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Trading Day: ASX outperforms regional markets as REITs, gold jump

The local market has outperformed the region, thanks to strength in REITs and gold stocks, after new US tariffs on China.

Donald Trump talks to journalists after his latest trade move. Picture: AFP
Donald Trump talks to journalists after his latest trade move. Picture: AFP

That’s it for the Trading Day blog for Friday, August 2. Reaction to Donald Trump’s latest China tariffs move dominated global markets today, but Australia came off relatively unscathed thanks to strength in REIT and gold stocks. Retail sales figures printed slightly higher than expectations, but were no help to consumer discretionary stocks, more focussed on David Jones’ declaration of a “recession” in the sector.

Samantha Bailey 4.22pm: Markets back to ‘risk off’

The threat of more US tariffs on China prompted a sell-off in global equity markets but the ASX outperformed most in the region thanks to a boost in defensive stocks.

US president Donald Trump fuelled brod selling across Asia-Pacific markets, adding to his tariff threat by telling a rally in Cincinnati that, “until there’s a deal, we’ll be taxing hell out of China”.

That spooked the Shanghai Composite, down 1.61 per cent at the local close, while the Hang Seng was down 2.21 per cent and Japan’s Nikkei had lowered 2.3 per cent.

“It was back to “risk off” over the last week as the resumption of the US, China trade war, a less dovish than expected Fed and mixed economic data pushed global share markets down,” AMP Capital chief economist Shane Oliver said.

“The Australian ASX 200 followed the All Ords index to a new record high early in the week but the local market succumbed to global share market falls later in the week.”

The major miners fell after the price of iron ore dropped nearly 4 per cent overnight, on heightened optimism of Brazil’s output, as Vale brings its operations back online.

BHP weakened 3.7 per cent to $38.78 while Rio Tinto dropped 3.1 per cent to $94.77. Fortescue tumbled 6.1 per cent to $7.64.

In financials, ANZ gave back 0.8 per cent to $27.79 while Commonwealth Bank edged 0.1 per cent lower to $81.88. Westpac inched up 0.1 per cent to $28.82.

NAB turned down 0.5 per cent to $28.51 following a report that Ken Henry told consultants last year he believed the lender was still selling products that ripped off customers.

The Aussie dollar has edged higher from earlier decade lows, last at 68.15c.

4.14pm: ASX fights broad Asian sell-off

The local market has fought back from its intra-day lows to halve its early losses, despite weakness across the region on the latest in the US-China trade war.

Overnight, US markets tumbled more than 1pc, and in today’s session Asian markets held near 2pc losses, but Australian stocks defied the broad sell-off thanks to strength in defensive sectors.

At the close of trade, the benchmark ASX200 was 20 points or 0.3 per cent lower to 6768.6, after dropping as much as 0.6pc through the day.

Meanwhile, the All Ords closed lower by 26 points or 0.38 per cent to 6846.1.

4.06pm: Toyota improves sales, lowers forecast

Toyota has reported a nearly 4 per cent increase in fiscal first quarter profit on improved sales, but the Japanese automaker slightly lowered its full year forecasts because of unfavorable currency exchange rates.

Toyota Motor reported Friday its April to June profit totaled 682.9 billion yen ($6.4 billion), up from 657.3 billion yen the same period last year. Quarterly sales rose 3.8 per cent to 7.65 trillion yen ($71 billion).

Consolidated vehicle sales for the period totaled 2.3 million, an increase of more than 67,000 vehicles from the previous year.

By region, vehicle sales rose in Japan, the rest of Asia and Europe but fell in North America, according to the maker of the Prius hybrid, Corolla subcompact and Lexus luxury brand.

AP

3.42pm: FOMC to cut three times more: Evans

The announcement of new US tariffs on Chinese goods will make significant changes to the US Fed’s assessment of the outlook, changing its position of last week’s 25 basis point cut from a “mid-cyle adjustment of policy” to potentially “the start of a long series of cuts”, according to Westpac chief economist Bill Evans.

He notes that the changes to the US outlook will likely prompt a policy change, and is now tipping cuts at every meeting through to the end of the year - September, October and Decemer to take the fed funds rate to 1.375 per cent.

“With a lower expected profile for US investment, employment, confidence and therefore consumption, we believe the FOMC will want to be more pre-emptive than implied by just a “mid-cycle adjustment”,” he notes.

“Instead, the best policy approach in these circumstances is to use some of their existing policy flexibility to ‘get ahead of the curve’.”

He says the tariffs will prompt a deterioration in the labour market, followed by confidence and spending accordingly but that cutting the fed funds rate to 1.375pc by years end shoudl stabilise GDP growth near trend.

“Looking into 2020, a Presidential election year offers scope for further fiscal support and, with the FOMC laying the foundation of a rate structure which is well below neutral and therefore stimulatory, we are comfortable to assume some rate stability in 2020. That said, it is difficult to foresee global uncertainties abating over the period, and so the FOMC may again be required to act to stabilise US and global growth.”

3.37pm: ANZ dials back rate cut call

The cash rate will go below 1 per cent, but this week’s CPI read gives the Reserve Bank some breathing room, according to ANZ economists.

The bank had tipped a cut at the August meeting next week, but today said June quarter CPI “wasn’t the smoking gun that some expected”.

“We expect the RBA’s forecasts, which will be updated in the Statement on Monetary Policy on Friday, to explicitly acknowledge the high likelihood that further rate cuts will be needed to get unemployment down,” economists led by David Plank wrote.

