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Australian equities finished a week of simmering trade tensions and the exit of Donald Trump's top economic adviser 0.6 per cent higher as markets warmed to the view the White House is backing down from starting an outright trade war.
The S&P/ASX 200 Index closed at 5963.2 points on Friday, a rise of 20 points or 0.3 per cent for the session. The NZX 50 rose 0.4 per cent.
Australian steel and aluminium exports appear to be spared tariffs after the US President indicated close defence allies including Australia will be exempted. President Trump has also agreed to meet North Korean leader Kim Jong-un, who is committed to denuclearisation, a South Korean official said. On Wednesday, Gary Cohn resigned as Mr Trump's top economic adviser.
China's consumer price index rose 2.9 per cent in February on an annual basis, beating the market's forecast for 2.5 per cent growth, and rising from 1.5 per cent in January for the strongest annual growth rate in over four years according to CommSec.
Food prices surged by 4.4 per cent and producer price annual inflation fell to 3.7 per cent, the weakest annual growth rate in 15 months.
Iron ore fell 3.4 per cent to $US73.23 a tonne according to Metal Bulletin.
Japan's central bank kept monetary settings unchanged on Friday and stuck to its upbeat view on the economy, underscoring its conviction that its massive stimulus program is helping drive inflation toward its elusive target. In a widely expected move, the BOJ maintained its pledge of guiding short-term interest rates at minus 0.1 per cent and the 10-year government bond yields around zero per cent.
S&P Dow Jones Indices released the results of its March quarterly rebalance, which takes effect as of March 19. Promoted into the ASX 200 are Ausdrill, Bellamy's Australia, Smartgroup and Xero at the expense of Australian Agricultural Company, HT&E and Myer, which fell 4.4 per cent to 43.5¢.
Cadence Capital joins the listed investment company updates today. The portfolio returned 0.6 per cent for February versus the All Ordinaries Accumulation Index return of 0.2 per cent.
As at month end, the fund held 14.7 per cent of its assets in cash.
Notably Cadence is short Domino's Pizza Enterprises, where it has a 2.5 per cent portfolio position in the pizza chain. Its biggest holding is a long in Melbourne IT at 16.6 per cent, followed by longs in Janus Henderson and Macquarie.
Japan's central bank kept monetary settings unchanged on Friday and stuck to its upbeat view on the economy, underscoring its conviction that its massive stimulus program is helping drive inflation toward its elusive target, Reuters reports.
In a widely expected move, the BOJ maintained its pledge of guiding short-term interest rates at minus 0.1 percent and the 10-year government bond yields around zero percent.
China's latest inflation reading is a bolter, coming in at a four-year high.
According to CommSec: Consumer prices rose to 2.9 per cent in the year to February (versus forecast for 2.5 per cent), up from 1.5 per cent in January - the strongest annual growth rate in over four years.
Food prices surged by 4.4 per cent and producer price annual inflation fell to 3.7 per cent, the weakest annual growth rate in 15 months.Back to top
Capital Economics wonders why Australians are not working harder?
"The slump in the annual rate of productivity growth to a 22-year low of -1.0 per cent in the fourth quarter suggests that Australians aren't working very hard and that this will damage their prosperity in the long-run.
"But while we believe that economic growth will fall short of most people's expectations this year and next, we are fairly optimistic on the outlook over the next decade," writes Paul Dales, Capital's chief economist in Australia.
In all likelihood, it won't be long before Australia is once again consistently growing at a faster rate than its peers.
"We suspect that smaller rises in employment and hours worked will mean that productivity growth rises back a bit in the first quarter. More importantly, we still believe that the digital revolution is a truly fungible general purpose technology and will eventually drive a second wave of innovation."
The European Central Bank's deposit rate could be hiked to zero per cent by September 2019.
UBS's economists in Europe see QE running at €30 billion a month until September 2018 and the first rate hike, from -0.4 per cent to -0.2 per cent in July 2019.
