ASX closes flat despite BHP hitting near-four year high

The Australian sharemarket rebounded from a loss inside the opening hour to close the day flat, with gains in the material and energy sectors. 

The S&P/ASX 200 index closed 1.8 points, or 0.03 per cent higher, at 6,280.2 as reporting season approaches.

BHP Billiton shares climbed to a near-four year high on Tuesday, despite workers at the company’s Escondida mine in Chile voting on whether to strike this week after a rejecting a final contract offer.

BHP’s price has risen steadily in the past few days, following the sale of the company’s US shale oil and gas assets for $US10.8 billion. Its shares closed 2 per cent higher at $34.86. Rio Tinto shares also lifted the market as its shares advanced 0.9 per cent to $81.20.

A lift in oil prices on the back of supply risks supported local energy stocks on Tuesday. Woodside Petroleum closed 1.8 per cent higher at $36.14, while Oil Search shares rose 1.4 per cent to $8.98.

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Credit Corp shares rose 8.5 per cent to $20.58 after the company announced results for the 2018 fiscal year. The company reported a 17 per cent increase in net profit after tax and 30 per cent growth in Australia/New Zealand consumer lending business profit.

A broker note from Macquarie helped Syrah Resources shares rebound from Monday’s losses. The broker retained its ‘outperform’ recommendation for the stock despite the company’s tough quarter with its Balama mine in Mozambique, saying it believes the mine will be cash generative early next year. Syrah Resources shares rose 2.7 per cent to $3.01.

Gold producer Regis Resources released its quarterly results on Tuesday. While the results were positive, the company forecast higher all-in sustaining costs and softer production levels for the 2019 financial year. Its shares fell 10.8 per cent to $4.46.

The information technology sector fell on Tuesday following an overnight slide by US technology stocks. All five of the so-called FAANG stocks fell overnight, weighing the Nasdaq Composite index. On the local market, Wisetech Global shares fell 7.9 per cent to $15.25, Altium closed 4.5 per cent lower at $20.40 and Xero fell 2.8 per cent at $42.80.

Stock watch

Breville Group

Credit Suisse downgraded its rating on Breville from ‘Outperform’ to ‘Neutral’ and downgraded its price target from $13.50 to $11.60 as it assessed the company’s near-term headwinds. The broker said that while the company was well positioned to benefit from Omni-channel retailing and increased focus on customer experience, it would need to grow market share in an already competitive market as consumers move away from discretionary spending. Credit Suisse said that Breville would also face near-term risks due to cost increases as they transition to a direct supplier model in Europe. They said that while Breville would have positive medium-to-long-term results, there would be near-term risks and this was supportive of their neutral rating. On Tuesday, the company’s shares fell by 3 per cent to $10.74.

What moved the market

Iron ore premiums

China’s preference for higher grade iron ore could soften, pushing down its premium against lower grade ore. The premium of higher grade iron ore has spiked in the past few months as the Chinese government attempts to reduce emissions and wastages in China’s steel mills. Analysts believe that this is a structural change and unlikely to just be a short-term spike, as the Xi administration looks to make a long-term change to ensure cleaner air in the country. Analysts are forecasting that the current premium is likely to soften from its current highs and find a more sustainable level than where it is today. The price has already softened somewhat in the past few weeks.

Copper

The threat of a strike at the world’s largest copper miner was not enough to push up copper prices on Monday. Investors instead chose to focus on economic data set to be released this week which is expected to show slowing growth in China’s top metal consumers. Copper on the London Metal Exchange has fallen around 15 per cent since early June and investors continue to believe there will be a demand impact from the trade tariffs levelled against China by the US. Short positions against copper are currently sitting at a two-year high. Meanwhile, workers at Chile’s Escondida copper mine have said they will vote to strike after rejecting a final contract offer.

Japanese yen

The market had been speculating earlier this week that the Bank of Japan would dial back its easing, as it considered changes to its ultra-loose monetary policy. The speculation has seen the Japanese yen trade turbulently against the US dollar as investors position themselves ahead of the Bank of Japan’s meeting. On Tuesday, the Bank of Japan made only small tweaks to its policy, pushing the yen lower against the US dollar due to investors expectations of more drastic changes. The news also pushed Japanese government bond prices higher and also supported the Nikkei which bounced back from a one-week low on Tuesday, rallying from an opening loss.

Building approvals

Residential building approvals in June rose by 6.4 per cent, taking the yearly growth to 1.6 per cent, according to the latest data from the Australian Bureau of Statistics. The growth was led by multi-units, which recorded and 8.9 per cent increase while houses rose 4.4 per cent. CBA senior economist Gareth Aird says that residential construction is still being supported by economic conditions despite prices slowing. “Record low interest rates and strong population growth are continuing to support residential construction,” he said. “The housing market has cooled from a prices and credit growth perspective but in terms of construction, which contributes to economic activity, things remain buoyant.”

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