“The forecasts will show that monetary policy likely needs to be eased further to get to where the RBA wants to be, but the Governor will want to wait for further data.”

3.25pm: ‘Management, not recession to blame’

Gerry Harvey has dismissed suggestions that the retailing sector is in recession following the claims by South Africa’s Woolworths Holdings and argued problems with its David Jones operation might be more to do with its management.

The David Jones owner said its business in Australia was under “unprecedented economic pressures’’ declaring Australian retail was in recession.

But Mr Harvey, chairman of Gerry Harvey Holdings, told The Australian: “I’ve been saying that retailing is flat but it is not in recession’’.

He said the reason department stores such as David Jones and Myer were struggling might have to do with instability in management.

“Both have had a succession of changes which have seen a succession of CEOs,’’ he said “It is obviously having an impact’’.

Mr Harvey said there was no doubt that the internet was having an effect but he questioned whether the correct strategy was to increase online presence given internet retailers were struggling to make money.

“There is no evidence that any make money out of online operation,’’ he said.

Michael Roddan 3.17pm: Retail recession is near: UBS

Australia’s retail sector is experiencing its worst growth since the 1991 recession, and the soft activity is likely to provide a further drag on economic growth, which has already slumped to its slowest pace since the global financial crisis.

According to the Australian Bureau of Statistics, retail sales in the second quarter rose just 0.2 per cent. That was after recording a 0.1 per cent fall over the three months through March.

The weaker-than-anticipated retails sales leave annual growth in turnover up just 0.2 per cent over the year -- the worst result since 1991.

“We are near a retail recession,” UBS analyst George Tharenou said.

He said with car sales falling about 3 per cent over the quarter, household consumption -- which accounts for 60 per cent of the country’s economic growth -- would likely contract to its slowest pace since the global financial crisis.

Mr Tharenou said he expected Australia’s GDP growth to slow to 1.4 per cent over the year through June -- the data will be released in September -- down from a rate of 1.8 per cent in March. The March quarter figures were already the slowest since the GFC.

3.15pm: Martin Currie wins State Super mandate

Martin Currie has reported won a “large” stocks mandate from $43 billion State Super, what could explain the recent flurry of block trades in the past few days.

Bloomberg is reporting the win, citing an emailed statement.

2.52pm: AAco appoints Noma exec to board

Australian Agricultural Company has appointed hospitality exec Marc Blazer to its board, touting his food and hospitality experience.

Mr Blazer is currently the chairman and chief of Overture Holdings, a US headquartered consumer and hospitality investment group, as well as chair of Noma Holdings, the parent company of the renowned Copenhagen restaurant Noma.

“Marc’s background in tourism, food and hospitality is world class. He brings a unique understanding of what makes food brands iconic,” chair Donald McGauchie said.

“Marc understands how to build brands around people and products in a way that captures what makes them special. His addition to the Board will position us to tell the AACo story in the most effective way.”

2.36pm: US rate cuts allow trade escalation: Citi

Citi economists have articulated what many now suspect: Fed easing is allowing the US administration to take a more aggressive stance on trade.

“The current US environment gives room for the US administration to take a more aggressive stance on trade with and beyond China,” say Citi economists Catherine Mann and Cesar Rojas.

“Prospects for even lower rates, as two of the drivers for Fed cuts worsen, would reinforce this approach.”

They expect the threatened 10 per cent tariffs on the US$300bn Chinese imports to come into effect and they see potential for further escalation.

“Persisting trade policy uncertainty will continue to harm business investment, reinforce supply chain restructuring, and could have a negative impact on EM capital flows,” they say.

“We continue to see a potential for a veneer of a deal, and a partial rollback of tariffs, as the US administration could try to run as a ‘Deal-maker’ in 2020.

“However, the probability of a ‘no US-China trade deal’ under the current US administration is likely to increase as the US increases the pressure on China.”

Samantha Bailey 2.17pm: Macquarie takes stake in Cubbie station

Macquarie Group’s infrastructure arm will take a 49 per cent stake in Queensland cotton farm Cubbie Station, with the Chinese majority owner Shandong Ruyi finally selling down a share.

The move brings a large slice of the ownership of Cubbie Station back into Australian hands and follows a demand from then treasurer Scott Morrison in 2016 for Cubbie to find a domestic partner.

Under the deal, a fund managed by Macquarie Infrastructure and Real Assets and the Chinese textile giant Shandong Ruyi will jointly own Cubbie Station, with its 93,700 hectares of land and a cotton ginnery.

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1.27pm: No quick fix for tariff war: Saxo

Saxo Capital Markets strategist Eleanor Creagh sees no quick fix for the US-China trade war, arguing that China’s President Xi can’t make a deal without the US removing tariffs and the US is unlikely to do so.

“The latest announcement of putting more tariffs on Chinese goods is the polar opposite to China’s demand to remove all existing tariffs and negotiating in good faith,” she says.

“Trump may be underestimating Xi’s inability to meet US demands so this latest tariff action will be counterproductive as it is unlikely China feels compelled to make concessions to appease hawks in the US administration.”

While China can’t match the new tariffs on $300 billion of its goods by dollar value, she expects retaliation via non tariff measures like an expansion of its “unreliable entities” list.

Other non tariff retaliation measures could include holding goods up in ports, removing various licenses and stoking nationalistic sentiment to divert consumer demand way from US goods.

“The prospect of a superficial trade deal depends largely on Trump’s calculation of how it would benefit his re-election,” she adds.

