today,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said in London.

Along with high stockpiles and a slack forward price curve with spot prices trading below futures on the London Metal Exchange, low physical premiums suggest buyers aren’t yet rushing to secure copper as factories ramp up.

“The question becomes ‘When are the net consumers, the tradesmen going to show up?’,” said Peter Thomas, a senior vice president at Zaner Group LLC in Chicago. “It takes a little while to get that wheel turning.”

Optimists expect it to happen sooner rather than later.

Read more here

Australia and New Zealand Banking Group has nixed plans to sell its Kiwi car loans, asset finance and investments business UDC Finance to China’s HNA Group over New Zealand concerns about the conglomerate’s ownership structure.

Street Talk in December revealed the deal was in trouble after New Zealand’s Overseas Investment Office (OIO) torpedoed HNA’s proposed $NZ660 million ($603 million) acquisition of UDC Finance.

The OIO, the equivalent to Australia’s Foreign Investment Review Board, said HNA was unable to satisfy its questions as to who would ultimately control the asset.

ANZ had said that it would back out of the deal unless HNA managed to get the decision overturned.

ANZ group executive and New Zealand chief executive David Hisco insisted it was business as usual for the group after the failed sale.

“Following the termination of the agreement with HNA, we’ll continue to assess our strategic options regarding the future of UDC, although there is no immediate requirement to do anything,” he said in a statement.

“It will be business as usual for staff and customers. UDC continues to be a very profitable business with a strong capital position and a growing loan portfolio across a range of industries.”

China’s December imports missed market expectations, rising only 4.5 percent year-on-year, while exports beat forecasts with 10.9 percent growth, official data showed on Friday.

That left the country with a trade surplus of $54.69 billion for the month, according to a Reuters calculation based on official data.

Analysts polled by Reuters had expected December shipments from the world’s largest exporter to have risen 9.1 percent, slower than the 12.3 percent increase in the previous month.

Imports had been forecast to rise 13.0 percent, softening from an 17.7 percent gain seen in November, with the trade surplus tipped at $37.0 billion last month from November’s $40.21 billion.

Exports rose 7.9 percent for the year, while imports increased 15.9 percent in dollar terms, data from the General Administration of Customs showed.

Meanwhile, China’s 2017 trade surplus with the United States reached an all-time high $275.81 billion, customs data showed on Friday, topping the previous record in 2015 of a $260.8 billion surplus.

China’s December trade surplus with the U.S. was $25.55 billion, compared to $27.87 billion in November.

The 2017 increase in the surplus with the U.S. came as China’s overall trade surplus declined to $422.5 billion.

Rio Tinto Group has dropped out of the bidding for a stake in SQM, one of the world’s top lithium producers, as it pursues other ways to capitalise on the electric-car boom, people familiar with the matter said.

Rio decided not to proceed with an offer for Nutrien’s 32 percent stake in Santiago-based SQM after studying information in a data room, according to the people. Other strategic bidders remain interested in the holding, one of the people said.

Nutrien’s interest in SQM is worth about $US5 billion ($6.4 billion).

Nutrien, the Canadian company formed through Potash Corp’s recent merger with Agrium, is selling the holding to meet a condition imposed by Indian regulators when approving that combination. Rio last year sought advice from firms including Credit Suisse on a possible bid for the stake, people familiar with the matter said in November.

Lithium is a key element used in electric-vehicle batteries, and prices have tripled since 2015. BHP Billiton, the world’s largest mining company, in September approved a $US43 million project to start producing nickel sulfate, a product needed for lithium-ion batteries. Glencore plans to double its production of cobalt in the next two years, another key battery component.

Rio Tinto shares are up 1.9 per cent in Australian trading. 

Read more here

Telstra has launched a new technology in Australia that enables millions of devices to send small volumes of data at low power, allowing businesses to become connected to the Internet of Things (IoT).

The technology, called narrowband, can be used to connect any number of devices to the internet, from irrigation systems for commercial farming all the way to home pool filters.

Telstra already has Cat M1 technology spanning 3 million square kilometres, which it introduced in 2017. This is also an IoT technology but is more suited to personal health monitors, and monitoring vehicle performance, with much faster speeds.

Narrowband was expected to be popular in the transport and logistics, mining, manufacturing and agricultural industries due to the volume of the data that could be handled, Telstra chief operations officer Robyn Denholm said.

