The local sharemarket had a mixed start to the week’s trading but rose firmly on Wednesday as investors priced in the prospect of rate cuts before the year’s end. On Friday, NAB became the second major bank to forecast a change in the Reserve Bank of Australia’s stance, predicting the central bank would cut rates twice before the year was out.
That news wasn’t enough to offset a tumbling sharemarket which wiped most of the week’s gains on Friday, as investors turned cautious amid concerns over global growth.
CSL led the marker higher, closing the week 1.9 per cent higher at $199.41 and breaking over $200 a share for the first time since early October on Friday before drifting slightly lower. The healthcare giant has been on a sustained rally since raising its full-year guidance in mid-February.
NAB was also among the market leaders this week after announcing that acting chief executive Phil Chronican would replace the departing Ken Henry as the bank’s chairman. The bank’s shares rose 1 per cent to $25.38.
The other major banks ended the week lower, weighing the market. ANZ fell 3.2 per cent to $27.12, Commonwealth Bank slid 1.6 per cent to $73.18 and Westpac declined 0.1 per cent to $26.98.
Bellamy’s Australia rose 17.2 per cent to $10.35 this week amid optimism that it would be able to securing its crucial SAMR accreditation, required to sell its products in China. The company said last week it was expecting to receive its accreditation by the end of the year.
Automotive Holdings shares fell 7.3 per cent to $1.96 this week after research from the Reserve Bank of Australia said falling house prices would cause customers to cut spending on items like cars and furniture.
Morgan Stanley retained its equal-weight rating on healthcare giant CSL but upgraded its price target on the company saying the outlook for the sector looked generally positive. The broker said it was expecting CSL’s profit result would be at the top-end of its guidance. “We expect CSL to achieve 2018-19 guidance for net profits after tax target of $US1950 million. Confidence follows the strong beat from flu at the first-half result,” said analyst Sean Laaman. “We now see upside to CSL’s 2019-20 $US200 million earnings before interest and tax target for flu however softness in plasma leads to lower sustainability of 2019-20 growth.” The broker upgraded its earnings per share expectations for the next two fiscal years by 1.7 per cent and 2.1 per cent, respectively. Morgan Stanley lifted its price target on CSL from $178.00 to $183.00.
What moved the market
ECB Interest Rate Pricing
The European Central Bank expects its key interest rates to remain steady until at least the end of 2019, a change from their previous guidance that rates would be unchanged through the end of the 2019 European summer. This change was not a significant surprise to the market however with Eurozone interest rate futures already implying there was unlikely to be a rate hike by December 2019. ECB President Mario Draghi noted during his press conference the bank did discuss changing the forward guidance to March 2020. CBA says its base case is for the ECB to begin lifting the deposit rate in December 2020.
Copper prices slid on Thursday as a supply squeeze showed signs of easing and global growth concerns rose. Copper, a proxy for economic growth, slipped after the European Central Bank delayed its forecast for an interest rate rise until 2020. Stocks on the London Metal Exchange are also rebounding from the decade low levels that sent the price of the base metal to a more-than six month high in late February. Traders and analysts are only expecting more deliveries into London Metal Exchange warehouses, with the build and any further signs of slowing global growth likely to push the price of the metal lower.
The euro was hit on Thursday, falling almost 1 per cent to $US1.12 and hitting the lower-end of its four-month trading range. CBA chief currency strategist Richard Grace noted on Friday morning that the ECB lowered its economic forecasts, pushed out its forward guidance, introduced more easing measures and also maintained the view that the economic outlook was dominated by downside risks. “The ECB’s updated forward guidance means they now expect the key interest rates to remain at their present levels at least through the end of 2019 instead of at least through the (northern hemisphere) summer of 2019,” he said.
Trade war deal
Markets appear to be pricing in the prospect that a comprehensive trade deal will be signed at the end of March. “We have argued before that a limited US-China trade agreement ruling out further tariffs now appears largely priced in to markets,” said Capital Economics markets economist Oliver Jones. “But the chances of a more comprehensive deal, including the roll-back of the tariffs imposed last year, appear to have increased in the past few days.” He added that the deal was unlikely to give the market a sustained boost however. “Although a comprehensive deal might provide a short-term boost, we would still expect stock markets around the world to fall sharply by end-2019,” he said.
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.