“Why back down and take a soft deal with China? Polling is OK, equities have recovered last years losses and then some, and the Fed have been bullied into a corner ready to buoy markets.”

Moreover, she says the ongoing relationship will be fraught with difficulty, since any deal will only provide a temporary relief from long term tensions surrounding tech dominance and hegemony.

1.19pm: Tariffs not correct, constructive: China

China’s foreign minister has made the country’s first public comments on the latest tariff hit from US President Donald Trump, saying they are not correct or constructive.

On the sidelines of the ASEAN ministerian meeting in Bangkok, senior diplomat Wang Yi told reporters the US setting tariffs on additional Chinese goods was “definitely not the correct, constructuve way to resolve trade frictions”.

China’s Shanghai Composite remains 1.69pc lower, while its secondary Shenzhen exchange is lower by 1.9pc.

China's Foreign Minister Wang Yi at the ASEAN meeting in Bangkok. Picture: Lillian Suwanrumpha/ AFP.
China's Foreign Minister Wang Yi at the ASEAN meeting in Bangkok. Picture: Lillian Suwanrumpha/ AFP.

Perry Williams 1.12pm: Santos presses ahead on Narrabri

Santos is pushing ahead with development of its controversial $3 billion Narrabri coal seam gas project in NSW, cementing a deal with chemical producer Perdaman Group ahead of a decision by the state government on whether it will proceed.

The heads of agreement signed between the two companies today will kick off an initial engineering and design study for Perdaman’s proposed $2bn ammonia plant which will tap gas from Narrabri following an initial pact in February.

“The Narrabri gas project could produce enough gas to supply up to half NSW’s needs, with more and more manufacturers supporting it because they recognise the advantages of having a reliable and competitively-priced source of gas in NSW,” Santos chief executive Kevin Gallagher said.

Santos submitted its environmental impact statement for Narrabri in February 2017 to the NSW Department of Planning and Environment, which is reviewing the project before it proceeds to the state’s Independent Planning Commission.

12.52pm: Retail to weigh on Q2 GDP: CBA

A slight beat in June retail sales data doesn’t offset weak volumes over the quarter, which suggest another soft quarter for household expenditure, according to Commonwealth Bank.

For the June quarter, retail volumes lifted by 0.2 per cent, continuing a poor run of quarterly outcomes says CBA senior economist Gareth Aird.

“Retail will contribute basically nothing to Q2 GDP. The retail basket is worth about a third of total household consumption so the early indication is that total consumer spending growth will be soft in the June quarter, as it has been for most of the past year,” he notes.

Government tax cuts are likely to inject cash into the household sector, he adds, saying he remains “cautiously optimistic” from here and reaffirming his stance that the RBA will hold rates at its meeting on Tuesday.

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12.40pm: Analysts cool jets on Rio Tinto

Views on Rio Tinto are either unchanged or less positive after its results yesterday.

UBS kept its Neutral rating but trimmed its price target 4pc to $97.00.

Macquarie stayed at Outperform, while also trimming its price target, by 3pc to $114.0.

“Looking forward current iron ore prices should drive higher earnings in H2 19, but we see this as unsustainable as supply lifts and demand in China is expected to be softer in H2 19,” says UBS analyst Glyn Lawcock.

But he stayed Neutral “with a view that Rio will continue to focus on value over volume and return surplus cash to shareholders”.

Macquarie said Rio’s earnings result was “weak, largely due to a revenue miss in iron ore compared with our forecast”.

“The interim dividend was weaker than expected, in line with the miss on earnings, but this was offset by a special dividend that boosted returns beyond our forecasts,” it said.

“RIO’s earnings upgrade momentum remains strong, with a spot-price scenario generating 11pc and 77pc higher earnings for CY19E and CY20E, respectively, translating to free-cash-flow yields of about 17pc.

RIO shares last down 3.34 per cent to $94.55.

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Rio Tinto chief Jean-Sebastien Jacques. Picture: Luke MacGregor/Bloomberg.
Rio Tinto chief Jean-Sebastien Jacques. Picture: Luke MacGregor/Bloomberg.

12.08pm: Aus raises $800m at record low

It’s a sign of the times when the Australian government today easily borrows a stack of money for 10-years at less than the rate of inflation.

The Australian Office of Financial Management today sold $800m of 10-year bonds at an average yield of 1.0896 per cent, well below the inflation rate of 1.6pc.

Demand was strong with a bid to cover ratio of 2.78 times. It comes as bond yields plunge to record lows on amid risk aversion caused by the trade war.

Record low bond yields are part of the argument for fiscal stimulus, with Morgan Stanley now saying the fiscal policy path is what is most important for the macro outlook.

“The Government’s commitment to a FY20 return to surplus limits the space for near-term stimulus, although more RBA rate cuts are likely to increase the pressure for action,” MS strategists said today.

“We expect the Government to bring forward Stage 2 of its tax plan to FY21, representing $22bn or a 1.5 per cent boost to household income, and with current revenue tailwinds could still retain a surplus.

“Near-term infrastructure announcements are also likely, but while these will have positive medium-term benefits we are sceptical of the near-term cyclical stimulus these projects will provide.”

Paul Garvey 12.02pm: Miners cheer $A gold price record

Gold stocks are enjoying big gains today after the Australian dollar gold price touched a fresh record high.

Resolute Mining, which this week snapped up African gold miner Toro Gold for $400 million, was leading the charge with an 11.7 per cent surge to $1.877.

