ASX futures drop sharply as Trump embraces protectionism

Australian shares are poised to drop sharply after Donald Trump triggered a sell-off on Wall Street by announcing plans to hit steel and aluminium imports. ASX futures were down 46 points or 0.8% at about 7.30am AEDT. The Australian dollar was little changed after earlier falling towards a US76¢ handle.

President Donald Trump said the US plans to impose 25 per cent tariffs on steel imports and 10 per cent on aluminium, and expects to sign a formal order next week.

"We'll be imposing tariffs on steel imports" and "on aluminium imports", Trump told metals industry executives at the White House on Thursday (Friday AEDT). "Some time next week we'll be signing it in. And you're going to have protection for the first time in a long time."

"It will be 25 per cent for steel. It will be 10 per cent for aluminum," he said in response to a question from reporters.

Sentiment slammed by tariff proposal Bloomberg

The decision, which came after what one person with direct knowledge of the discussions described to Reuters as a night of "chaos" in the White House due to frequent switching of positions in the administration, was sharply criticised by some senior Republican legislators.

The tariffs are seen as the trigger point for a potential global trade battle, particularly between the US and China.

"Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world," Trump said in a Twitter posting Thursday morning. "We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!"

At 3.20pm in New York, the Dow was 375 points lower, paring earlier losses that took the index more than 500 point lower at one point; 29 of its 30 components were lower paced by United Technologies, Boeing and Caterpillar. The yield on the US 10-year Treasury note plunged 5 basis points to 2.81 per cent. The VIX surged 20 per cent. The spot dollar index turned, and was most recently down 0.4 per cent.

A US move on tariffs may provoke retaliation from China, the world's biggest steel and aluminium producer, Bloomberg reported. China has already launched a probe into US imports of sorghum, and is studying whether to restrict shipments of US soybeans - targets that could hurt Trump's support in some farming states. While China accounts for just a fraction of US imports of the metals, it's accused of flooding the global market and dragging down prices.

Today's Agenda

Local data: NZ building permits January, ANZ consumer confidence February

Overseas data: Japan jobless rate January; UK Markit/CIPS construction PMI February; US Universtiy of Michigan consumer sentiment February final

Market Highlights

SPI futures down 46 points or 0.8% to 5916 at about 7.30am AEDT

AUD -0.1% to 77.55 US cents (Overnight low: 77.13)

On Wall St, about 3.20pm: Dow -1.4%, Nasdaq -0.9%

S&P 500 was 1.8% lower at about 3.05pm

In New York, BHP -1.7% Rio -0.4%

VIX +20% to 23.72

In Europe: Stoxx 50 -1.2%, FTSE -0.8%, CAC -1.1%, DAX -2%

Spot gold -0.9% to $US1306.19 an ounce

Brent crude -1.3% to $US63.92 a barrel

US oil -0.8% to $US61.13 a barrel

Iron ore +1% to $US79.39 a tonne

Dalian iron ore -1.2% to 537.5 yuan

Comex copper -0.5% to 311.65

10-year bond yield: US 2.81%, Germany 0.64%, Australia 2.75%

From Today's Financial Review

Henry laments lost decade of tax reform: "Our current tax debate appears very strange," says the architect of Labor's Henry Tax Review, started a decade ago. Company tax cuts won't be enough, he says.

Chanticleer: Macquarie's lessons for investors: Investing in companies with boards with relevant experience and directors with financial interests aligned to shareholders' interests is no guarantee of success. But it's a good starting point.

Private equity upbeat on deals; record capital: Private equity funds see plenty of scope for more deal activity in Australia this year, despite record levels of dry powder and rising global interest rates.

United States

Fed rate case gets data support: The US economy showed signs of impending strength, as recent tax cuts boosted Americans' spending power.

TD's take on US inflation: "While inflation remained unchanged on a year-on-year basis, the momentum has picked up in recent months. The annualised three-month moving average inflation rate currently sits at the Fed's 2.0% target. Still, there is cause to fade some of this strength – the residual seasonality in the real spending data is the flip side of seasonality on the inflation front, where price growth appears understated at the end of the calendar year and overstated in January."