With strong growth and positive sentiment, they are predicting the central bank declines a final moderate extension of stimulus in the fourth quarter of 2018. A second hike gets the deposit rate back up to zero in September next year.
"The overall monetary policy stance is likely to stay accommodative for the foreseeable future, as the ECB balance sheet is going to stay large; extensive amounts of excess liquidity imply that the deposit rate is likely to stay the de-facto policy rate for years to come."
Citigroup has upgraded its REA Group recommendation to a "buy" from "neutral" and has a $90 price target on the stock.
Analyst David Kaynes sees "rapid growth" in Australian revenue which the broker forecasts to increase by 50 per cent over the next three years. That equals compound annual growth in earnings per share of 22 per cent.
Citi also estimates that REA's pricing structure is "supportive of pushing agents to continue to move up the product curve". That is enough to warrant earnings upgrades of 1 per cent to 3 per cent from 2017-18 to 2019-20.
Investors should be prepared for a soft third-quarter result because of costs and timing, so the broker advises long-term investors to buy the dip.
Shares of REA were trading at $79.58 on Friday.
Still on LICs, here's an update from the NAOS Small Cap Opportunities Company.
NSC has established a large core position in MNF Group, which it describes as offering "an exceptional buying opportunity on a 2- to 3-year view" by the investment manager.
"The market update provided by MNF confirmed that the business continues to grow organically at a strong rate, due to the unique software services that MNF provides to enterprise businesses both domestically and around the world. What took the market by surprise was the announcement of a $3.5 million investment (that will be fully expensed in FY18) into the launch of a mobile brand called Pennytel."
About $100 million of market value has been wiped out since, "which we believe has been a short-term over-reaction".
"Over the years the MNF management team has proved themselves as very conservative when it comes to both investing internally in new initiative."
The NSC portfolio returned -0.57 per cent in February versus the +0.03 per cent for the benchmark index.
The ASX-listed Glennon Small Companies fund is inclined to reduce its weighting to The A2 Milk Company, the sensation of the last reporting season.
It is number five of GC1's top five holdings according to the February investment report published today.
"A2 milk was an example of a company that saw two days of consecutive +20 per cent rises in its share price with the shares now +50 per cent higher than where they were in January. We continue to hold A2 Milk, however we are cautious about its valuation now and have been reducing its weighting in the portfolio," investment manager Glennon Capital writes.
GC1 returned +2.27 per cent for the month against the S&P/ASX Small Ordinaries Accumulation Index's +0.03 per cent.
"The volatility has created opportunities in quality stocks that have been oversold and we are evaluating some of these now. We continue to stay away from concept stocks with little or no revenue and over inflated share prices and we remain focused on valuations within companies in the portfolio. We are also cautious about the bubble in some of the growth companies that are trading on extreme valuations."Back to top
Here's how the Small Ords are tracking today.
Magnis Resources has reached agreement with the government of Tanzania on amendments to the special economic zone licence granted to Magnis Technologies Tanzania.
"The amendments are significant and a major value catalyst for Magnis and underpins the development of the company's Nachu Graphite Project which includes the processing facility," the company said.
Shorting the US dollar is "the trade for trade" according to Morgan Stanley's currency strategy team.
Trade is in focus at the moment with US president Donald Trump unsettling markets last week by saying the US would introduce tariffs on steel and aluminium imports.
However, the tariffs that were introduced on Thursday US time were softer than first feared, with Canada and Mexico exempt for the moment and exemptions possible for other countries as well.
"Risk sentiment is set to rebound with the help of robust corporate earnings and the likely moderation of trade rhetoric," the Morgan Stanley strategists said.
"This should lead to a resurgence in US dollar-denominated funding flows, pushing the US dollar weaker across the board," they said.
The strategists said that the US's twin deficits suggest a lower US dollar and wider yield differentials.