Western Australian gold producer Saracen Mineral Holdings jumped more than 10 per cent to $4.46 just a day after it unveiled a 30 per cent increase in its gold resource base.

The gold price touched $2,100 an ounce today, setting a new high water mark for the yellow metal in Aussie terms and capping a stellar couple of years for the metal.

The gold price has increased this year amid growing expectations of interest rate cuts by central banks around the world.

Newcrest Mining, Australia’s biggest gold miner, was up 5.8 per cent to $36.20. Other significant producers such as Northern Star Resources (up 5.2 per cent), Evolution Mining (up 7.3 per cent) and Regis Resources (up 4.6 per cent) have also posted significant gains.

11.54am: CBA’s CFSGAM offload complete

Commonwealth Bank completed the $4.1 billion divestment of its global asset management business, Colonial First State Global Asset Management (CFSGAM) to one of Japan’s largest lenders Mitsubishi UFJ.

The deal was first announced in October last year, as a means for CBA to become a “simpler” bank in the wake of the financial services royal commission.

“The transaction is expected to deliver an increase of approximately $3.1 billion of Common Equity Tier 1 (CET1) capital, resulting in a pro forma uplift to the Group’s CET1 ratio of 68 basis points on an APRA basis, based on the Group’s risk weighted assets as at 31 March 2019,” the bank said today.

CBA shares last traded at $81.78, down 0.17pc.

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11.36am: Retail sales beat expectations

June retail sales data has printed above estimates at 0.4 per cent, versus consensus of 0.3pc and up from 0.1 per cent in May.

Retail sales ex inflation quarter on quarter is 0.2pc versus 0.3pc expected, and up from a drop of 0.1pc in the previous quarter.

The Australian dollar is edging mildly higher on the data, last at US68.03c.

11.30am: Chinese stocks open with 1.8pc drop

China’s Shanghai Composite has opened 1.8 per cent lower on Thursday, after US President unveiled a new string of tariffs on $300bn of Chinese goods overnight.

The Shenzhen Composite, which tracks stocks on China’s second exchange, is lower by 2.4 per cent.

Meanwhile, the Hang Seng has dropped by over 2.3pc at the Hong Kong open.

ASX200 is extending its losses, last down 0.58 per cent to 6749.6.

11.19am: Downgrades exacerbate market losses

A string of late release profit warnings has prompted weakness across sectors in morning trade.

GrainCorp shares are down by 7.3 per cent to $7.97 after it warned of a full year loss as much as $90 million amid global grain market disruptions and the ongoing eastern Australian drought.

“The extraordinary circumstances in eastern Australia are highlighted by the fact we expect to ship 2.3 million tonnes of grain from South and Western Australia to meet east coast domestic demand,” chief Mark Palmquist said.

Meanwhile, AVJennings is lower by 5 per cent to 57c as its profit for the year is set to halve from the previous.

Bega is losing 2.48 per cent to $4.32 on its cuts to guidance amid growing pressure from higher milk prices.

11.08am: ‘We’ll be taxing hell out of China’

Asian markets have been pummelled in early trading, bearing the brunt of Trump’s tariff hit, and exacerbated by his latest comments.

Speaking at a rally in Cincinnati, the President said, “Until there’s a deal, we’ll be taxing hell out of China”.

Japan’s Nikkei has extended its opening loss out to 2.12 per cent, while South Korea’s KOSPI is lower by 1.21 per cent.

Traders will be holding out to see how the Chinese market reacts on its open at 11.30am.

“Tariff-related risk-off events tend to take on a life of their own and can linger for many weeks so fading the move too early could prove to be a costly exercise in frustration,” VM Markets’ Stephen Innes.

President Donald Trump speaks at a campaign rally in Cincinnati. Picture: AP Photo/Alex Brandon.
President Donald Trump speaks at a campaign rally in Cincinnati. Picture: AP Photo/Alex Brandon.

11.04am: NAB drops on Henry comments

NAB shares have dropped, dragging other banking shares down with them, following a report that chairman Ken Henry told consultants last year he believed the lender was still selling products that ripped off customers.

Shares in NAB fell as much as 2.9 per cent in early trade on Friday after documents from a whistleblower reportedly showed Dr Henry told financial services provider EY that “there are products currently being sold now that [NAB] will need to remediate in the future”.

NAB has already set aside $1.1 billion in customer remediation and cut its dividend to its lowest in almost nine years.

Shares in the bank last traded 1.73pc lower to $28.15.

AAP

10.45am: Myer slips on DJs warning

Shares in department store Myer are down by 2.5 per cent in the first hour of trade after rival David Jones last night declared the Australian retail sector was in a “recession”, and under “unprecedented economic pressures”.

It booked a second round of impairments against its stores and slashed its carrying value to $965m - moves that have shaken its department store rival.

In early trading, Myer is lower by 2.41pc to 52.7c while consumer discretionary stocks are lower by 0.8 per cent.

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10.31am: Stocks lose 0.5pc early

Australia’s S&P/ASX 200 share index has dropped by 0.5 per cent to a 2-week low of 6753.7 in early trading following a spike a risk aversion globally after the US said a 10pc tariff on $US300bn of Chinese imports would start next month.

Energy is weakest after crude oil prices plunged, while defensive yield sectors including healthcare, real estate, communications and utilities are strongest, mirroring a rush to bonds.

BHP and NAB are the biggest drags on the market, down 3pc and 2.2pc respectively after iron ore dived and NAB was downgraded.