Facebook's Mark Zuckerberg sold nearly $US500 million in the company's shares in February to fund his philanthropic investment vehicle, the Chan Zuckerberg Initiative (CZI), regulatory filings showed. Zuckerberg said in September he would sell 35 million to 75 million shares of Facebook over the next 18 months. That would amount to up to $US13 billion, based on Facebook's current share price.

LPL Financial view on market positioning: "...the data continue to show a strong economic backdrop, inflation that remains below the Fed's 2% target despite the recent pickup, and corporate earnings that are growing at a double-digit clip. So while movements in the equity markets will likely continue to be more pronounced this year as compared to 2017, we continue to recommend sticking to your long-term strategy and looking at any additional pullbacks as potential buying opportunities for suitable investors."

LPL's recap on February: "The S&P 500 officially finished a month lower on a total return basis, down 3.7%. This ended its incredible record streak of 15 consecutive monthly gains. Technology and financials were the top performing sectors last month, although both still finished in the red; while energy was the worst performer."

Dan Loeb said while he's watching inflation and interest rates, the bigger concern is if investors are overly optimistic about earnings and economic growth.

"The more pressing issue is whether the rosy assumptions that everybody has about earnings growth this year and next year will be met," Loeb said Thursday on a conference call discussing results for Third Point Reinsurance, where he oversees investments. "I'm not saying they won't be met, but it's definitely something, given some of the recent economic data which tends to be noisy, we need to keep an eye on."

Europe

European shares slid on Thursday as a flurry of uninspiring earnings updates from retailer Carrefour and advertiser WPP kept the mood downbeat, while broader jitters over tightening monetary policy spilled over into a new month.

The pan-European STOXX 600 index fell 1.4 per cent to a two-week low, while Germany's DAX fell 2 per cent and Britain's FTSE felt the weight of Brexit uncertainty with a 0.8 per cent loss.

Prime Minister Theresa May told European Council President Donald Tusk on Thursday the European Commission's draft legal text on Brexit is unacceptable to Britain, her office said, after a meeting aimed resolving differences with the bloc.

"The PM said that the draft text put forward by the European Commission yesterday was unacceptable to the UK as it would, if implemented, undermine the UK common market and constitutional integrity of the UK," her office said in a statement.

Anheuser-Busch InBev , the world's largest brewer, forecast strong growth this year after a recovery in Brazil led to higher than expected earnings at the end of 2017, its first year since buying closest rival SABMiller. The Belgium-based brewer said on Thursday it expected revenue and core profit (EBITDA) to grow strongly again in 2018, with revenue per hectolitre rising by more than inflation and costs by less.

Shares in Carrefour fell sharply on Thursday after Europe's largest retailer disappointed investors with dismal 2017 earnings, a dividend cut and a cautious outlook for 2018. Carrefour, the world's second-largest retailer behind Wal-Mart, said late on Wednesday that it expected currency exchange rates, along with restructuring and one-off charges, to weigh on profits this year. It also posted lower operating profit for a second year running, due to a sharp fall in profits in its core French market, and a hefty €531 million net loss.

Asia

Chinese investors dumped Hong Kong stocks for a second day on Wednesday. Mainland Chinese sold a net 1.2 billion yuan of Hong Kong shares via the Shanghai-Hong Kong Stock Connect, after pulling out a record 2.9 billion yuan on Tuesday.

The heavy selling pushed the benchmark Hang Seng index down 1.4 per cent, capping its worst monthly fall in two years, while the China Enterprises Index skidded 2.1 per cent.

In contrast, mainland China stocks recouped earlier losses to end higher on Thursday, after a private survey showed the country's factory growth rose to a six-month high in February.

Sentiment also got underpinned by expectations Beijing tends to maintain stability in the financial markets ahead of key political events, such as the upcoming National People's Congress and the Chinese Political Consultative Conference.

The Shanghai Composite Index closed up 0.4 per cent at 3273.75, while the blue-chip CSI300 index gained 0.6 per cent to 4049.09.

Growth in China's manufacturing sector unexpectedly picked up to a six-month high in February as factories rushed to replenish inventories to meet rising new orders, a private survey showed on Thursday.