Telstra shares are up 0.5 per cent today. 

Jennifer Duke reports

Shares are holding onto early gains at lunchtime, with the S&P/ASX up 12 points, or 0.2 per cent, at 6079 and the All Ordinaries up 10 points, or 0.2 per cent, at 6186. 

Miners were the standout performers at the end of the week, with BHP up 1.8 per cent, Rio TInto, up 1.6 per cent and South32 up 2.7 per cent.

“Miners are getting re-rated and people are starting to recalibrate portfolios to the one sector that could see significant upside,” said Perpetual’s head of investment strategy Matt Sherwood.

He noted that Australian earnings are expected to be fairly subdued this year, with growth at around 5 per cent. However “commodities are the wild card,” he said.  

“It appears that the resources sector in Australia is starting to diverge from the growth outlook in China – prices are gaining but China is slowing down.”

On the other hand banks were weaker in Friday’s session, with CBA and ANZ down 0.5 per cent each. Supermarkets were also lagging, with Wesfarmers down 1 per cent and Woolworths down 0.7 per cent. 

Incitec Pivot dropped 4 per cent after Gina Rinehart’s Roy Hill indicated it would not renew Incitec’s contract to supply explosives when it expires next month.

The mighty force of consumerism has taken hold in China. In 2018, retail sales in China are expected to equal or surpass sales in the United States for the first time, another definitive marker in China’s rise to economic superpower status.

The growth of China’s domestic retail market is luring everyone from automakers to make up companies that want to cash in on the country’s growing middle class, but it also serves as another complication in President Donald Trump’s quest to transform US-China trade.

Retail sales in China are on track to hit just over $US5.8 trillion ($7.4 trillion) this year, according to Mizuho, a Japanese bank. It’s a stunning rise from a decade ago, when retail sales in China were a quarter of those in the United States.

China’s rapidly growing middle class has been eager to buy brand-name clothes, cars and cellphones, among other products. Shanghai is now referred to in fashion circles as “Paris of the East.”

Their spending habits have been supported by fatter paycheques, with China’s income per capita jumping from about $US2000 a year a decade ago to over $US8000 a year now.

“China’s best bargaining chip is its massive and fast-growing domestic market,” says Jianguang Shen, chief China economist for Mizuho, who pointed out the retail trend in a recent presentation in Washington, DC.

“This will change the balance (of power) tremendously, as it is first time when the US is dealing with a market of equal size in a potential trade war.”

Read more here

Orica appears to have snatched more business from rival explosives manufacturer Incitec Pivot, after Gina Rinehart’s Roy Hill indicated it would not renew Incitec’s contract to supply explosives when it expires next month.

Roy Hill’s decision comes barely one month after BHP confirmed it would not renew Incitec’s contract to supply ammonium nitrate prill to BHP’s Western Australian iron ore division when the contract expires in November 2019.

Loss of the BHP contract will deliver a combined $35 million hit to Incitec’s net profits over the 2020 and 2021 financial years, and Incitec said this week the loss of the Roy Hill contract would deliver a further $81 million hit to net profits after tax over the next five years.

The biggest impact from the loss of the Roy Hill contract will come in 2020.

There has been no confirmation of which company has replaced Incitec as the supplier of explosives to Roy Hill nor BHP, but it is believed to be Orica, which has recently started production from its new Burrup ammonium nitrate plant close to BHP and Roy Hill’s operations in the Pilbara region of Western Australia.

Orica declined to comment on Friday when asked if it had won the Roy Hill contract, but its shares were 20¢ higher at $19.05 in morning trade on Friday.

Conversely, Incitec shares were almost 5 per cent lower in early trading, with the stock 19¢ lower at $3.67.

After years of speculation and minority shareholder angst, Virgin Australia last year confirmed what many had long taken for granted: privatisation was on the cards.

With less than 9 per cent of its shares traded freely on the stockmarket, the carrier is firmly in the control of its five largest investors, and in November chair Elizabeth Bryan said the board was acting in the best interests of all shareholders by exploring privatisation. 

Virgin has not updated the market since, declining to comment when contacted this week. 

Etihad Airways owns 21 per cent of Virgin, along with Singapore Airlines (20 per cent), Chinese conglomerates Nanshan (19.9 per cent) and HNA Group (19.8 per cent), and Richard Branson’s Virgin Group (10 per cent).