Rio Tinto is down just 3.4pc, which may be a bit light considering some brokers have trimmed their price targets after its results.

Gold miners are the standouts with high-single to low-double digit gains.

Focus now turns to China’s currency fix at 11.15am and its stock market open at 11.30am.

Retail trade data at 11.30am will also be watched but it’s all about the trade war today.

10.15am: Oil drop hits ASX energy plays

A 7 per cent drop in oil prices overnight has served a blow to local oil and gas producers, sending the sector down 2.1 per cent in early trade.

Overnight, the US oil benchmark posted its worst day in more than four years following President Trump’s latest imposition of new tariffs on some $300 billion of Chinese goods.

At the open, energy stocks are weighing on the benchmark, pulling the ASX200 lower than futures had indicated, to a 0.4pc loss of 6761.

Woodside has shed 1.42pc to $34.11, Oil Search is lower by 1.13pc to $7 while Santos has retraced by 1.66pc to $7.10 and Caltex has lowered by 1.7pc to $26.59.

Beach Energy is the worst performer early, with a loss of $.29pc to $2.01.

9.42am: Orora to write down $56m

Packaging group Orora will take a hit of $55.8 million in its full year results later this month, thanks to decommissioning costs with its former Petrie Mill site and for restructuing.

Ahead of its results announcement later this month, Orora said estimated costs of remediating and decommissioning its Moreton Bay site were higher than previously thought, but that costs would be evenly phased over the next 3 financial years.

For the financial year just passed, they will recognise a $35 million expense, alongside $20.8m for restructuring after a review of its cost structures.

Despite that, the company said it would still report higher underlying earnings for the year versus FY18, when it reported earnign before interest and tax of $323.4 million.

The main building of Orora’s Petrie Paper being levelled. Picture: Chris Higgins.
The main building of Orora’s Petrie Paper being levelled. Picture: Chris Higgins.

9.36am: Risk aversion spikes on trade war

Australian shares have downside risk after a dramatic escalation of the US-China trade war escalation.

Futures relative to fair value imply an opening fall of just 0.1 per cent but it could be worse than that, given the scale of moves in other markets.

Equities, currencies and commodities plunged while bonds, precious metals and volatility soared after Donald Trump said a 10pc tariffs on $US300bn of Chinese imports would start on September 1.

After initially regaining all of the previous day’s 1.1pc fall, the S&P 500 fell as much as 1.2pc to a 4-week low of 2945.2, before closing down 0.9pc.

Equities volatility measured by the VIX index jumped from 16pc to 19.5pc before fading to 17.9pc

WTI crude oil fell almost 8pc to $US53.95, while spot gold rose 1.1pc to $US1,441.7.

US 10-year bond yields had an almost 20 basis point range, ending down 12bps at an almost 3-year low close of 1.894pc.

The Australian dollar dived from 0.6875 to 0.6795 and set a 10-year closing low of 0.6800.

Rio shares are set to be under pressure after the miner released is half year results after market yesterday. Its London-listed shares fell 3.4pc.

Domestic retail sales and US jobs data are due today but the trade war and its impact on Chinese markets will be the main focus.

Glenda Korporaal 9.29am: Tariffs a ‘disappointing escalation’

President Trump’s threatened increase in tariffs on some $US300 billion worth of goods from China could damage global economic growth, Federal Trade Minister Simon Birmingham, warned today.

Speaking on ABC Radio program AM from Beijing, where he is attending trade talks, Senator Birmingham said Trump’s threats to add 10 per cent tariffs to $US300 billion worth of Chinese exports was a “disappointing potential escalation in the trade dispute.”

“We know that global economic growth is already slower, thanks to a slowdown in global trading levels.

“This would potentially further slowdown global trade levels and potentially have a further damaging impact on global economic growth,” he said.

President Trump announced the new tariffs in a tweet overnight after the end of another round of trade talks between US and Chinese officials in Shanghai this week.

9.26am: Lynas waste export conditions ruled out

Malaysian Prime Minister Mahathir Mohamad has indicated Lynas Corp won’t need to export residue from its processing plant there in order to secure a renewal of its operating license, the Australia-listed miner said on Friday.

Lynas, which said the remarks were made during a press conference on August 1, said it is waiting for formal notification from Malaysia’s government as to what conditions will be included in the renewal of its license.

It expects a decision around the middle of August.

“While we await formal notification from the Malaysian government, Lynas is prudently conducting preliminary work on the outcomes that have been the subject of media speculation, including preliminary work on locations for a permanent disposal facility for our WLP (water leach purification) residue,” the company said in a statement.

LYC last traded at $2.53.

WSJ

9.24am: What’s impressing analysts, what’s not

  • NAB cut to Equal-weight - Morgan Stanley
  • Resolute Mining raised to Buy, target price lifted 18pc to $2.25 - Canaccord
  • Rio Tinto target price cut 4pc to $97, Neutral rating kept - UBS
  • Transurban raised to Neutral - UBS
  • Westpac raised to Equal-weight - Morgan Stanley
  • Xero raised to Outperform, target price raised 21pc to $76.50 - Macquarie

Samantha Bailey 9.22am: Milk prices squeeze Bega profit

Dairy company Bega Cheese has downgraded its earnings guidance as it faces increasing pressure from higher milk prices.

Bega told the market this morning that due to greater competitive pressure from processors, it now expects normalised earnings before interest, tax, depreciation and amortisation for the full-year to be between $113 million and $117m.

That was down from its previous guidance of between $123m and $130m.

