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ASX poised to lift, techs rally in New York

ASX poised to lift, techs rally in New York

Australian shares are set to open higher as a tech rally paced a rally on Wall Street. $A rebounds, edging above US74¢. ASX futures were up 24 points at 8am AEST.

All three US benchmarks rose near or more than 1 per cent. Twenty five of the Dow’s 30 components were higher, paced by Cisco, Intel and Microsoft. Apple also advanced as did Amazon, Alphabet and Facebook. Netflix fell.

Shares in Atlassian closed up 4.5 per cent, paring earlier gains. The US listed shares of BHP and Rio Tinto lifted, reflecting a better session for base metals. Nickel outperformed, copper settled near the highs of the session and a sharp bid into the close helped lead edge up, according to Marex Spectron.

The continuing resilience of US stocks is difficult to deny. The S&P 500 is up 4.7 per cent so far this year. The Nasdaq is up 13.3 per cent so far this year.

A key reason is the continuing strength of the US economy, in particular as growth challenges emerge elsewhere.

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In a radio interview, Federal Reserve chairman Jerome Powell said he believes the US economy remains in a “good place”, with recent government tax and spending programs likely to boost gross domestic product for perhaps three years.

The Atlanta Fed’s GDPNow measure estimates the second quarter’s seasonally adjusted annual growth rate at 3.9 per cent. That growth expectation continues to bolster expectations for corporate profits.

“The solid profits backdrop led us to increase our S&P 500 Index earnings forecast for 2018–from $US152.50 per share to $US155,” LPL Financial said.

“While this forecast may prove to be conservative, we prefer to be below consensus, which is around $US160, due to the potential for further US dollar strength, wage pressures, and tariff-related costs.

“A target price-to-earnings ratio of 19 gets us to our year-end fair value target range for the S&P 500 of 2900-3000, representing a potential double-digit return for the year. Through July 11, the S&P 500 had returned 4.8 per cent year to date.”

Today’s Agenda

Local data: New Zealand BusinessNZ manufacturing PMI June

Overseas data: China trade June; US import and export price indices, University of Michigan consumer sentiment July

Market Highlights

SPI futures up 24 points or 0.4% to 6241 at 8am AEST

AUD +0.6% to 74.06 US cents

On Wall St: Dow +0.9% S&P 500 +0.9% Nasdaq +1.4%

In New York, BHP +1.4% Rio +1.3% Atlassian +4.5%

In Europe: Stoxx 50 +0.7% FTSE +0.8% CAC +1% DAX +0.6%

Spot gold +0.4% to $US1247.09 an ounce at 1.44pm New York time

Brent crude +0.8% to $US73.96 a barrel

US oil -0.8% to $US69.82 a barrel

Iron ore +1.1% to $US64.06 a tonne

Dalian iron ore +0.4% to 467 yuan

LME aluminium -0.9% to $US2042 a tonne

LME copper +1.3% to $US6227.50 a tonne

2-year yield: US 2.59% Australia 2.02%

5-year yield: US 2.75% Australia 2.25%

10-year yield: US 2.85% Australia 2.63% Germany 0.35%

From Today’s Financial Review

Why Thorburn set NAB’s strategy on fire: NAB chief Andrew Thorburn is feeling the heat on numerous fronts but seems energised by the number of fires he has to put out.

The relentless march of the growth darlings: Either you’re in “growth” or you’re not, because it’s surely too late to back the new generation of market darlings at these levels.

Trump doubles down on trade: Donald Trump only knows how to play offence when it comes to trade games. It’s called going for broke.

United States

Stocks climbed in New York on Thursday as top technology names hit record highs and industrials rebounded from losses driven by trade worries the day before.

Facebook, Microsoft and Amazon hit all-time highs and, along with Apple and Alphabet, drove gains in the S&P 500 and Nasdaq.

The technology index rose 1.8 per cent, the day’s best-performing sector, and the group is now leading year-to-date gains among sectors. The S&P industrials index rose 1.1 per cent. Health care also gained about 1.1 per cent.

Helping the tech sector is the view that those companies may be more immune to problems in the trade dispute, said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. “The consensus is that negotiations will resume and there will be some sort of agreement between the U.S. and China. It could be naive, but that seems to be an emerging consensus within the market.”

