“It’s a bit of a knee-jerk reaction but it probably wasn’t a big surprise,” said Atlas Funds Management chief investment officer Hugh Dive.
“Given what’s going on in the economy it’s probability a bit too premature to cut rates.Employment is still strong and I don’t think the data was sufficient [to cut].”
The major miners led the advance on Tuesday after Vale announced a Brazilian court had ordered it to halt operations at tits Brucutu Mine, raising investor expectations of further supply constraints in the iron ore market.
BHP Group led the advances rising 1.4 per cent to $37.30, Rio Tinto rose 2.3 per cent to $96.05, Fortescue Metals Group added 6.3 per cent to close at $7.60 and South32 climbed 1.8 per cent to $3.36.
Energy shares were also firmer as oil prices rebounded, helping the sector reverse some of its losses from the previous session. Like most stocks on Tuesday however, their gains retreated slightly during the afternoon. Woodside Petroleum added 0.5 per cent to close at $34.90, Origin Energy lifted 1.5 per cent to $7.52 and Beach Energy rose 2.8 per cent to $2.01.
China-sensitive stocks also rebounded from their losses in the previous session. A2 Milk rose 2.6 per cent to $15.44 and Bellamy’s Australia advanced 2.7 per cent to $9.98.
Treasury Wine Estates closed 0.4 per cent lower at $16.17 after Bayberry Capital managing director Angela Aldrich pitched the stock as a short at the 2019 Sohn Conference in New York on Monday.
The major banks traded higher earlier in the session but slid following the RBA meeting. Westpac fell 0.2 per cent to $27.06, Commonwealth Bank slid 0.4 per cent to $74.61, ANZ declined 0.2 per cent to $27.50 and NAB finished the session 0.3 per cent lower at $25.84.
GrainCorp shares slid 7 per cent to $8.15 after Long-Term Asset Partners officially withdrew its $3.3 billion takeover bid for the company after being stalled in the due diligence stage for almost five months.
Citi reduced its rating on Hub24 from ‘neutral’ to ‘sell’ and reduced its price target on the investment platform company, saying the strong increase in the company’s share price had left it overvalued. The broker acknowledged that while the company was likely to triple its market share of the platform market over the next five years, its valuation wasn’t appropriate. “In our view, the current share price does not reflect the downside risks to revenue margin from competition and earnings before interest, tax, depreciation and amortisation margin from the ongoing need to invest in the platform to support growth,” said analyst Siraj Ahmed. Citi reduced its price target on the company slightly, citing cost growth, reducing it from $13.60 to $13.35.
What moved the market
Steel margins in China are continuing to move higher through the start of the year following a big fall in the profitability in the back-end of last year. Higher margins are allowing steel makers to absorb the higher iron ore prices, which have been elevated on the back of the shutdown of Vale’s mining operations in Brazil and disruptions to supply in Australian ports. The rise means Chinese steel mills could begin to start buying more high grade ore too although analysts say the margins are not yet high enough to justify a preference for the higher grades just yet.
Palladium was hit on Monday following US President Donald Trump’s tariff threats and failed to recover as most of the market did. The price of the precious metal fell 2.2 per cent to $US1,340.64 an ounce. The metal is used in auto manufacturing and commonly used to make catalytic converters. The auto sector was broadly hit by the news, with the potential for tariffs on parts imported from China to be lifted from 10 per cent to 25 per cent. On Wall Street on Monday, care and auto-parts companies recorded some of the markets biggest losses. Farm equipment maker Deere fell 4 per cent and auto-parts company BorgWarner slid 1.3 per cent.
The Australia dollar has risen back above US70¢ following stronger-than-expected economic data and a surprise call by the Reserve Bank of Australia to keep rates on hold. The Aussie had climbed back above US70¢ briefly during the morning trade following the release of Tuesday’s trade balance and retail sales data for March. It roared higher following the RBA’s announcement that it was keeping rates on hold at 1.5 per cent., climbing to US70.36¢. “The fun and games for Aussie is not over this week,” said CBA senior currency strategist Joseph Capurso. “The risk is that the RBA moves to an explicit bias in its Statement on Monetary Policy on Friday.”
The market re-gained most of the losses it suffered following President Trump’s tweets after China responded relatively cordially, lifting hopes a deal could still be reached. “Monday gave way to a more sober assessment of US threats to raise tariffs on imports from China. And with that many markets erased their hefty early losses,” said CBA agri commodities strategist Tobin Gorey. He added that the market had perceived the President’s tweets were more a negotiating tactic that a threat. “China seems to have resisted a fit of pique that led to their flouncing away from the negotiating table. Markets came to see the risks as contained (but not zero).”
William McInnes covers markets from Sydney including editing the Markets Live blog.