“Outside of the commodity story, the focus is whether the US intends to pursue its ‘America First’ policies beyond the US – China trade deal. The market is priced for a good news story on a reconciliation or truce between the world’s two largest economies, but we’re apprehensive that a full resolution is achievable given the structural issues on technology, IP and enforcement that remain.”
Energy companies were among the market’s best performers on Tuesday as the price of oil extended its five-month high on the back of supply concerns. Woodside Petroleum led the sector, rising 2.7 per cent to $35.50, Santos advanced 2.9 per cent to $7.02, Origin Energy climbed 0.8 per cent to $7.31 and Beach Energy closed 5.5 per cent higher at $2.13.
Oil Search rose 2.3 per cent to $8.15, bolstered by the announcement it had signed a gas agreement with Total SA and ExxonMobil, defining the fiscal framework of the Papua LNG Project.
The major iron ore miners also closed higher, after the price of iron ore moved above $US95 a tonne, although their gains were more subdued. BHP Group rose 0.4 per cent to $40.03, Rio Tinto advanced 0.1 per cent to $101.58 and Fortescue Metals Group climbed 2.5 per cent to $8.20.
Crown Resorts shares closed 19.7 per cent higher at $14.05 on Tuesday after confirming a report by Street Talk that Las Vegas giant Wynn Resorts had made a takeover offer for the local casino company at an implied value of $14.75 per share. The proposal involved 50 per cent cash and 50 per cent Wynn shares and values Crown at $10 billion.
Star Entertainment also rose on the news, advancing 5.4 per cent to $4.47.
The major banks were weaker for a second day running, weighing on the market gains. Commonwealth Bank led the declines with a 0.6 per cent fall to $70.25, Westpac slid 0.2 per cent to $25.84, ANZ declined 0.6 per cent to $25.65 and NAB closed trade at $24.59, down 0.5 per cent.
A fall in the price of aluminium hit South32 and Alumina shares, with both companies among the markets worst performers on Tuesday. South32 declined 2.8 per cent to $3.77 and Alumina slid 1.9 per cent to $2.55.
Credit Suisse lifted its price target on Costa Group and retained its outperform recommendation on the produce supplier following a visit to the company’s China operations. The broker upgraded its profit expectations for the company for the 2020 and 2021 fiscal years following the trip. “We had conservatively forecast the roll-out of Costa’s berry plantations and were below the company’s previous guidance,” said analyst Larry Gandler. “We also gained confidence in Costa’s ability to enhance yield and pricing through genetics and management.” The broker said it was still nervous upgrading due to the Morocco berry season, with management keeping “its cards close to its chest with regards to Morocco performance”. Credit Suisse upgraded its price target on Costa Group from $5.70 to $6.00.
What moved the market
Analysts are forecasting an increase in US earnings in the coming months, with companies set to receive a boost from the upcoming earnings season. While most analysts are expecting the earnings per share to rebound from the 7 per cent decline year-to-date, some are more sceptical. “Even though we are not anticipating a deep downturn in the global economy, those forecasts look too positive to us,” said Capital Economics market economist Oliver Jones. “If global growth simply remains weak as we are anticipating, rather than bouncing back strongly, then the rates of corporate earnings growth than analysts are forecasting will be hard to achieve.”
Fighting in Libya is supporting oil prices, with Brent crude extending its five-month highs on Monday. The country’s 1.1 million barrels per day production in March represented 1.1 per cent of global oil output for the month. The Libyan National Army is closing in on the capital Tripoli where one of the country’s main ports is located. The Trump administration also labelled Iran’s Islamic Revolutionary Guard as a foreign terrorist organisation, further reducing the possibility that Iran will be able to lift its oil exports when waivers allowing countries to import the Islamic Republic’s oil come up for renewal in May.
The Australian dollar rose only slightly on Tuesday despite much better than expected housing finance figures. While household lending rose more than expected in February, the market sentiment is that conditions still remain weak. “Some of the effects of tightening credit conditions may also be dissipating,” said Westpac senior economist Matthew Hassan. “That said, the signs of improvement are still only tentative. The market may be starting to find a base in terms of finance activity but conditions remain weak overall.” The Aussie is also being supported by a move toward commodity sensitive currencies as the price of copper and iron ore rise.
Macquarie analysts have noted the impact of the federal election on Qantas Airways. Federal elections have traditionally had an impact on demand for the airline, with the broker citing a $25 million hit in 2016 at the last election. Analyst David Fabris said demand, particularity on Sydney and Melbourne routes to Canberra, would slow as politicians remained in their electorates and parliament entered care-taker mode. “Domestic capacity is up 2 per cent during the June 2019 quarter, with 1 per cent and 4 per cent [growth] across Qantas and Virgin [respectively],” Mr Fabris noted. “While we are expecting April capacity to show growth, we would expect May, June capacity to be flat to down.”
William McInnes covers markets from Sydney including editing the Markets Live blog.