US consumer prices recorded their largest increase in nearly 6-1/2 years in the year through June, while the monthly pace continued to suggest a steady buildup of inflation that could keep the Federal Reserve on a path of gradual interest rate increases.

The Labor Department said its Consumer Price Index edged up 0.1 per cent last month on moderate gains in gasoline prices and sharp declines in the cost of apparel and hotel accommodation. The CPI rose 0.2 per cent in May. In the 12 months through June, the CPI increased 2.9 per cent, the biggest rise since February 2012, after advancing 2.8 per cent in May.

Excluding the volatile food and energy components, the CPI rose 0.2 per cent, matching May’s gain. That lifted the annual increase in the so-called core CPI to 2.3 per cent, the largest rise since January 2017, from 2.2 per cent in May.

Economists polled by Reuters had forecast both the CPI and core CPI rising 0.2 per cent in June.

Tesla has delivered 200,000 electric cars to buyers in the United States, a spokesperson said, meaning tax credits will now begin to be lowered, while rivals such as Mercedes-Benz, BMW and Audi will bring electric models to the market with a full tax credit in place. From January 1 next year, the $US7500 tax credit will drop to $US3750 around mid-year, the Tesla website said.

Europe

Sky shares leapt to an 18-year high on Thursday as investors bet a transatlantic battle for the European pay-TV group had further to run, after Comcast’s $US34 billion bid trumped an offer from Rupert Murdoch made just hours earlier. Sky’s shares are up 95 per cent since Fox made its first bid in 2016, and have risen 55 per cent in the last year.

A buoyant media sector drove European stocks higher on Thursday following a new bid for British pay-TV firm Sky, helping shares stabilise after heavy losses in the previous session, when fears of an escalating trade war hit markets.

The pan-European STOXX 600 index closed 0.8 per cent higher with gains in the healthcare and consumer sectors, which have recently been favoured for their defensive qualities in the face of worries that a trade war could hurt global growth.

The region’s media index rose 2.4 per cent, with Sky up 3.4 per cent.

Europe’s media index has outperformed the market this month, underpinned by the bidding war for Sky but also helped by expectations of a lift to advertising sales from the World Cup soccer matches for broadcasters such as France’s TF1 and Britain’s ITV.

ITV however fell 1 per cent on Thursday after England lost its semi-final with Croatia, who will now face France in Sunday’s final.

Goldman Sachs said the World Cup boost for ITV was already priced in and it downgraded the stock to neutral, while lifting its rating on TF1 to buy, which helped send the stock up 3.7 per cent.

Asia

Trump’s Pacific wrecking ball: Donald Trump’s belligerence towards his allies in Europe should not hide how busy he is unpicking the old Pacific order even in the face of a rising China.

US companies in China oppose Trump tariffs: US companies operating in China are overwhelmingly opposed to US president Donald Trump’s trade tariffs and are becoming increasingly anxious about a corporate backlash.

Chinese stocks rose, reversing Wednesday’s slump, as state media sought to downplay recent market turbulence and the central bank set a stronger daily currency fixing than traders had expected.

The Shanghai Composite Index climbed 2.2 per cent at the close, notching up its second 2 per cent plus move this week. Xinhua News Agency said moves in financial markets were within a controllable range and valuations for some industries had fallen to lows. The yuan strengthened as much as 0.8 per cent in Hong Kong, after tumbling 1.1 per cent late Wednesday in its biggest loss since January 2016.

Signs of a bottom are emerging in China’s battered stock market. After sinking more than 20 per cent from this year’s high amid concern its economy will struggle to cope with both deleveraging and a trade war, the Shanghai gauge is now heading for its first weekly advance since May. Some foreign funds have been buying, pointing to historically cheap valuations.

“The bulls are getting stronger,” said Kang Chongli, Beijing-based strategist with Lianxun Securities Co. “In the past few times the market closed up, the increases were mostly driven by either small caps or blue chips, rarely both, and now we’re also finally seeing an end to this see-saw effect.”