Bega said this morning that it had achieved a record milk intake in for fiscal year 2019 of 1.06 billion litres, a 41 per cent increase on the prior year.

It also said it had increased its market share of the Australian milk pool from 8.1 per cent to 12.4 per cent, while the market had contracted 7.9 per cent due to the drought and exit of farmers.

The Bega cheese factory is seen in Coburg, Melbourne. Picture: AAP Image/Daniel Pockett.
The Bega cheese factory is seen in Coburg, Melbourne. Picture: AAP Image/Daniel Pockett.

9.21am: AGL to extend coal-fired power

AGL Energy said Friday it plans to delay the closure of two of its coal-fired power stations to help the national energy market cope with demand through the critical summer months in southeastern Australia.

AGL said its Liddell station in eastern New South Wales state, which had been scheduled to shut down in 2022, will now close one of the plant’s units in April 2022 and keep the other three units running until April 2023.

The Torrens A station in South Australia state, which had been due to close half its four units in November, will now seek to run through the upcoming southern-hemisphere summer.

WSJ

9.13am: AVJennings warns on property weakness

Deterioration in the Melbourne and Sydney property markets has weighed on developer AVJennings, today guiding for $23 million in profits at its results next month.

That’s down from $31.3 million in profit after tax at its results last year.

The company had previously warned of weakness in the sector, but said it anticipated an improvement in market sentiment moving forward.

“Market fundamentals remain supportive with continued economic and population growth, low interest rates expected to continue for some time, and a stable employment environment,” it said.

It said the board was considering its final dividend at its August meeting, and more detail on trends and market condition would be provided with its results.

9.06am: Bond yields plunge to record lows

Australian bond yields have plunged to fresh record lows after massive falls in US bond yields after news of fresh US tariffs on China.

Australian Commonwealth Government benchmark 10-year yields dropped 13 basis points to a record low of 1.08 per cent.

The 10-year bond yield is now just 8 basis points off the official cash rate of 1.00pc.

The AU-US 10-year spread is now 81bps, approaching the 38-year low of 86bps hit this week.

At the short end, 3-year bond yields fell 10 bps to a record low of 0.734 per cent.

Joyce Moullakis 9.04am: Jefferies makes Deutsche, CLSA hires

Jefferies has made several new hires including picking up Deutsche Bank’s consumer analyst and deputy research boss Michael Simotas.

Sources said the hires was sealed this morning along with Simotas’ assistant. The US investment bank also lured Amit Kinwatia from CLSA to will work at Jefferies with Anthony Moulder in the transport and infrastructure sector.

The latest hires bring the total number employed by Jefferies in equities to 34.

That includes 28 from CLSA, after it raided the firm’s ranks to establish a trading and research presence in Australia.

Jefferies’ local operations are led by Michael Stock who had already set up an investment banking team.

8.50am: Graincorp to post FY19 loss

Disruptions in international grain trade and persistent drought conditions across the east coast of Australia have prompted GrainCorp to forecast a loss of between $70 million and $90m for the full year.

The east coast’s biggest grains company today told the market it expected earnings of between $65m and $85m for the full year, down from $269m in the previous year.

It said the impact of the US-China trade war was weighing on the market, with “new crop trading opportunities in Q4 no longer expected to materialise”.

Adding to that, predictions of another year of below-average grain production are said to dent results in the year ahead.

“This is an extremely difficult year for GrainCorp due to the significant disruptions we’ve seen in global grain markets, compounded by the drought in eastern Australia,” chief executive Mark Palmquist told the market.

“The extraordinary circumstances in eastern Australia are highlighted by the fact we expect to ship 2.3 million tonnes of grain from South and Western Australia to meet east coast domestic demand.”

GrainCorp CEO Mark Palmquist and chairman Graham Bradley. Picture: Hollie Adams/The Australian.
GrainCorp CEO Mark Palmquist and chairman Graham Bradley. Picture: Hollie Adams/The Australian.

Jessica Cortis 8.46am: Retail isn’t in recession: ARA

The Australian Retail Association has scaled down declarations by David Jones’ boss that Australian retail was in recession.

“It’s not as buoyant as it should be...It’s pretty tough out there but to call it a recession across the country, I’m a bit concerned about that,” ARA Executive Director Russel Zimmerman said on 2GB this morning.

Mr Zimmerman admitted while the industry was under some stress, reports suggest there would be an upturn in sales in the second half of the year.

He said a three percent wages increase, two interest rate cuts and the recent election placed the country in a positive position to see improvements in the industry.

In response to David Jones’ decision to slash it’s carrying value by more than $1.1 billion over five years, Mr Zimmerman said the upmarket retailer was “working on getting themselves in a position that’s right for the future” and commented that Westfield and Myer were doing the same.

Today’s ABS retail figures will shed more light on the state of the industry at 11.30am.

7.45am: Oil slumps on new tariffs threat

Oil prices plummeted more than seven per cent overnight, with the US benchmark posting its worst day in more than four years after President Donald Trump said he would impose additional tariffs pn Chinese imports starting on September 1.

The drop in Brent crude was the steepest in more than three years, undoing a fragile oil rally built on steady drawdowns in US inventories even as global demand looked shaky due to the US-China trade dispute.

Trump’s announcement of an additional 10 per cent levy on $US300 billion worth of Chinese goods undermined hopes that the world’s two largest economies had reached a detente in a year-long conflict that has weakened growth worldwide.

