Australia: Market gains 0.5% on bargain hunting

Headline indices of the Australia stock market ended higher on Thursday, 05 July 2018, as investors chased for bottom fishing on recently battered stocks with little guidance from US financial markets, which were closed last night for Independence Day. However, market gains were capped on cautious ahead of a deadline when tariffs are set to take effect. Most of ASX issues inclined, with shares in telecom, financials, realty, consumer staples, financials, and energy issues being notable gainers. At the close, the benchmark S&P/ASX 200 Index rose 32.13 points or 0.52% to 6,215.52. The broader All Ordinaries Index was up 29.23 points or 0.47% to 6,302.91.

Local market traded in green territory after a flat opening, as investors chased for bottom hunting on recently battered stocks. However, market topside was capped as investors were concerns over the negative implications of the US trade war with rest of the world. A trade war between the US and the rest of the world may lead to a global financial crisis. The United States is due to impose the tariffs on Chinese exports on July 6. The US also imposed tariffs on cars from Europe.

 

China's customs department informed markets on Thursday that China's retaliatory tariffs on US goods will take effect immediately after US tariffs on Chinese imports kick in. The Trump administration has levied a 25% tariff on $34 billion in Chinese goods, while the Chinese government has retaliated by announcing tariffs on the same value of U.S. goods.

Shares of financials were key contributor to the benchmark gains, with top four lenders leading rally. Commonwealth Bank was the biggest winner among the big four banks, advancing 1.2% to A$74.46, followed by ANZ, up 1.2% to A$28.43, while Westpac added 1% to A$29.53 and NAB rose 0.5% to A$27.52.

Shares of energy were higher, supported by jump in crude oil prices on Wednesday, after reports of a decline in US crude inventories and rising Iranian supply risks. Brent oil price rose above $US78 a barrel overnight after an Iranian Revolutionary Guards commander said he was ready to prevent regional crude exports if Iranian oil sales were banned by the United States. Woodside Petroleum rose 0.5% to A$35.47, Santos 0.3% to A$6.24 and Oil Search 0.1% to A$8.91.

Caltex Australia shares jumped 0.3% to A$32.56 after leading supermarket operator Woolworths Group entered a 15-year deal with Caltex to supply Woolworths' chain of petrol stations.

Shares of materials and resources continued poor run as commodity prices continued to weaken ahead of the Trump administration's Friday deadline to impose tariffs on Chinese imports. BHP Billiton, South32 and Rio Tinto shares suffered modest losses. Rio Tinto slumped 1.2% to A$79.21 and diversified BHP fell 0.5% to A$32.87.

Rail freight operator, Aurizon (AZJ) was up despite news that workers will be going on strike due to failed negotiations over wages and work conditions.

Domino's (DMP) shares declined 9.1% to A$48.92, following a downgrade from a major broker who highlighted some weakness in its Japanese business which it expects to hit profits.

Bellamy's Australia (BAL) shares were down 9.6% to A$12.77 after a broker cut its share price target for the Tasmania based infant formula maker citing challenges with short-term Chinese regulatory approval.

CURRENCY NEWS: The Australian dollar was higher against greenback amid escalating Sino-US trade tensions. The Australian dollar was worth 73.77 US cents on Thursday, from 74.12 on Wednesday.

OFFSHORE MARKET: US share markets were closed on Wednesday for the Independence Day holiday. European share markets were mixed on Wednesday. The pan-European STOXX600 index closed flat. But the German Dax and UK FTSE indexes both fell by 0.3%.

COMMODITY NEWS: Crude oil prices rose on Wednesday, driven higher by a decline in US crude inventories and rising Iranian supply risks. US crude inventories fell by 4.5 million to 416.9 million barrels over the week to June 29. And Iranian President Hassan Rouhani hinted that his country may disrupt regional crude oil exports if the US followed-through with sanctions against Iran's oil sales. Brent crude rose by US48 cents or 0.6% to US$78.24 a barrel and the US Nymex (unsettled due to the US public holiday) rose by US19 cents or 0.3% to US$74.33 a barrel.

Base metal prices were mostly lower on the London Metal Exchange (LME) on Wednesday ahead of expected new trade tariffs from the US on Friday. Zinc (-3.2%) fell to near one year lows. Copper (-1.5%) was near 11-month lows. Producer Freeport-McMoran was granted an extension of a temporary operating permit at its Grasberg mine, likely boosting copper supplies. Aluminium rose by 0.9%.

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