"We note that this environment is different from the1980s, when US deficits widened and US dollar rallied, because it is the rise in foreign capital demand which puts the US in competition for capital - especially in an environment where global liquidity is set to fall," the strategists said.
A key risk to their bearish view of the US dollar would be a marked pick up in US productivity, the strategists added.
The dollar index, which measures the greenback against a basket of currencies, traded at 90.17 in the Australian morning session. The dollar index is well below where it sat a year ago when it traded at 101.85.
The Australian share market edged higher on Friday amid hope that the country will gain an exemption from the steel and aluminium tariffs signed by US president Donald Trump on Thursday US time.
The S&P/ASX 200 index inched up 2 points to trade at 5944 while the All Ordinaries climbed 3 points to 6050 and the Australian dollar reached US77.89¢.
US shares closed higher but the gains were limited ahead of key employment data due on Friday. The data sparked a global sharemarket rout in February as investors honed in on some surprisingly strong wages data to worry that inflation will push the Fed to hike interest rates more quickly than anticipated.
Australian banks were advancing on Friday, with CBA up 0.4 per cent, ANZ up 0.2 per cent, Westpac up 0.1 per cent and NAB up 0.2 per cent.
But miners were weaker, with BHP down 0.5 per cent and South32 down 1.7 per cent after both firms lost ground yesterday as they started to trade ex-dividend.
Broker moves played a part in Friday's trading action as well, with Lendlease declining 1.3 per cent after it was downgraded to underweight at JPMorgan.
Myer shares dropped another 2.2 per cent to 44¢ after the news it will drop out of the S&P/ASX200 index on March 19 following a decline in its market capitalisation over the past year.
Stock markets could suffer a "deep correction" and plummet as much as 40 per cent in the next three years, JPMorgan co-president Daniel Pinto has warned amid concerns that Donald Trump's attacks on international trade could rattle markets.
He predicted that markets will begin to fret over future growth if Mr Trump widens his trade tariffs to other goods.
The size of the correction would depend on how frothy stock valuations are when markets plunged, and could see equity markets fall by between 20 per cent and 40 per cent, Mr Pinto said in an interview on Bloomberg Television.
The US president has announced a 25 per cent tariff on steel imports and 10 per cent on aluminium to protect domestic industry but major trading partners, including the EU and China, have vowed to retaliate to the measures.
Analysts are concerned that a tit-for-tat exchange between the world's largest trading nations could escalate and derail buoyant global growth.
"We are probably two to three years until the end of the [economic] cycle and markets are going to be nervous about anything that relates to inflation and growth," he warned.
Mr Pinto picked inflation, geopolitics and high valuations as possible triggers for a collapse in share prices.
The major Dow Jones and S&P 500 indices on Wall Street plunged into correction territory last month after markets were rocked by wage growth jumping well ahead of economists' expectations in the US, indicating that the Federal Reserve will have to accelerate the pace of its interest rates rises to rein in resurgent inflation.
Markets will be on edge for the latest set of wage growth figures from the US due on Friday after CPI also beat forecasts.
- The Telegraph
The Turnbull government is all but certain steel and aluminium exports will be spared tariffs after US President Donald Trump unveiled his plans and indicated close defence allies including Australia will ultimately be exempted.
In an announcement at the White House, President Trump confirmed the levies would be imposed at a rate for 25 per cent for steel and 10 per cent for aluminium but individual nations would have 15 days to argue for an exemption based on their security and trading relationship.
The Turnbull government was buoyed when Mr Trump listed the very arguments Australia has been making to the US over the past nine months as to why BlueScope Steel and Rio Tinto's aluminium smelters in Canada should be exempt.
These were that the US has a trade surplus with Australia and that Australia is lifting its weight in the region militarily.Back to top
S&P/Dow Jones unveiled quarterly index changes for the Australian market today, with department store operator Myer falling out of the S&P/ASX 200 index.
Along with Myer, HT&E and Australian Agricultural Co were also removed from the S&P/ASX 200 index, while Ausdrill, Bellamy's, Smartgroup and Xero joined the index.