Japan's Nikkei share average closed at a near two-week low on Thursday. The Nikkei ended 1.6 per cent lower at 21,724.47, its lowest closing level since February 16.

The broader Topix declined 1.6 per cent to 1740.20.

Currencies

Federal Reserve chairman Jerome Powell said he sees no signs the US economy is overheating, and reiterated the central bank will continue to raise rates gradually to keep unemployment and inflation in balance.

"By continuing to gradually raise interest rates over time, we're trying to balance those two things and achieve inflation moving up to target but also make sure the economy doesn't overheat," Powell told the Senate Banking Committee on Thursday (Friday AEDT) in his second appearance before lawmakers this week. He added: "There's no evidence the economy is currently overheating."

Powell also said he doesn't see a tightening labor market causing wages to hit "a point of acceleration".

"I would expect that some continued strengthening in the labour market can take place without causing inflation," he said. "We don't see any strong evidence yet of a decisive move up in wages."

A former bond manager at BlackRock says the yield on 10-year Treasuries may hit 4 per cent by the end of this year, pitting him against many on Wall Street who expect a shallower sell-off in bonds. "We are going back to the world as we knew it before the crisis," said Stephen Miller, now an investment consultant for Grant Samuel Funds Management in Sydney.

European Central Bank policymakers are likely to discuss tweaking their communication stance in their March 8 meeting but no major policy shift is expected, three sources with direct knowledge of the discussion told Reuters.

Sterling slipped to a seven-week low against the dollar on Thursday (Friday AEDT), as investors sold the pound on worries a Brexit transition deal might not be reached this month.

British Prime Minister Theresa May will lay out her views on how to keep trade open between all of the United Kingdom and the European Union in a key speech on Friday, just two days after the EU's chief negotiator Michel Barnier struck a downbeat tone on the progress of Brexit talks so far, weakening sterling.

Commodities

Lead hits 2-1/2 month low: Lead prices touched their lowest in 2-1/2 months, with other industrial metals also under pressure from a stronger US dollar.

The Godfather of onshore gas in Qld is back: Incitec Pivot and Richard Cottee are re-uniting to try and orchestrate a win-win situation in Queensland.

Chinese steel futures rose for a fifth session on Thursday to reach their highest in nearly three months, buoyed by expectations that more northern cities could continue cutting output this year. The most active rebar on the Shanghai Futures Exchange had risen 0.3 per cent to 4032 yuan ($US635.51) a tonne by close. It earlier hit an intraday high of 4062 yuan, its strongest since December 5.

China's top steelmaking city of Tangshan has proposed fresh restrictions on production for 244 days beyond the winter heating season, raising expectations that other northern cities with heavy air pollution could follow.

"Tangshan itself may not have a big impact on supplies, but ... other regions are likely to take similar measures, so market sentiment is positive for now," said a senior research manager with a trading firm in Hangzhou.

Meanwhile, demand is seen improving from mid-March after slowing during winter as construction activity declined, while the Lunar New Year holiday in February also helped crimp buying.

Macquarie Wealth Management on China's steel mills: "The industry average profit margin of China's steel mills remains substantial, as indicated by both our survey and Mysteel data. With this margin, steel mills are incentivised to maximise their output, providing there is no policy disruption (a general constraint on the industry's growth outlook). Government policy has become a key factor in determining changes in production rates, particularly those relating to capacity controls and environmental protection."

Australian Sharemarket

Thinktank to tell boards how to get a 20pc return: On average Australia's top 1000 companies struggle to make 8pc return on equity, says corporate guru Phil Ruthven who wants to more than double that with his new think tank.

Shares fell for a second straight session on Thursday as persistent fears of a more aggressive US central bank reverberated around the region.

A late, sharp sell-off on Wall Street set the stage for a nervous start on the ASX, which duly opened lower and failed to make any significant recovery from there. The S&P/ASX 200 index slipped 43 points or 0.7 per cent to close at 5973, while the broader All Ordinaries index fell 42 points to 6076.

Investors hoping to start the new month on a brighter note after losses in both January and February were left disappointed as all sectors of the ASX ended lower.