“All eyes were firmly on the Federal Reserve this morning,” Ophir Asset Management senior portfolio manager Andrew Mitchell said.
“The dovish Fed has given the bears something to cling to as further evidence the US and engine room for the world economy is slowing.
“We saw the US dollar fall against major currencies and a few US-exposed companies like ResMed and Reliance have been trading a bit weaker.”
Index heavyweights CSL and Macquarie also dragged down the market initially, before rallying late to recover most of their earlier losses. CSL fell 0.1 per cent to $194.23, while Macquarie Group slid 1.5 per cent to $126.83.
The major miners lifted the market on Thursday despite iron ore prices sliding. BHP closed 1.3 per cent higher at $37.68, Rio Tinto advanced 1.5 per cent to $93.50, Newcrest Mining rose 2.4 per cent to $25.59 and Fortescue Metals Group finished the session at $6.51, up 2.4 per cent.
Pact Group fell 7.6 per cent to $2.56 after UBS handled a block trade of 26 million shares worth $65 million. The shares were sold at $2.50 each, with the trade representing a 7.6 per cent stake in the company.
Eclipx Group extended its heavy losses from Wednesday, falling 12.1 per cent to 73¢ on Thursday. McMillan Shakespeare pulled the plug on a $1.6 billion merger on Wednesday and a 56 per cent slide in the company’s share price wiped $337 million of its market value.
Sigma Healthcare fell on Thursday after reporting a 34 per cent slide in reported full-year net profit, citing restructuring, litigation and due diligence costs associated with the recently rejected takeover offer. Its shares declined 0.9 per cent to 54.5¢.
Macquarie retained its “outperform” recommendation on Nufarm despite the company’s first-half update disappointing investors. “We weren’t expecting great things from Nufarm’s first half and the likelihood of a full-year guidance cut, but the extent of the impact was worse,” analyst John Purtell said. The company revised its earnings before interest, tax, depreciation and amortisation guidance from between $500 million and $530 million to between $440 million and $470 million. Macquarie said it expected the company to earn $444 million for the year and reduced its earnings per share expectations by 22 per cent, 10 per cent and 3 per cent over the next three fiscal years. The broker highlighted the attractiveness of the company’s current valuation, noting its discount to peers. Macquarie lowered its price target from $7.19 to $6.38.
What moved the market
Australian labour force
A fall in the employment rate to a near eight-year low is expected to be short lived, with several economists suggesting the rate will soon rise and the Reserve Bank of Australia could be forced to cut rates as a result. “The RBA’s central forecast is that the unemployment will remain around 5 per cent throughout the year, so today’s release will have done little to resolve the tension between weak activity and strong labour market data,” Capital Economics senior economist Marcel Thieliant said. “Our view is that employment growth is lagging economic activity and that it will continue to slow as the housing market weighs on activity. The upshot is that the unemployment rate should start to rise again before long, eventually forcing the RBA to cut interest rates.”
The price of iron ore retreated heavily on Wednesday after a local Brazilian court authorised the resumption of operations at Vale’s Brucutu mine. The mine is the largest iron ore complex in the state of Minas Gerais, Brazil’s mining heartland. While the local environment regulator SEMAD still needs to approve the resumption of production, the iron ore market appears to be pricing in the firm likelihood of that happening. The mine has been closed since early February following the collapse of the tailings dam at a Vale-owned mine in Brumadinho. The price of iron ore fell 3.3 per cent to $US84.05 on Wednesday.
The US dollar dipped after the US Federal Open Market Committee turned more dovish, downgrading its assessment of the US economy and reducing its expectations for rate cuts across the next two years. In a press conference following the committee’s meeting, chairman Jerome Powell said “it may be some time before the outlook for jobs and inflation calls clearly for a change in policy”. The Fed downgraded its 2019 and 2020 GDP forecasts and also lifted its unemployment rate forecasts. It also announced a plan to stop reducing the Fed’s asset holding by September and change the composition of its assets in favour of Treasury securities.
The British pound fell almost 0.9 per cent against the US dollar on Wednesday after UK Prime Minister Theresa May’s request to the European Council to extend the Article 50 deadline until June 30 was cut down by the council’s president, Donald Tusk. Mr Tusk said the EC would grant the extension but that it was contingent on a positive vote on the withdrawal agreement in the House of Commons next week. Earlier in the week, the Speaker of the House of Commons said he would not allow another vote on the withdrawal agreement unless MPs were asked a different question. On Wednesday evening in London, Ms May said it was time for MPs to decide whether they wanted to leave with her deal, without a deal or whether not to leave at all.
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.