Brent crude fell $US4.55, or 6.99 per cent, to settle at $US60.50 a barrel, after having dropped to $US60.02, its lowest level since June13. The international benchmark’s decline on Thursday was its biggest daily percentage drop since February 2016.

US West Texas Intermediate (WTI) crude ended the session down $US4.63, or 7.9 per cent, at $US53.95 after sinking to a lowof $US53.59, the lowest level since June 19.

It was the biggest percentage decline since February 2015.

More than 836,000 contracts changed hands, surpassing the daily average of about 623,000 contracts, according to RefinitivEikon data.

“The US-China trade war has damaged the energy demand outlook greatly, already, and this will only add to those concerns,” said John Kilduff, partner at Again Capital Management.

“The trade war is clearly far from over.”

Reuters

7.20am: ASX poised to open lower

The Australian share market is expected to open lower, as the local currency fell against the US dollar.

Shortly after 7am (AEST) the SPI200 futures contract was down 15 points, or 0.22 per cent, at 6,712.0, suggesting an early dip for the benchmark S&P/ASX200.

On Wall Street, the Dow Jones Industrial Average finished down 1.05 per cent, the S&P 500 was down 0.90 per cent and the tech-heavy Nasdaq Composite was down 0.79 per cent.

The Bank of England kept interest rates on hold overnight but lowered its growth forecasts while US President Donald Trump said Chinese imports would face an additional 10 per cent tariff from September despite calling recent trade talks in Shanghai “constructive”.

The local currency fell sharply overnight to its lowest levels since 2009 against the US dollar.

The Aussie dollar is buying US68.00 cents from US68.45 cents yesterday.

AAP

7.00am: US stocks sink on Trump tariffs

Wall Street stocks finished decisively lower, with many retailers tumbling, after President Donald Trump announced a new round of tariffs on Chinese goods.

Trump’s early-afternoon tweet announcing the tariffs on another $US300 billion in goods sent investors to the exits and left the Dow Jones Industrial Average 1.1 per cent lower at the closing bell at 26,583.42.

The broadbased S&P 500 slid 0.9 per cent to 2,953.56, while the tech-rich Nasdaq Composite Index dropped 0.8 per cent to 8,111.12.

Australian stocks look set to follow the US lower. At 7am (AEST) the SPI futures index was down 10 points, but that could worsen.

Trump’s announcement of the 10 per cent tariff to take effect on September 1 jolted stocks from a rally following the Federal Reserve’s move Wednesday to cut interest rates for the first time in more than a decade.

At the White House, Trump told reporters was “not concerned” by the negative reaction among investors, saying he had anticipated it.

The tariff news also prompted a sharp selloff in oil futures, with US benchmark West Texas Intermediate tumbling 7.9 per cent to $US53.95 a barrel, its worst decline in a session since February 2015.

Oil prices were in the red before the tariff announcement due to a stronger dollar. But Trump’s latest action raised worries about lower petroleum demand in a weaker economy.

The tariff announcement quickly changed the market’s focus from the Fed’s interest rate cut, described as insurance in caseof weakening global growth amid uncertainty and trade tensions.

Some analysts had warned that the Fed move could embolden trade hardliners in the Trump administration to continue to pushaggressive measures in the China talks.

The Bank of England left its key interest rate unchanged, warning of Brexit risks, and downgraded its growth forecasts forthis year and next.

But some analysts said deep uncertainty about the terms on which Britain eventually leaves the EU undermined any attempt atsolid forecasting.

The tariffs news prompted a broadbased sell-off on Wall Street but fell especially hard on retailers such as Best Buy, which lost 10.8 per cent, Target,which tumbled 4.4 per cent and Macy’s, which sank 6.8 per cent.

Amazon and Walmart, which are seen as having more clout with suppliers, also declined, but by less than one per cent.

“What we are seeing here is a real decline in retail, so we know the decline is definitely related to the China tweet because the next round of tariffs is going to impact the consumer goods more than the previous ones,” said Maris Ogg of Tower BridgeAdvisors.

Other companies with large China presences also fell, including Caterpillar, down 3.7 per cent and Boeing, down 2.1 per cent.

Deere & Company fell 2.7 per cent. The company, which sells farm equipment, has pointed to the loss of agricultural exports to China as a drag on US agricultural investment.

AFP

6.57am: Oil dives

Oil futures posted a steep drop with US prices falling by more than 7 per cent, after President Donald Trump threatened new tariffs on Chinese goods.

“Perceptions of slowing economic growth that could likely bode ill for oil demand growth as well, especially with new tariffs about to be imposed on Chinese imports into the US, undermining sentiment in crude oil,” said Marshall Steeves, energy markets analyst at IHS Markit. September West Texas Intermediate oil fell $4.26, or 7.3 per cent, to trade at $US54.32 a barrel on the New York Mercantile Exchange after tapping a low of $US54.09.

Brent sank 7.0 per cent to $US60.50.

Dow Jones

6.55am: Iron ore slumps

The spot price of iron ore sank 3.8 per cent overnight to $US113.90, according to CommSec.

6.50am: Amazon says French clients to bear tax cost

Amazon plans to pass on the costs of France’s new digital tax on internet giants to the businesses that use its Marketplace platform for finding customers, instead of taking the hit itself, the US online retailer said.

The levy, approved last month, put France at the vanguard of countries seeking to force big technology firms to pay more in the markets where they operate -- but has garnered threats of retaliation from US officials.

Applied retroactively from January 1, it sets a three per cent levy on the profits from providing online sales for third-partyretailers, as well as on digital advertising and the sale of private data.

