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Morning Market Update - 13 August 2019


Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Monday – CHINA – Loan Growth – New loans fell to ¥1.06 trillion for July, below expectation for ¥1.25 trillion.
  • Tuesday – AUS – NAB Business Confidence and Conditions
  • Tuesday – US – Consumer Price Index
S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket rose 0.09% yesterday, with the Health Care sector the strongest performer; Ansell rose 6.0%, after reporting FY profit above expectations and CSL added 1.3%.

The Financials sector ended higher; Westpac and Commonwealth Bank led the big four, both up 0.7%, while ANZ rose 0.6% and NAB added 0.4%. Bendigo and Adelaide Bank was the strongest performer, up 3.4%, despite recording a 6.6% fall in FY cash profit to $415.7m. The group is eyeing more job cuts to support the bottom line.

The Materials sector was weakened by a fall in iron ore prices; BHP lost 0.8%, Rio Tinto slipped 2.8% and Fortescue Metals fell 4.0%.

The Consumer Discretionary sector was boosted by JB Hi-Fi, which climbed 10.0% after reporting FY net profit above estimates, up 7.1% to $250m.

The Australian futures market points to a 0.8% fall today, being driven by weaker overseas markets.

Overseas Markets

European sharemarkets fell on Monday. The Financials sector was the weakest performer; Lloyds Banking Group fell 1.6% and Deutsche Bank lost 5.5%.

US sharemarkets were also lower overnight on rising geo-political risks. Investors were cautious with ongoing concerns about an extended trade war between the US and China as well as the closure of Hong Kong Airport due to escalating protests. US banks fell; Goldman Sachs and JPMorgan lost 2.7% and 1.9% respectively. Technology stocks also fell; Alphabet, Facebook and Microsoft lost between 1.2% and 1.4%.

CNIS Perspective

Yesterday we highlighted Australia’s significant trade surplus and how the interaction between higher export values and lower imports have combined to produce the result

There’s no doubt the slower domestic economy has played a part in the weaker import part of the equation.

However, we shouldn’t underestimate the significance of iron ore to our exports. Iron Ore is one of two key ingredients to make steel, and hence, the iron ore price is largely correlated to the production of steel in China.

Since 2012, China has built 58 blast furnaces, with 400 million tonnes of additional capacity built without approval, leading to an oversupply situation of nearly 200 million tonnes. This additional capacity has led to a collapse in the Steel Rebar price in Shanghai.

Since reaching a near all-time high of US$118.7 on 16 July, the iron ore price has retracted almost 27% to US$87.2. The Australian Government’s Dept of Industry Science and Innovation Resources and Energy forecasts a further fall to US$57 a tonne in 2020/21, as demand from China recedes and exports from our main competitor Brazil, ramp up. While not so bearish, Goldman Sachs is forecasting circa US$96 per tonne for 2020 and US$89 for 2021. Its impossible to tell who has the forecast correct, however what is certain, is the iron ore price will have significant implications to Australia’s future economic growth and prosperity.

Australia's resources and energy exports 2018-19, A$billion

Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.


Disclaimer

The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.

Cutcher & Neale Investment Services Pty Limited ABN 38 107 536 783 is a Corporate Authorised Representative of Cutcher & Neale Financial Services Pty Ltd ABN 22 160 682 879 AFSL 433814.

 

Topics: CNIS, Australian Market, ASX, international markets

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