Technology stocks paced gains after ZTE Corp signed a deal with the US to resume doing business with American suppliers. Hong Kong shares were also higher, with the Hang Seng Index advancing 0.6 per cent, led by Sunny Optical Technology Group and Geely Automobile Holdings.

Currencies

The US Treasury Department on Thursday sold $US14 billion of 30-year government bonds at a yield of 2.958 per cent, the lowest yield at an auction of this debt maturity since January, Treasury data showed. The ratio of bids to the amount offered was 2.34, the weakest reading since February. The gauge of overall auction demand was 2.38 at the previous 30-year bond sale in June.

The US dollar strengthened against the Japanese yen to a six-month high on Thursday, bolstered by solid inflation data and continuing a weeklong rally of the pair which suggests investors believe the greenback stands to benefit from a trade war.

“(A trade war) is probably good for the dollar,” said Greg Anderson, global head of FX strategy at BMO Capital Markets. That’s because “the US has a trade deficit currency, and so if you find a way to reduce that trade deficit and you have the same financial flows, then all of the sudden, flows are going to be positive for the dollar, at least relative to where they were”.

The dollar/yen rally is in its seventh trading day, with the dollar having broken through the psychologically significant barrier of 112 yen for the first time since January 10 on Wednesday. On Thursday morning, the dollar hit a fresh six-month high against the Japanese currency last at 112.47.

Commodities

The shadowy Chinese fund at the heart of the copper rout: A $US3 billion bet by a mysterious Chinese fund is roiling the global copper market.

Grasberg a ‘done deal’ for Rio, Freeport and Indonesia: Rio Tinto’s long-awaited exit from Indonesia’s Grasberg mine is all but secured, under a deal that may add billions of dollars into dividend deliberations when the company’s board meets later this month.

Nickel rebounded on Thursday to its highest in a week as investors scrambled to buy at levels they regarded as cheap after steep losses amid fears of a trade war.

The metal, used in stainless steel and a key ingredient in electric vehicle batteries, had shed 14 per cent from early June to touch a two-month low on Wednesday.

“Nickel has a strong fundamental story and I think the view of investors was that after a near $US2000 pull-back, it was approaching territory that, irrespective of that macro noise, was an attractive entry point,” said Nicholas Snowdon, metals analyst at Deutsche Bank in London.

“This was in particular for the Chinese investor base, where many are hard-core nickel bulls.”

Nickel was the biggest gainer on the London Metal Exchange on Thursday, climbing as much as 3.8 per cent to $US14,410 a tonne, its highest in a week. It pared gains to $US14,195, up 2.3 per cent, by the end of open outcry trading.

Three-month LME copper climbed 1.3 per cent to finish at $US6227.50 a tonne after steep losses in the previous session took prices down to their weakest since July last year at $US6081.

“We have seen the liquidation of a very large long position in China. With that out of the way, that creates a relatively clean positioning picture,” Snowdon said.

Aluminium fell 0.9 per cent to close at $US2042 a tonne, zinc added 0.7 per cent to $US2581 and tin gained 1.3 per cent to $US19,630.

Australian Sharemarket

Trump derails one of the best ASX trades: The budding trade war playing itself out across newspaper headlines around the world threatens to derail one of the best trades on the ASX.

The Australian sharemarket closed higher on Thursday despite an overnight commodity plunge that saw Brent crude prices record their biggest fall in two years.

The S&P/ASX 200 index advanced 52.7 points, or 0.9 per cent, to 6268.3, shaking off the trade fears that have rattled the benchmark index in the past two sessions.

CSL led the market on Thursday as it broke above $200 for the first time ever. A broker note from Citi saw the broker lift its price target to $232 with the analyst saying they expected a positive earnings season for the healthcare giant. Its shares rose 2.6 per cent to $200.60.

Major banks recorded moderate gains with each advancing more than 1 per cent during the session. Commonwealth Bank was the best performer, adding 7.6 points to the index and closing at $75.21, up 1.6 per cent. 

Street Talk

AMP targets Janus Henderson’s Andrew Formica in CEO hunt

Offshore PE firm Denham Capital powers up Vales Point process

Cheap G8 Education has childcare tyrekickers looking sideways

with Reuters, Bloomberg, AAP

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