Going private would free Virgin from the burden of quarterly reporting, and the accompanying scrutiny, as it tries to fly out of a bumpy transformation period.

But some say its public company structure has kept the competing interests of Virgin’s rival airline owners in check.

Albert Wong, the Sydney stockbroker and corporate adviser who negotiated Nanshan’s purchase of its shares from Air New Zealand in mid-2016 for $260 million, said a major ownership shake-up was a key premise behind that investment.

“The share register was basically five elephants in the room,” Mr Wong told Fairfax Media.

Virgin shares were down 1.9 per cent on Friday.

Patrick Hatch reports

The Australian dollar has extended the gain it enjoyed from November’s better-than-expected retail trade figures, trading at US78.95¢, up from US78.74¢ on Thursday.

Local retail sales rose 1.2 per cent to $26.4 billion in November, seasonally adjusted, beating the 0.4 per cent rise economists had predicted.

It is the third consecutive month of growth following a rise of 0.5 per cent in October and 0.2 per cent in September.

Meanwhile, the US dollar weakened following a fall in US producer prices.

The US dollar index, which measures the greenback against six rival currencies, was down 0.57 per cent at 91.808, after falling to a near-one-week low 91.808.

The greenback extended losses after data showed US producer prices fell for the first time in nearly one-and-a-half years in December amid declining costs for services.

Weak inflation at the producer level could add to concerns that the factors restraining inflation could become more persistent and result in the Federal Reserve being more cautious about raising interest rates in 2018, Reuters reported.

While the Aussie dollar was strong against the US dollar, it has fallen against the yen and the euro.

Shares climbed in early trading, snapping a two-session losing streak, as mining companies advanced strongly. 

The S&P/ASX 200 index rose 11 points, or 0.2 per cent, to 6078 while the All Ordinaries climbed 10 points, or 0.2 per cent, to 6186. 

The Australian dollar traded at US78.89¢ after rising sharply in the previous session following a jump in retail sales. 

US shares rose on Thursday, with miners and industrials gaining as investors bet on robust economic growth. 

Australian miners were gaining on Friday, with BHP up 1.8 per cent and Rio Tinto higher by 1.6 per cent.

Fortescue Metals rose 1.2 per cent and Galaxy Resources recovered from Thursday’s selloff with a 4.8 per cent advance.

Qantas shares advanced 2.9 per cent and A2 Milk rose 1.7 per cent.

Banks dragged, however, with CBA and ANZ down 0.3 per cent each.

Incitec Pivot dropped 4.7 per cent after it warned late yesterday that it will take a hit to its fiscal 2018 net profit of about $5 million after the expiry of its contract as explosives supplier to Roy Hill Iron Ore.

European Central Bank policymakers said they’re open to tweaking their policy guidance soon to align it with a strengthening economy, spurring a rise in the euro as traders bet bond-buying will end in September.

In the account of its December meeting, the Governing Council said there was a “widely shared” view among officials that communication would need to evolve gradually based on the outlook for growth and inflation. But the language on the monetary-policy stance could be revisited early this year.

The euro jumped a cent, and was trading at $US1.2039 in Frankfurt. The yields on German bonds also increased, with the two-year yield gaining 4 basis points to minus 0.57 per cent.

“The big picture is that any shift in communication, whether it happens in March or June or if it’s gradual or hawkish, now seems to be backed by the majority of the Governing Council, which didn’t seem to be the case in October,” said Frederik Ducrozet, an economist at Banque Pictet in Geneva, adding that QE may end even if underlying price pressures only improve slightly. “This could have some very concrete policy implications.”

Investors are currently on edge after reminders that central banks around the world have the potential to roil financial markets in 2018. A minor tweak in the Bank of Japan’s bond-purchase operation on Tuesday saw the yen strengthen more than 1 per cent in two days, and a change in the way China’s central bank manages the yuan sparked losses in that currency.

The world’s mining sector is firing on all cylinders again, and one of its biggest investors can’t wait to get paid.

After five years of under-performance, a combination of synchronous global growth and under-investment in new supply has driven up commodity prices, increasing cash flow and profit margins for the world’s biggest mining companies, according to BlackRock’s Evy Hambro.

“When those things converge you get a pretty explosive price response, and that’s what we’ve seen,” Hambro, who manages BlackRock’s $US6.4 billion World Mining Fund, said in a Bloomberg TV interview.