AFP

6.45am: US hits China with more tariffs

US President Donald Trump on Thursday announced that 10 per cent tariffs on another $US300 billion in Chinese imports would take effect next month, escalating the trade war between the world’s two biggest economies as recent negotiations faltered.

Trump tweeted that “the US will start, on September 1st, putting a small additional Tariff of 10 per cent on the remaining 300 Billion Dollars of goods and products coming from China into our Country.”

Trump also complained that China had failed to follow through on what had been touted as two sweeteners in the tense negotiations -- a surge in purchases of farm produce and a halt in sales of the opioid fentanyl.

Trump said, however, that “trade talks are continuing.”

Read more

AFP

6.40am: EU to vote on IMF candidate

EU finance ministers will vote to agree a European candidate for heading the IMF in a bid to break a deadlock which has pitted northern members against the south, officials said.

French Finance Minister Bruno Le Maire, who is leading the talks on finding a European candidate to succeed Christine Lagarde, earlier acknowledged there was a lack of consensus on a single candidate, said a source close to the discussions, who asked not to be named.

To set the issue to rest, Le Maire will on Friday launch the voting procedure for the ministers to decide on the candidate to lead the International Monetary Fund, added the source.

AFP

6.35am: Dollar dazzles after US rate cut

The US dollar pushed higher after the US Federal Reserve cut rates for the first time in a decade but left investors doubtful about the amount of easing still in the pipeline.

Fed chair Jerome Powell said the US central bank decided on a 25-basis-point cut in the rate to “insure against downside risks from weak globalgrowth and trade policy uncertainty”.

“Investors quickly came to the conclusion that, with an 8-2 vote and a reluctance to commit to further cuts, the Fed was lessdovish than they had believed,” said analysts at Moneycorp.

“They marked down equity prices and took the US dollar higher.”

The Fed decision sent the US dollar rallying to its highest level in more than two years against the euro and the pound.

US equity markets enjoyed a rebound following the previous day’s rout, with the buoyant mood also helping eurozone equity markets show modest gains by the close.

London, however, ended a touch lower. Frankfurt closed up 0.5 per cent and Paris ended up 0.7 per cent.

AFP

6.32am: US manufacturing slumps

America’s manufacturing slowdown worsened last month as weaker demand sent activity to its lowest level in nearly three years, according to a survey.

It was the fourth straight monthly decline in manufacturing and brought the sector perilously close to contraction, according to the Institute for Supply Management.

AFP

6.30am: Poland scraps tax for young

Poland has scrapped its personal income tax for young employees in a drive to reverse a brain drain and demographic decline that’s dimming the prospects of a country that is otherwise experiencing strong economic growth.

The new law by the right-wing government, which took effect Thursday, slashes the personal income tax to zero for workers under the age of 26 earning less than $US22,000 a year. It is expected to boost the earnings of nearly two million Poles at home,and the government hopes it will also persuade young Poles working abroad to return home.

Prime Minister Mateusz Morawiecki recently said he hoped it would prevent what he called a painful “bleeding” of the youngergeneration from the nation.

AP

6.25am: Carney warns on Brexit

Bank of England governor Mark Carney warned of the risks of leaving the European Unionwith no deal as the institution lowered its economic growth forecasts for 2019 and 2020.

He blamed Brexit uncertainty and weaker global activity due to trade tensions for the downgrade of projected growth to 1.3 per cent in 2019 and 2020, down from 1.5 and 1.6 per cent forecast in May.

The central bank’s monetary policy committee voted to keep the key interest rate at 0.75 per cent.

But the projections assume a “smooth adjustment” to new trading terms with the EU, and Carney noted that since May, “the perceived likelihood of a no-deal Brexit has increased significantly”.

Mark Carney, governor of the Bank of England.Picture: AFP
Mark Carney, governor of the Bank of England.Picture: AFP

AFP

6.20am: GM earnings rise

General Motors on Thursday reported an increase of 1 per cent in its second quarter profit as strong sales of higher-priced pick-ups and SUVs overcame falling global sales.

The Detroit automaker said it made $US2.42 billion, or $US1.66 per share, from April through June. Adjusting for restructuring costs, GM made $US1.64 per share, blowing by analyst estimates of $US1.44.

Quarterly revenue fell 2 per cent to $US36.06 billion, but still beat estimates. Analysts polled by FactSet expected $US35.97 billion.

Global sales fell 6 per cent to 1.94 million vehicles led by declines in North America and Asia Pacific, Middle East and Africa.The company says sales in China were weak, and it expects that to continue through the year.

GM repeated its guidance for full-year adjusted pretax income of $US6.50 to $US7 per share.

AP

6.15am: UK growth forecast lowered

The Bank of England lowered its near-term economic growth forecasts Thursday amid continued uncertainty over Brexit, while warning that a “no deal” exit from the EU would hit growth and the pound.

Members of the central bank’s monetary policy committee held the key interest rate at 0.75 per cent.

In an accompanying inflation report, the committee said the British economy was now on target to grow by 1.3 per cent in 2019 and 2020, down from the previous forecast of 1.5 and 1.6 per cent respectively.

But these assume a “smooth adjustment” to Britain’s looming departure from the European Union, and the committee noted an increase in perceived risk that this will not be the case.

AFP

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Original URL: https://www.theaustralian.com.au/business/trading-day/trading-day-new-trump-tariffs-move-hits-markets/news-story/14ce35cfe64bd7606e12eca374a2b9f1