Index changes are based on six-month average float-adjusted market capitalisation by ranking and relative liquidity and will come into effect on March 19.
Myer's exit from the S&P/ASX 200 will force index funds to sell their stock. It comes after a 60 per cent fall in Myer's share price in the past 12 months.
Myer's market value fell from $950 million a year ago and $603 million six months ago to just $370 million this week, making it one of the smallest cap stocks in the ASX 200 index.
Here's IG Markets' John Kicklighter's preview of the trading day:
The path forward for Australian shares is likely to hinge on implementation details of a hike in US steel and aluminum tariffs after President Donald Trump seemed to suggest that Australia might be exempt from the increase.
The most market-moving potential centres on the jobs figures from the US and Canada. Expect volatility, but be wary of calling any serious trends heading into the weekend.
The yen may rise as markets recalibrate BOJ policy expectations: A policy decision from the Bank of Japan will conclude a busy week of official pronouncements from the world's top monetary authorities. No changes are expected, but markets will be somewhat primed for a change in guidance
A much-anticipated ECB policy update crossed the wires on Thursday.
The official statement conspicuously omitted a pledge to "increase the asset purchase program (APP) in terms of size and/or duration" in the event that "the outlook becomes less favourable." However, ECB President Mario Draghi all but walked back the guidance change in the press conference following the announcement.
AUD/USD trades year-to-date lows
Aussie Q4 GDP and US payrolls take centre stage this week, with volatility kicking up and USD finding its feet. This video was produced in commercial partnership between Fairfax Media and IG Markets.
US stocks rose after President Donald Trump announced tariffs that were narrower than some traders had anticipated.
The S&P 500 advanced for the fourth time in five days as investors found relief in the president's decision to exclude Canada and Mexico while giving other countries wiggle room from levies on imports of steel and aluminum. Technology shares paced gains.
"Investors have to take a deep breath and watch what the reality is. It's a highly complex situation that investors have to try to game, where they believe these [Nafta] negotiations will finally land," said Chad Morganlander, a portfolio manager at Washington Crossing Advisors, said.
"This is a lever for negotiating the Nafta deal, and investors are watching this in a careful way, with one eye on the market and one eye on trade negotiations."
The dollar rose against the euro after the European Central Bank's decided to drop a pledge to increase asset purchases if necessary, and as President Mario Draghi downplayed the change.
All the overnight market action in numbers:
- SPI futures up 14 points or 0.2% to 5953 at about 8.35am AEDT
- AUD -0.5% to 77.83 US cents
- On Wall St: Dow +0.4%, S&P 500 +0.4%, Nasdaq +0.4%
- In New York, BHP -0.2% Rio -1.3%
- In Europe: Stoxx 50 +1.1%, FTSE +0.6%, CAC +1.3%, DAX +0.9%
- Spot gold -0.3% to $US1321 an ounce
- Brent crude -1.2% to $US63.55 a barrel
- US oil -1.7% to $US60.14 a barrel
- Iron ore -3.4% to $US73.23 a tonne
- Dalian iron ore -2.8% to 496 yuan
- LME aluminium +0.4% to $US2106 a tonne
- LME copper -1.7% to $US6835 a tonne
- 10-year bond yield: US 2.86%, Germany 0.62%, Australia 2.79%
On the economic agenda today:
- China PPI and CPI for February
- German industrial production January
- UK industrial production January
- Trade balance January
- US nonfarm payrolls February
Stocks to watch:
- LendLease Cut to Underweight at JPMorgan
- National Storage REIT Cut to Underweight at JPMorgan
- Tegel Group Downgraded to Neutral at Goldman
- Viva Energy Upgraded to Overweight at JPMorgan
Good morning and welcome to the Markets Live blog for Friday.
Your editors today are Vesna Poljak and Sarah Turner.
This blog is not intended as investment advice.
Fairfax Media with wires.Back to top