“Margins and cash flows for the sector are going to continue to be very robust, and we are really looking forward to getting rewarded for our patience with the companies handing back cash to us.”

Mining companies were forced to shed assets to cut debt and reassure investors during a 2015 collapse in commodity prices that threatened the survival of some of the biggest names in the industry. The slump wiped out more than $US1.4 trillion of shareholder value and revealed years of profligate spending by mining executives on ambitious projects to feed inflated forecasts for Chinese demand.

“A lot of investors were really badly burned, ourselves included,” Hambro said. His fund posted negative returns for five years from 2011, losing 41 per cent of its value in 2015 as mining stocks plummeted. “That takes time for people to forget and to trust the management teams not to repeat the same mistakes,” he said.

Read more here

SPONSORED POST:

Here’s IG’s Chris Weston on the markets:

The ECB have caused a stir in markets, with the minutes from the December meeting detailing that the “language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited”.

In effect the bank are prepping the market for subtle changes in its policy settings over time, with headlines doing the rounds that “The ECB could consider a gradual shift in guidance from early 2018”.

This is the main story of the trading session, although we also heard from the ECB’s chief economist Peter Praet, who gave a somewhat more cautious take on the minutes, emphasising that forward guidance was key and trying to emphasise that nothing material was changing from these minutes.

 Whichever way you slice and dice the narrative the market has responded and we can see a strong reaction in interest rate markets, with the difference between the euribor futures December 2019 and December 2018 contracts blowing out to 37bp (+5bp), highlighting the market is seeing less policy stimulus in play in the period ahead. 

The fixed income markets have naturally responded, with good selling across the German bond curve, although front end yields have move slightly more aggressively.

There seems little domestic data to drive today, and while some will point to China trade balance, this is a notorious difficult data point to read, not just because there is no set time, but also because it gets so badly reported.

Aussie SPI futures are essentially unchanged and our ASX 200 opening call sits at 6070 (+3 points) and we can see a strong open in store for BHP.

Read more here

Wall Street surged to fresh highs as rising oil prices lifted energy stocks and an upbeat forecast from No. 2 US carrier Delta Air Lines drove airline stocks higher.

Chevron rose 3.2 per cent and Exxon 1.5 per cent, helping the S&P energy index gain 2.24 per cent and putting it on track for its best percentage gain in more than seven months.

European shares dipped on Thursday as a bond market sell-off and a stronger euro took the steam out of the breakneck New Year rally in equities. Results drove the bulk of stock moves, with some disappointments weighing heavily.

European Central Bank policy makers said they’re open to tweaking their policy guidance soon to align it with a strengthening economy, spurring a rise in the euro as traders bet bond-buying will end in September.

Estimates on Thursday showed the Germany economy probably grew about 0.5 per cent in the fourth quarter of 2017, while France’s expanded 0.6 per cent. A separate report from France showed business sentiment at the highest in almost seven years.

According to the ECB report, policy makers agreed that while economic data had been more positive than expected, underlying inflation “had yet to show convincing signs of a sustained upward trend”. The central bank’s latest projections show that consumer-price growth will only average 1.7 per cent by 2020, still short of its goal of just under 2 per cent.

Al the overnight market data in numbers: 

  • SPI futures up 4 points or 0.1% to 6017
  • AUD +0.6% to 78.89 US cents
  • On Wall St: Dow +0.6%, S&P 500 +0.5%, Nasdaq +0.6%
  • In New York, BHP +1.4% Rio +1.8%
  • In Europe: Stoxx 50 -0.4%, FTSE +0.2%, CAC -0.3%, DAX -0.6%
  • Spot gold +0.4% to $US1321.92 an ounce
  • Brent crude +0.6% to $US69.64 a barrel
  • US oil +1.2% to $US64.30 a barrel
  • Iron ore +1% to $US79.08 a tonne
  • Dalian iron ore -1.6% to 546.5 yuan
  • LME aluminium -0.3% to $US2175.50 a tonne
  • LME copper -0.2% to $US7140 a tonne
  • 10-year bond yield: US 2.54%, Germany 0.58%, Australia 2.73%

On the economic agenda today: 

  • Local data: Trade balance Decmber; NZ building permits November
  • Overseas data: US CPI December, Retail sales December

Good morning and welcome to the Markets Live blog for Friday, 

Your editor today is Sarah Turner. 

This blog is not intended as investment advice.

Fairfax Media with wires.

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