ASX fails to recover from tough start to week


Westpac slid 2.2 per cent to $25.92, ANZ closed at $26.03, down 1.8 per cent, and Commonwealth Bank fell 1.1 per cent to $70.64.

South32 fell 3.6 per cent to $3.73 and Alumina slipped 7.3 per cent to $2.42 after Norwegian aluminium giant Norsk Hydro said it had agreed with Brazil’s federal prosecutor to have a third-party technical assessment that could lead to it resuming full production at the half-shut Alunorte alumina refinery.

Energy stocks closed the week lower following a slide in the price of oil as fears of a global slowdown peaked.

Woodside Petroleum fell 3.3 per cent to $34.62, Origin Energy closed 4.8 per cent lower at $7.20, Santos slid 5 per cent to $6.83 and Oil Search went down 5.1 per cent to $7.85.

Eclipx Group extended its slide from the previous week as investors sold out of the embattled fleet management group. Last week, the company’s proposed merger with McMillan Shakespeare fell over, more than halving its share price. Its shares fell 14.1 per cent to 64¢ this week.

The major iron ore miners closed the week higher with some modest gains. BHP Group rose 2.3 per cent to $38.49, Rio Tinto advanced 4 per cent to $97.91 and Fortescue Metals Group closed at $7.11, up 7.9 per cent for the week.

Lynas Corp rose 28.6 per cent to $2.09 after Wesfarmers made a $1.5 billion takeover offer for the rare earths miner, saying it could provide the financial firepower and political savvy needed to take full advantage of its assets and solve its crisis in Malaysia. The indicative all-cash offer is worth $2.25 a share.

Stock watch

Pilbara Minerals

Credit Suisse retained its “outperform” recommendation on Pilbara Minerals following the company’s update to the market on Thursday. The company declared commercial production at its Pilgangoora project in Western Australia and also announced it would try to find partners for its stage three expansion. While the company’s March production was below the broker’s expectations and its price realisation was also weaker, analyst Nick Herbert said the softer ramp-up could be attributed to equipment issues that were now resolved. He added that while there were short-term hiccups for the company, they would prove significant in the context of the miner’s long-term operations. Credit Suisse retained its $1.15 price target, a 31 per cent premium to its Friday close of 79¢.

What moved the market

Australian yield curve

The Australian yield curve has followed the lead of its US counterpart, inverting between the three‑month bill and the 10‑year bond yield for the first time since July 2016. “While such a yield curve inversion has in the past consistently signalled a US recession, this is not the case for the Australian yield curve and Australian recessions,” CBA chief currency strategist Richard Grace said. “The Australian yield curve inversion has also occurred much more frequently than the US yield curve inversion. However, the Australian yield curve inversion has in the past signalled RBA rate cuts in six out of the last seven yield curve inversions. The one exception was during the 2003‑08 mining investment boom.”

Palladium

The price of palladium slid dramatically on Thursday, its third loss in as many days and its biggest loss in almost nine years. The price of the precious metal slid 7.3 per cent to $US1346.96 an ounce. The commodity hit a record high only last week, but its slump on Thursday now puts it back to its weakest level since January 29. “I think that the bubble has burst,” ABN Amro Bank NV senior FX and precious metals analyst Georgette Boele told Bloomberg. “Palladium is finally feeling some gravity.” Palladium is mainly used in the production of catalytic converters for automobiles.

Aussie dollar

The Australian dollar lifted slightly on Friday after falling away from a strong start to the week’s trading on Wednesday and Thursday. Investors will likely remain cautious heading into next week, with a raft of economic data set to be released. Two other big events on the local calendar for Tuesday are the federal budget and the Reserve Bank’s policy meeting. “We expect no change to RBA policy as the labour market remains strong,” ANZ economist Rahul Khare said. “The tone will likely remain cautious, however, owing to risks associated with housing, credit conditions and labour market expectations. Risks remain balanced as strong unemployment data have been offset by the weaker fourth-quarter GDP and soft leading indicators.”

Vale cuts guidance

Vale updated the market on the impact of multiple production issues at its mines in Brazil, saying the impact on the market would only just start to be felt in the market. The miner’s production guidance suggested that 50 metric tons to 75 metric tons, or 3.1 per cent to 4.7 per cent, of output had been lost due to its outages. “The impact of the production loss into shipments lost at Vale will start to be felt now because of the time it takes for the ships to arrive in Asia,” the Brazilian miner said. “So far the price increases have been driven by expectations. Now the physical consequences will start to reach the market.”

William McInnes covers markets from Sydney including editing the Markets Live blog.

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