ASX rebounds as Trump calms markets


The market took a positive lead from Wall Street early on before extending its gains following the first quarter’s disappointing Wage Price Index print.

The major miners advanced after base metal prices rebounded in London on Tuesday. BHP Group led the market, rising 1.9 per cent to $37.20. Rio Tinto climbed 2.2 per cent to $98.31, Fortescue Metals closed 0.6 per cent higher at $8.14 and South32 added 1.8 per cent to end the session at $3.46.

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The financial sector was very mixed. ANZ shares advanced 0.7 per cent to $26.29, Commonwealth Bank fell 3¢ to $72.54, Westpac slid 1¢ to $26.89 and NAB closed at $24.28, up 0.2 per cent. Macquarie also rose, adding 1.4 per cent to finish at $119.11.

Investors took a risk-on attitude to growth names, pushing the price of technology and consumer stocks firmly higher.

The a2 Milk Company was among the market’s best performers, climbing 2.5 per cent to $15.40, Bellamy’s Australia rose 0.6 per cent to $9.47 and Super Retail Group advanced 2 per cent to $7.80.

The local tech sector was also buoyed, with most stocks outstripping their losses from the previous session on Wednesday.

Wisetech Global rose 2.3 per cent to $21.78, Appen closed 0.1 per cent higher at $24.17, Afterpay Touch lifted 0.5 per cent to $26.14, Altium added 4.5 per cent to close at $32.21, Nearmap ended the session at $3.55, up 3.5 per cent and Xero climbed 1 per cent to $54.31.

The major gold miners gave up some of their gains from the previous session. Northern Star Resources fell 1.4 per cent to $9.32 and Regis Resources was 2.1 per cent lower at $4.62.

Shares across the region were also firmer on Wednesday. New Zealand’s S&P/NZX All Index hit a fresh record high after rising 0.7 per cent, Hong Kong’s Hang Seng rose 1 per cent, China’s Shanghai Composite added 1.7 per cent, Japan’s Nikkei 225 advanced 0.5 per cent and Korea’s KOSPI climbed 0.6 per cent.

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Stock watch

MAYNE PHARMA GROUP

UBS reduced its price target on Mayne Pharma Group after the specialty pharmaceutical company reported a fall in its generic products revenue. The broker noted the competitors launched against its Dofetilide and Liothyronine products had impacted volume and price. UBS also said it wasn’t entirely convinced by the company’s outlook. “While in our view there is merit in Mayne’s comments regarding repositioning of the products businesses toward specialty branded products and sustainable generic portfolios, we await tangible evidence of this before incorporating any positive impact on divisional earnings,” said analyst Saul Hadassin. UBS downgraded its price target on Mayne Pharma from 73¢ to 60¢.

What moved the market

BANK MARGINS

Bank profits are likely to remain under pressure for the next few years as margins are squeezed. According to Morgan Stanley estimates, the half yearly net interest margins will slip to 1.9 per cent by the second half of 2021, down from 2.06 per cent just two halves ago. “We also believe that, on balance, RBA cash rate cuts would put further downward pressure on margins,” analyst Richard Wiles said. “We estimate that every 25 basis point rate cut reduces major bank margins by 2 to 3 basis points and earnings by 1.5 to 2.5 per cent.”

CRUDE OIL

Crude oil prices rose on Tuesday after Iran-backed Houthi rebels from Yemen attacked a pumping station in Saudi Arabia. The price of Brent crude advanced 0.8 per cent to $US71.62 a barrel as the attack temporarily halted the kingdom’s main cross-country pipeline. The attack is just the latest move in a bitter battle being fought with oil resources. Earlier this week several sea vessels, including two Saudi oil tanks, near the Strait of Hormuz were attacked. Iran denied involvement in the attack but a group is yet to claim any responsibility. If the strait were to close, then up to 40 per cent of global oil exports would be put at risk.

CHINESE RENMINBI

Policymakers in China are attempting to stem the renminbi’s slide as the currency becomes a victim of the trade war where previously it may have been used as a weapon. The renminbi has fallen 2 per cent since US-China tensions flared. “We doubt that the 7 Chinese yuan per US dollar line in the sand will be breached while there is still hope of talks continuing,” said Capital Economics market economist Oliver Jones. “If talks break down altogether, they might step back and allow the market to drive the currency down further. But even then, they would probably still shy away from actively driving it lower.”

IRON ORE

Macquarie expects buoyant iron ore prices will continue to drive earnings momentum for the major miners as global shipments slow. The broker said it expected BHP Group and Fortescue Metals to achieve the bottom end of their shipping guidance while Rio Tinto and Vale were expected to either miss or cut theirs. Despite this, it still retained an ‘outperform’ recommendation on BHP, Rio Tinto and Fortescue, and a ‘neutral’ recommendation on Vale. “At spot prices all covered iron ore miners see a substantial increase in forecast 2019 earnings per share,” the broker said. It forecast EPS for BHP and Rio Tinto would increase by 30 per cent each.

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

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