ASX climbs ahead of US-China talks


Telstra shares moved higher on Thursday after diving just before the Wednesday’s close following the shock news the Australian Competition and Consumer Commission had blocked the proposed $15 billion merger of Vodafone Hutchison Australia and TPG Telecom. Both companies vowed to challenge the decision in the Federal Court.

Telstra’s shares closed the session 2.7 per cent higher at $3.38 on Thursday, TPG Telecom slid 0.3 per cent to $6.05 while Hutchison Telecommunications rose 13 per cent to 13¢.

Kidman Resources shares rose above Wesfarmers’ $1.90-per-share offer price on Wednesday, sparking speculation a rival bid could come forward. Kidman’s shares closed 2.6 per cent lower at $1.90 after retracing some of their gains, but other lithium miners rose.

Orocobre rose 4.6 per cent to $3.61, Pilbara Minerals advanced 3.3 per cent to 78¢ and Galaxy Resources added 7.5 per cent to finish the session at $1.65.

Qantas shares climbed 2.2 per cent to $5.56 after the airline forecast a record annual revenue, following a 2.3 per cent rise in third-quarter revenue on Thursday. The company also increased its overall market share of corporate travel revenue by 2.5 percentage points, hitting its highest level in three years.

SANTOS

Morgan Stanley increased its price target on Santos after the oil and gas producer commenced its drilling program at the Dorado oil discovery. The drilling will be a three-well program aimed at appraising the Dorado project and also drilling a nearby exploration prospect. The broker said any success at the Dorado discovery could add 30¢ to its share valuation immediately and up to $1 depending on the size of the oil resource. The broker said the company remained its No. 1 large-cap energy stock. “It might sound a little unusual, but in some ways Santos is lower risk than other large-cap E&Ps,” said analyst Adam Martin. Morgan Stanley increased its price target on Santos from $7.20 to $7.70.

What moved the market

NOT PRICED IN

The trade tensions between the United States and China caused shares on Wall Street to fall this week, suggesting a resolution had been priced. However, some argue that isn’t the case. “The reality is that despite significant corporate tax relief that kicked in last year, in the wake of the trade skirmish with China that began in late January of last year, the S&P 500 has returned a grand total of 1.6 per cent,” said RBC Capital Markets chief US economist Tom Porcelli. “If we strip out inflation, broad equities are down about 1 per cent in that span. By that token, a ‘done deal’ on trade doesn’t seem to be priced in.”

CRUDE OIL

Crude oil prices rose on Wednesday after US stockpiles unexpectedly declined last week. The US Energy Information Administration reported that supply fell by 3.96 million barrels last week, compared to forecasts of a 1.11 million barrel gain. The oil market is still wary of the trade tensions between the US and China, which represents a big concern for investors, with the potential for demand to contract if a deal isn’t reached. The US remains poised to raise tariffs from 10 per cent to 25 per cent on $US200 billion worth of Chinese imports by Friday.

US DOLLAR

The US dollar has traded firmly this week as the deadline for the US increasing tariffs on Chinese imports approaches. Key meetings between US officials and Chinese vice-premier Liu Hu will take place on Thursday and Friday, with the two parties set to try to resolve their differences over trade, intellectual property and cyber theft. If an agreement cannot be reached, it’s likely the US will go ahead and increase its tariff rate. Some reports suggest China’s Ministry of Commerce is preparing retaliatory countermeasures to the tariffs.

HOUSING MARKET

ANZ believes the housing market still has further to run in its decline, saying that nationally, prices are about two-thirds of the way down. “National housing prices have been falling since mid-2017 and are now 10 per cent down from their peak,” said senior economist Felicity Emmett. “We continue to expect prices in Sydney and Melbourne to fall 15-20 per cent, peak-to-trough. At this point, Sydney looks likely to be a little weaker than Melbourne, although it did run up further before the peak. Nationwide, we think prices will fall close to 15 per cent.”

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

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