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Telstra slide offsets strong China data to pull ASX down

A strong economic growth print out of China only briefly motivated investors to buy up shares on Monday, who lost interest towards the end of the trading session, a sentiment at odds with the positive mood on Wall Street.

Resources stocks found some support thanks to rising commodity prices, but also because Chinese growth is an indicator for future commodities demand and a slowdown in US production has firmed up the oil price. 

The benchmark S&P/ASX 200 Index slipped 0.2 per cent and the broader All Ordinaries fell 0.1 per cent to 5755.5 points and 5800.8 points, respectively. 

Weighing heaviest on the benchmark index was a 1.9 per cent slide in Telstra, the telco's biggest drop in three months.

There was no apparent reason for the fall, but the stock has been out of this year, as more analysts tip the company will cut the dividend as early as next month when it reports full-year earnings.

US earnings kicked off in earnest on Friday night, with Wells Fargo, JP Morgan and Citigroup reporting. While the banks beat profit expectations, each of the three was dogged by a mix of continuing concerns and their shares fell, setting the scene for local bank stocks.


Commonwealth Bank of Australia closed down 0.4 per cent, Westpac was off 0.4 per cent, ANZ 0.4 per cent lower and National Australia Bank slid 0.7 per cent. 

Shares around the region soared on Monday, with Asian indices hitting a fresh two-year high following the release of China's second-quarter gross domestic product figures, which at 6.9 per cent annual growth came in higher than expected.  

"Investors had a bit of a wild ride on Monday," said Gary Huxtable, client adviser at Atlantic Pacific Securities. 

"Our market does remain susceptible to weakness in the US and commodities, so all in all investors are likely in for a challenging few days."

The positive notes around Chinese demand for materials also sent the Dalian futures market up 2.7 per cent. This forward looking price for iron ore provided the support for the likes of BHP Billiton and Rio Tinto, both of which closed up 0.2 per cent and 0.6 per cent, respectively. 

Fortescue Metals closed up 1.9 per cent. 

Stock Watch: Alumina

Alumina put in a solid performance on Monday, rising 2 per cent to $2.03 after Macquarie put out a bullish assessment of the stock, saying it expected price rises for aluminium and alumina. The broker's team believes Alumina is well positioned to profit from aluminium capacity cuts in China, which are expected to be close to 3 million tonnes per annum. But the analysts believe the market could tighten more than expected and the effect on the earnings of Alumina - as well as competitors South32 and Rio Tinto - haven't been priced in. The analysts maintained an 'outperform' rating on the stock with a price target of $2.10. Five analysts covered by Bloomberg rate the stock a 'buy', two a 'hold' and five a 'sell", with an average price target of $1.82.

Market movers

China growth

China's economy grew faster than expected in the second quarter as industrial output and consumption picked up and investment remained strong, though analysts expect slower growth ahead as policymakers seek to reduce financial risk. Both retailing and industrial production strengthened, reflecting a transition that the government was hoping to see, St George economist Janu Chan said. "That's a reflection that the stimulus that's been in place is helping to support that. It's also a reflection of global demand that is a bit stronger."

Dr Copper

Copper edged up to its highest in two weeks, supported by a weaker US dollar and an upbeat second quarter for China's economy which brightened demand prospects for metals. "I'm still bullish on copper. The property backdrop is still good; China economy and industrial production numbers are still good," said UBS analyst Dan Morgan. But Citi's analysts revised down their near-term copper forecasts and now expect 2018 copper prices to average $US6225/t due to concerns over sluggish market sentiments and macro headwinds.

Bubble watch

The US Federal Reserve is once again risking an equity market bubble, BetaShares chief economist David Bassanese warns. After Fed chair Janet Yellen struck a dovish tone in testimony last week, markets were "salivating". Sadly, Yellen's speech made no mention of financial stability risks, he said: "Until such time as the Fed takes financial stability risks more seriously, it is slowly but surely leading global markets into another financial bubble boost-bust era".

 Asian markets

Asian stocks set a fresh two-year high, boosted by stronger-than-expected economic growth in China and bets that lacklustre US data will keep the Fed cautious about the pace of further rate hikes. Chinese blue-chips recouped steep early losses after the second-quarter GDP data. IG said the market fell initially after news at the weekend that President Xi Jinping wants to create a new cabinet-level committee to coordinate financial oversight, sparking concerns of further policy tightening.