Commodities lift ASX as US dollar weakens

The Australian sharemarket has recorded its first advance of the month following a lift in commodity prices over the weekend.

The S&P/ASX 200 index closed 38.2 points, or 0.6 per cent, higher at 6273 on Monday, rebounding from a two-week low in the previous session. 

Positive trading sessions on the US and European markets on Friday had local investors optimistic before the open. The US dollar lost ground following the weaker than expected US jobs data, providing commodities with a small boost. Local material and energy stocks rose on Monday as a result, lifting the benchmark index higher.

BHP Billiton led the market, advancing 2.2 per cent to $34.10 as nickel, copper and iron ore prices advanced by more than 1 per cent over the weekend. Rio Tinto and South32 also lifted but had more subdued gains. Rio rose 0.6 per cent to $77.02 while South32 closed 1.5 per cent higher at $3.48.

Modest gains by the major banks also helped to lift the index. Commonwealth Bank was the best performer of the four, advancing 1 per cent to $73.56.

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A broker note from Ord Minnett lifted NIB Holdings shares 3.8 per cent to $5.81. While the broker maintained its hold rating, it lifted the company’s target price to $5.78 following NIB’s announcement that it had acquire the QBE Insurance Group’s travel insurance business. 

Galaxy Resources shares rose 3.3 per cent to $2.84 after it announced its agreement to sell a package of tenements to South Korean miner POSCO was running ahead of the anticipated schedule. The deal is worth $US280 million and will be used to fund the development Galaxy’s Sal de Vida project. 

There were only minor losses made on the market yesterday with just SEEK weighing the benchmark index by more than a point. It fell by 8.8 per cent to $20 after it flagged write-downs of $178 million due to deteriorating economic conditions hitting its Brazil and Mexico businesses. It also announced preliminary financial results withs EBITDA growth of 15 per cent for 2017-18. The company will release its final results on August 15. 

The softening US dollar saw some of the US technology shares wipe some of the gains made on Friday. Appen fell 2.5 per cent to $11.28 while Xero closed 2.5 per cent lower at $43.59. 

Stock watch

Commonwealth Bank

Credit Suisse retained its neutral rating despite saying there was a negative earnings risk ahead of its yearly earnings result announcement on Wednesday. The broker is forecasting cash earnings of $9,886 million, a slight lift from last year’s $9,881 million result. Credit Suisse’s earnings forecast is ahead of consensus however with the market forecasting cash earnings of $9,422 million. The broker said that it was expecting a “relatively noisy result” with a number of events impacting on the company’s earnings this year. It says it expects loan growth to be subdued, driven by a lower market share and reputational impact it has suffered as a result of the AUSTRAC investigation and royal commission. Credit Suisse is forecasting reduced profit for the 2018 financial year 

What moved the market

ANZ job ads

ANZ Australian Job Advertisements jumped 1.5 per cent in July on a seasonally adjusted basis, wiping most of the losses made during June. The latest result takes the annual growth rate to 7.3 per cent, up from 6.9 per cent in June. ANZ’s head of Australian economics David Plank said that while job advertisements were plateauing on a a trend basis, there was still plenty of optimism in the market. “Business conditions, while down from record levels, remain well above long term averages,” he said. “Capacity utilisation and profitability also remain at high levels. As such we expect employment growth to continue at a pace consistent with a gradual decrease in the unemployment rate.”

Iron ore closes in on $70

Strong demand is lifting the price of iron ore close to $70, a price it has not been able to lift above since March. Improving steel rebar future prices have prompted Chinese steel mills to boost production with restocking demand alsop helping to lift iron ore prices. The benchmark 62 per cent grade iron ore price rose 1.5 per cent on Friday with the price of high-grade and low-grade iron ore also moving higher. Despite recent trade talks, the price of benchmark iron ore has been rising consistently through July, rising 7.7 per cent in the past month. Chinese domestic rebar prices have also risen during the same period, up 2.9 per cent in the past month.

US dollar

The US dollar fell against the Australian dollar on Friday after US non-farm payrolls for July came in well below consensus expectations. The data is signalling a slowdown in growth momentum which peaked during a strong second quarter. The latest US non-farm payrolls are indicating that the US labour market strength may have found a ceiling. July’s ISM non-manufacturing composite also came in below market expectation with weakness evident across a range of sub components with new orders, backlogged orders, supplier deliverers, export orders and business activity all falling. The weakened US dollar helped commodity prices lift on Friday also. 

Rial

Iran is attempting to halt a collapse of its currency by easing foreign exchange rules as fears of US sanctions threaten to devalue the rial further. The price of the Iranian rial has fallen by half since April due to fears over US sanctions. On Sunday, a state body led by President Hassan Rouhani partially lifted a ban on the sale of foreign currency at floating rates and will now allow exchange bureaux to exchange at unofficial market rates for the purposes of overseas travel. This new direction reserves the decision made in April which banned currency trading outside a rate of 42,000 rials to the US dollar. 

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