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Australia: Market drops on fresh global trade concerns

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The Australian share market closed session steep lower on Tuesday, 03 December 2019, as the market mood was dampened amid renewed fears about global trade tensions after US President Donald Trump stunned markets with tariffs against Brazil and Argentina. Weak US factory data added to the investor gloom. All sectors closed in red with healthcare, communications, information technology, real estate and utilities were the leading decliners. At closing bell, the benchmark S&P/ASX200 index tumbled 149.97 points, or 2.2%, to 6,712.29, while the broader All Ordinaries declined 146.94 points, or 2.11%, to 6,818.36.

Shares in grocery wholesaler Metcash (MTS) fell 4 cents or 1.36% to A$8.05, after predicting that the recently announced loss of the 7-Eleven supply contract would lower annual pre-tax earnings - earnings before interest & tax or EBIT - by around $15 million. MTS will also write down A$237.4 million in goodwill in its food division, after a review prompted by the loss of its major client 7-Eleven.

Market fears about global trade tensions resurfaced after US President Donald Trump stunned markets with tariffs against Brazil and Argentina. President Donald Trump decided to restore tariffs on steel and aluminum imports from Brazil and Argentina, attacking what he saw as both countries' "massive devaluation of their currencies." Both South American nations were among a group of U. S. allies that Trump had exempted from steel and aluminum tariffs in March 2018. The Trump administration also proposed tariffs of up to 100% against $2.4 billion of French imports to punish France for a new digital-services tax that hits U. S. technology companies.

Worsening the mood, data from the Institute for Supply Management (ISM) showed the US manufacturing sector contracted for a fourth straight month at 48.1 in November from 48.3 the month before, as new orders slid.

New orders dropped to 47.2 from 49.1, matching a reading from July that was the lowest since June 2012. A reading above 50 indicates expansion in the manufacturing sector and a reading below 50 indicates contraction. That erased the market cheer from upbeat Chinese factory surveys released over the past few days.

Investor optimism that the U. S. and China were nearing a trade deal helped spur the market's milestone-setting run this fall, lifting it from a summer slide brought on by recession fears and uncertainty over trade. The negotiations to end the longstanding trade war could face a tougher path this month following a flareup over Hong Kong, however.

China said on Monday US military ships and aircraft won't be allowed to visit Hong Kong, and also announced sanctions against several US non-government organizations for encouraging protesters to "engage in extremist, violent and criminal acts."

Lithium miner Orecobre (ORE) lowered its price guidance for the battery making ingredient, but cited operational and cost improvements as factors that will limit the impact on operating margins. ORE said the weighted average price of lithium carbonate sales for the December quarter is now expected to be approximately US$5,400/tonne free on board (FOB), this compares to an earlier estimate of Q2 FY20 lithium carbonate pricing that was expected to be US$6,200 6,500/tonne FOB. ORE closed 8 cents or 3.2% lower at A$2.42.

CURRENCY NEWS: The Australian dollar, sensitive to shifts in broader risk appetite, strengthened changed against greenback, after the RBA held to it's view that recent interest rate cuts are working to support the economy by lowering the exchange rate, and boosting asset prices such as home prices and shares, which will in turn boost spending, including on home construction. In keeping interest rates on hold today, the central bank pointed out downside risks to the global economy have lessened recently. The Australian dollar changed hands at $0.6839 following the RBA's announcement on its interest rate decision, after seeing a low of $0.6812 earlier.

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, December 03 2019. 12:18 IST