ASX closes just shy of 10-year high on materials

The Australian market closed just half a point shy of a decade long high on Monday buoyed by the materials sector.

The S&P/ASX 200 Index finished up 19.1 points or 0.3 per cent, at 6135.3, despite index heavyweights Telstra and ANZ Banking Group posting losses.

The materials sector helped the ASX close 0.3 per cent higher on Monday.
Photo: Peter Braig

Telstra warned its shareholders on Monday that earnings would be at the lower end of the company's $10.1 billion to $10.6 billion 2018 guidance. Telstra said that lower revenue from fixed and mobile customers was a major challenge as its shares fell 5 per cent to $3.04.

The materials sector was the best performer on Monday as base metal prices advanced in trade on the London Metal Exchange. BHP Billiton shares rose 1.9 per cent to $33.79, Rio Tinto advanced 0.7 per cent to $84.50 and South32 closed the day at $4.01, up 1.8 per cent.

Nickel producer Western Areas advanced 3.3 per cent to $3.40. Nickel prices hit a near two-week high on the LME as demand for the metal begins to outstrip supply.

GWA shares rose after it announced it had sold off its door and access system's business unit to Allegion Australia for $107 million. $102 million of that will be paid up front while a further $5 million will be contingent on certain transactional arrangements. GWA shares were up 5.7 per cent at $3.93.

Healthscope shares gained on the news that a rival takeover bid had been received from Canada's Brookfield Asset Management. The new bid values Healthscope at $4.35 billion, $240 million than the offer made by a BGH Capital-led consortium last month. The $2.50-a-share offer caused the company's price to jump 4.5 per cent to $2.58.

Specialty Fashion Group jumped 57.9 per cent to 60¢ after the company sold its Millers, Katies, Rivers, Crossroads and Autograph brands to rival group Noni B for $31 million. The company will now only carry the City Chic brand which is on track for underlying earnings of $19 million to $20 million this financial year.

ANZ Banking Group traded without the right to its 80¢ interim dividend, which will be paid to shareholders on July 2. Shares of ANZ closed at $27.63, down 1.9 per cent.

Lynas Corp shares have fallen for their third time in four sessions as uncertainty in Malaysia continues following the surprise election of its new prime minister. Lynas' operations in the country are fundamental to its business. Its shares fell 9.6 per cent to $2.46 on Monday.

News Corp shares dropped 6.2 per cent to $21.10 after it reported a $US1.1 billion third-quarter net loss in the US.

Stock watch

GrainCorp

Credit Suisse has upgraded GrainCorp from "neutral" to "outperform", citing a new investment opportunity on the back of share price decline. Low crop production has caused the company's price to fall but Credit Suisse says that several initiatives are likely to deliver better profit and capital utilisation over the medium term. While the broker has downgraded the company's target price from $9.06 to $8.80, it forecast improvement in the company's future revenue. Credit Suisse said that improving plant utilisation had led to an improved result for refined oils. The broker also noted GrainCorp's pivot towards lower fixed asset commitments with a higher, and more flexible, investment in grain working capital. It said that medium-term prospects were good as earnings for refined oils improved and further opportunities arose in craft malt and whisky.

What moved the market

Cyclical challenges

During the past 18 months, US growth and inflation have surprised to the upside as financial conditions continue to ease, although analysts are now predicting that this could all begin to change, and all at once. Morgan Stanley analyst Andrew Sheets says that investing is set to experience a "structural break" from the 2010-17 trend. He is cyclically expecting PMIs to decline and inflation to rise during the coming months. This is a change from last year's dynamics and historically, this patter has been associated with weaker returns. Inflation has been trending higher since 2015 while PMIs have begun to fall only recently.

Canadian dollar

Canada's mixed labour market results in April has weighed on the Canadian dollar. During April, the country's economy lost 1,100 jobs with part-time job losses accounting for the fall. Despite this, the national unemployment rate is still sitting at an all-time low of 5.8 per cent and hourly earnings are still rising at an above average annual rate of 3.3 per cent. The participation rate and hours worked did fall in April indicating that the labour market is still fairly slack. The North American Free Trade Agreement (NAFTA) renegotiations talks are stalling too with the potential breakdown of the deal still a present danger that could certainly undermine the Canadian dollar further.

Iron ore

Iron ore prices lifted toward the end of last week as investors bet that higher steel prices would increase Chinese steel mills to boost output. Steel rebar stockpiles are declining and iron ore port stocks are falling, also helping to support iron ore prices. CBA analysts did say they were remaining cautious on port data however, given a high proportion of low-grade ore. Steel demand is continuing to beat expectations as real estate and housing picks up and infrastructure spending remains high. This demand has dwindled steel rebar stockpiles, which have declined almost a third since mid-March according to data compiled by SteelHome.

Oil sanctions

The oil market is hopeful of finding a solution to the United States' sanctions against Iran, causing prices to soften from multi-year highs. Iran is hoping to mitigate the impact of sanctions through talks with China, UK, France and Germany. Germany has said that it will protect its companies from the US sanctions while French oil giant Total is yet to pull out from its fields in the Islamic Republic where it has been a significant investor since 1990. Most of Iran's exports go to Asia and China has signalled its intention to ease the effect of US sanctions. Japan and Korea have also indicated that they will attempt to seek waivers from the US so they can continue to buy Iranian oil.