ASX hits 11-week high after trade war truce; iron ore miners, tech stocks rally

Welcome to your five-minute recap of the trading day.

The numbers

The Australian sharemarket gained on Tuesday, following a rally on Wall Street after China and the United States announced a 90-day truce in their trade war and agreed to temporarily reduce tariffs on each other’s goods.

The S&P/ASX 200 finished up 35.5 points, or 0.4 per cent, at 8269, the highest level since late February. Seven of the 11 industry sectors advanced, led by tech stocks, miners, retailers, and energy stocks, while more defensive sectors such as utilities and consumer staples declined.

US stocks soared on the news of a 90-day truce in the trade war, setting the tone for the Australian market.Credit: Bloomberg

The Australian dollar, which fell below US63.70¢ this morning, bounced back above US64¢ in the afternoon as the US dollar softened amid caution that the trade war has been paused, not resolved.

The lifters

Australia’s iron ore heavyweights advanced after prices for the metal jumped 3.2 per cent to $US100 a tonne overnight as the Trump administration dramatically slashed its crippling tariffs on imports from China for the duration of the truce, limiting the immediate damage on Australia’s biggest export market. BHP shares climbed 2.1 per cent, as did Rio Tinto’s, while Fortescue gained 2.7 per cent.

Tech stocks soared 3.4 per cent, tracking the rally on the US tech-focussed Nasdaq, with WiseTech Global (up 4.9 per cent) and accounting software maker Xero (up 1.7 per cent) going strong. Family member tracking app Life360 shot up 14 per cent, buoyed also by a trading update which showed its first-quarter sales surged 32 per cent from a year ago.

Energy stocks climbed 3 per cent, led by 3.7 per cent and 2.9 per cent gains for oil and gas giants Woodside and Santos, as oil prices rose on optimism for the world economy.

The laggards

The materials sector’s overall gains were limited by heavy falls in gold miners, which were sold off as prices for bullion slipped, as investors felt less need to park their money in a safe haven. Northern Star Resources (down 4.6 per cent), Evolution Mining (down 5.3 per cent) and Newmont (down 1.8 per cent) all slumped.

Defensive sectors such as consumer staples, utilities, telecommunications and real estate investment trusts also declined amid the market’s renewed risk-on sentiment.

Supermarket giants Woolworths and Coles were down 3.7 per cent and 3.4 per cent, respectively, while Telstra lost 2.6 per cent.

The lowdown

There was a collective sigh of relief on Wall Street as investors cheered the easing trade tensions between the world’s two largest economies, pushing US stocks to their best session in more than a month overnight as investors piled into riskier sectors such as technology stocks.

The euphoria was more muted on the ASX, although Wednesday’s gains still sent the local bourse to its highest level since late February, having more than recouped its losses since Donald Trump’s “Liberation Day” on April 2, when he unleashed his trade tariffs on the rest of the world.

“Markets sprung back to life with the US and China striking a tariff deal that has investors believing the worst is over and equities have room to run,” Moomoo market strategist Jessica Amir said.

On Monday, the S&P 500 Index jumped 3.3 per cent, notching its best day since April 9. The Dow Jones jumped 2.8 per cent and the Nasdaq 100 Index advanced 4 per cent, nearly erasing its year-to-date drop, with Nvidia, Amazon and Facebook parent Meta Platforms all rising. Apple, which does much of its manufacturing in China, and Tesla, which generates a substantial portion of its sales there, jumped 6.2 per cent and 6.8 per cent, respectively.

“No one had these low China tariff rates on their bingo cards so it’s very clearly a big upside surprise,” said Jeff Buchbinder, chief equity strategist at LPL Financial.

“The question now is whether all the good news is priced in.”

It wasn’t just stocks rising following what one analyst called a “best-case scenario” for US-China tariff talks, which reduced tariffs by more than what many investors expected.

Xi Jinping and Donald Trump. The United States said in a joint statement that it will cut tariffs on Chinese goods to 30 per cent from as high as 145 per cent. China, meanwhile, said its tariffs on US goods will fall to 10 per cent from 125 per cent.

The value of the US dollar strengthened against everything from the euro to the Japanese yen to the Swiss franc. And Treasury yields jumped on expectations that the Federal Reserve won’t have to cut interest rates as deeply this year as earlier expected to bolster the US economy.

The United States said in a joint statement that it will cut tariffs on Chinese goods to 30 per cent from as high as 145 per cent. China, meanwhile, said its tariffs on US goods will fall to 10 per cent from 125 per cent. The 90-day pause is to give time for more talks following the weekend’s negotiations in Geneva, Switzerland, which the US side said yielded “substantial progress.”

The 90-day reprieve also comes at a vital time for the US economy, allowing retailers and suppliers to “ensure that shelves are stocked for the all important back-to-school and holiday shopping seasons,” said Carol Schleif, chief market strategist at BMO Private Wealth.

Of course, conditions could change quickly again, as Wall Street has seen all too often in Trump’s on-again-off-again rollout of tariffs. Big challenges still remain in the negotiations between China and the US, and there is “no reason to believe that this will be anything other than a slow process,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

The US-China pause followed a deal the United States announced last week with the UK that will bring down tariffs on many British imports to 10 per cent but will still require weeks to finalise all the details.

In the bond market, the yield on the 10-year Treasury jumped to 4.47 per cent from 4.37 per cent late Friday.

The two-year Treasury yield, which more closely tracks expectations for what the Fed will do with interest rates, jumped even more. It rose to 4.00 per cent from 3.88 per cent as traders ratcheted back expectations for how many cuts to interest rates the Fed may deliver this year.

Many traders are now betting on just two cuts this year, according to data from CME Group.

With AP, AAP, Bloomberg

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