“Global equity indices closed on a high note on the back of the report.
“While the solid data print does walk back some domestic recessionary concerns, it doesn’t alleviate potential adverse knock-on effects from a possible worsening economic climate in China, Europe or even Brexit fallout.”
The major resource stocks led the market on Monday as oil prices edged to a five-month high, and both US and Chinese officials signalled solid progress in trade negotiations.
BHP Group led the market, climbing 1.7 per cent to $39.89, Fortescue Metals Group rose 2.8 per cent to $8.00, Rio Tinto advanced 1.6 per cent to $101.48 and South32 closed 1.6 per cent higher at $3.88.
Woodside Petroleum closed at $34.56, up 1.4 per cent, Santos rose 2.3 per cent to $6.82, Origin Energy advanced 2.1 per cent to $7.25 and WorleyParsons climbed 3 per cent to $14.64.
Resolute Mining shares closed at $1.26 on Monday after advancing 7.7 per cent on the back of a solid quarterly production report. The gold miner said production had increased by 33 per cent for the quarter and that the company had achieved record quarterly gold production at its Syama mine in Mali.
The major banks were the biggest drag on the market although their declines were only muted. NAB fell 0.4 per cent to $24.70, Westpac closed 0.7 per cent lower at $25.88, ANZ declined 0.6 per cent to $25.80 and Commonwealth Bank slid 0.3 per cent to $70.67.
Lynas Corp rose slightly after Malaysia Prime Minister Mahathir Mohamad said on Friday Lynas would be able to continue processing its rare earths in the country, if it agreed to first decontaminate raw material before sending it there. Lynas said on Monday it welcomed the continuation of its operations in Malaysia. Its shares advanced 0.5 per cent to $2.12.
Domain Holdings shares fell 7.2 per cent to $2.83 on Monday after Macquarie analysts downgraded its recommendation on the company, citing a weaker near-term outlook and strong recent share price performance. The broker said it was expected listing volumes to decrease further this year, extending their year-to-date losses.
REA Group was also weaker, falling 1.5 per cent to $74.82, after Macquarie downgraded its earnings forecasts for the company in the same note.
Morgans lifted its target price on lottery game re-seller Jumbo Interactive by 71.6 per cent, saying it expected a strong second-half result for the company. The broker said a strong jackpot run in the first half of the financial year, has been replicated in the second half and that is likely to mean it will beat its previous guidance. “This strong game performance coupled with an $100 million Powerball draw in early January should have driven strong ticket sales and resulted in high levels of customer acquisition,” said analyst James Lawrence. “Jumbo has been highly successful in leveraging its existing customer base to drive revenue growth and also continues to lead innovation in the digital lottery space. Consequently, we sit ahead of company guidance.” Morgans lifted its price target on Jumbo from $11.18 to $19.18.
What moved the market
Despite an above consensus March non-farm payrolls report, employment growth remains on a downward trend, with the three-month average monthly gain dropping to a 15-month low. The annual growth rate of average hourly earnings fell to 3.2 per cent and the unemployment rate was unchanged. “This supports our view that economic growth will disappoint, prompting the Fed to start cutting rates towards the end of the year,” said Capital Economics market economist Hubert de Barochez. “In the meantime, we expect the 10-year US Treasury yield to fall further and the S&P 500 to drop sharply.”
Iron ore prices are expected to move higher in the short-term as disruptions for Cyclone Veronica and the fallout from Vale’s dam disaster in Brazil continue to restrict supply. CBA mining and energy commodities analyst Vivek Dhar said while these constraints would keep the price of iron ore above $US90 a tonne in the near-term, the price would drop later in the year. “As Chinese supply responds to higher prices and Chinese steel mills look to reduce demand, we expect prices to settle at $US85 a tonne in the second half of 2019,” he said. “We expect Vale’s exports will likely take three years to normalise back to its forecasts before the fatal dam collapse.”
The Canadian dollar slid on Friday after the country’s employment figures for March came in weaker than expected. The market had been anticipating an increase of 6,000 jobs to the economy however employment ended up falling by 7,200 for the month. The result came on the back of a strong February which saw 55,000 jobs added. Average hourly earnings were higher for the month however, climbing 2.4 per cent in March, the fastest annual gain since September and adding to a strong 2.3 per cent increase in February.
Morgan Stanley says NAB is its preferred major bank, with the smallest of the big four the only bank given an ‘equal-weight’ rating by the broker. Analysts cited NAB’s resilient housing loan growth, improved risk profile relative to its peers and trading multiples which factor in low earnings growth and a dividend cut, as key reasons for its preference. The broker is remaining ‘underweight’ on the three other major banks, downgrading its price targets on each of the three, citing a range of risks including revenue pressure, risks in retail banking and the deteriorating outlook for the housing market.
William McInnes covers markets from Sydney including editing the Markets Live blog.