ASX slides on lack of trade talk as investors hit pause


NAB shares rose 0.3 per cent to $25.27. The bank’s former chief of staff Rosemary Rogers handed herself into police on Tuesday and is expected to be charged with 56 counts of receiving corrupt benefits to the tune of $5.4 million including luxury overseas travel and cash. NAB said it was the victim of the fraud and no one at the bank was under investigation.

The major miners also closed lower on Tuesday after base metals slid across the board and the price of iron ore fell amid disappointing US manufacturing data. BHP Group fell 0.9 per cent to $37.30, Rio Tinto closed 0.9 per cent lower at $95.61 and South32 declined 0.3 per cent to $3.90. Western Areas fell 5.6 per cent to $2.21 and Sandfire Resource closed at $6.76, down 3.4 per cent.

Lithium miners Orocobre and Galaxy Resources were among the market’s worst performers, sliding 6.3 per cent to $3.60 and 4.2 per cent to $2.04, respectively.

Fortescue Metals Group was one of the sector’s best performers, rising 1.7 per cent to $6.50.

Metcash was the best performing stock inside the benchmark index on Tuesday after the company’s strategy shift was received positively by analysts. On Monday, the company said it was chasing sales growth by spending $300 million over five years buying and refurbishing stores, opening small stores and ramping up digital investment. Its shares rose 4.9 per cent to $2.80 on Tuesday.

Stock watch

Rio Tinto

RBC Capital Markets maintained its underperform recommendation on large cap miner Rio Tinto, saying it saw downside risks to iron ore and challenges in its aluminium and copper divisions. While the broker said the company had delivered a strong financial result for 2018, it was forecasting a more challenging 2019 for the miner and as a result, reduced its valuation and price target. “Rio is also facing cost headwinds in the aluminium division, and this coupled with lower alumina and aluminium prices reduces our earnings before interest, tax, depreciation and amortisation estimates in 2019,” said analyst Paul Hissey. “We also estimate near-term challenges at Kennecott and Oyu Tolgoi given lower grade profiles.” RBC Capital Markets reduced its price target on Rio Tinto from $70.00 to $64.00.

What moved the market

Iron ore stocks

China’s iron ore port stocks have increased during February, keeping the price of iron ore level despite Vale’s reduced iron ore production following the Feijao dam disaster. “China’s port stocks are an important indicator of surplus and deficit concerns in iron ore markets. That is mostly due to China’s enormous influence on seaborne markets, where they account for about 70 per cent of the world’s seaborne imports,” said CBA mining and energy commodities analyst Vivek Dhar. “While we don’t expect iron ore prices to spike about $US100 a tonne, we could see iron ore move into the $US90s as restocking demand intensifies.”

Aluminium

Aluminium led a broad slump in base metal prices on the back of weaker manufacturing data coming from the United States as investors express some caution over the demand for industrial metals. The US ISM manufacturing index fell from 56.6 in January to 54.2 in February, coming in below forecasts of 55.8 and hitting a two-year low. The price of aluminium on the London Metal Exchange fell 2.4 per cent on Monday, sliding to $US1,852 a tonne. Aluminium prices have been sliding for the past few weeks and is the worst performing industrial metal over the last month, down 2.3 per cent.

US dollar

The US dollar rose on Monday against most major currencies as doubts emerged over the timeline of US-China trade negotiations. It’s expected that US President Donald Trump will meet with his Chinese counterpart President Xi Jinping in late March and that a trade agreement is only likely to be signed then. With a trade deal still a few weeks away, investors appear to have taken the chance to put their money into the safe-haven US dollar. The US dollar’s gains were capped by disappointing construction spending in December 2018 which fell short of expectations and raised the prospect that fourth quarter GDP is revised down at the end of the month.

GDP Partials

A disappointing contribution to fourth quarter GDP growth from Tuesday’s current account deficit figures has caused the market to readdress where it sees the GDP figure printing on Wednesday. According to economists, the likelihood that economic growth hits the RBA’s forecast of 0.5 per cent for the quarter has fallen. “In light of the data on net exports and government finances, we are revising down our estimate for Q4 GDP from 0.5 per cent for the quarter to 0.3 per cent,” said Capital Economics economist Ben Udy. “If we’re right, that may prompt the RBA to look to cut rates earlier than our current forecast of November this year.”

William is a UTS journalism graduate and has worked at The Sydney Morning Herald. He now covers markets at The Australian Financial Review and keeps a close eye on IPOs.

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