Australian shares closed the session lower on Tuesday as the announcement of further tariffs on China hit major materials and energy stocks.
The S&P/ASX 200 index fell 23.5 points, or 0.4 per cent, to 6161.5, mirroring a poor session on Wall Street.
Mining stocks were hit after President Donald Trump announced that the United States would go ahead with imposing further tariffs on China and outlined his intentions to tariff all Chinese imports into the country if Beijing retaliated. While industrial metal prices on Monday fell slightly, the London Metal Exchange closed before the new tariffs were announced so it could fall further this week.
BHP Billiton closed 0.8 per cent lower at $31.35, Resolute Mining closed 3.3 per cent lower at $1.04 and Galaxy Resources closed at $2.41, down 3.2 per cent.
The price of both West Texas Intermediate and Brent crude fell, sending local energy stocks lower. Beach Energy fell 2.6 per cent to $1.91, Origin Energy closed 3.2 per cent lower at $8.08, while Woodside Petroleum closed at $36.60, down 1.3 per cent.
Tech stocks slid on Wall Street on Monday, snapping a five-day winning streak in New York. Local tech stocks slid in response on Tuesday, continuing their recent volatility.
Afterpay Touch led the losses for the sector, falling 5.1 per cent to $15.94, Wisetech Global closed 3 per cent lower at $20.77, Appen dropped 2.9 per cent to $13.93 and Altium closed at $25.17, down 4.3 per cent.
There was also weakness in the healthcare sector, which has traded relatively in line with the technology stocks in recent weeks. CSL fell 1.4 per cent to $205.29, Sigma Pharma closed 3.4 per cent lower at 56.5¢ and Nanosonics fell to $3.12, down 3.4 per cent.
Western Areas outperformed the rest of the materials sector on Tuesday, rising 4.2 per cent to $2.49. The company’s joint-venture partner St George Mining announced strong drilling results at its Mt Alexander operation, confirming a wide intercept of high grade nickel-copper-cobalt-PGEs (platinum-group elements) at its Investigators discovery.
Monday’s sell-off of aged care stocks prompted some investors to increase their positions, betting that the industry may be oversold. Sunday’s announcement of a royal commission into the sector prompted share prices across the industry to fall. Most stocks closed higher on Tuesday.
Aveo Group rose 1.5 per cent to $2.09, Estia Health advanced 2.9 per cent to $2.47, Regis Healthcare closed 2.3 per cent higher at $3.07 and Japara Healthcare closed at $1.42, up 2.2 per cent.
Shaw and Partners retained its ‘hold’ recommendation on BWX after the Bain Capital-led consortium withdrew its takeover offer for the company. The company will continue under a new, conservative management team led by new chief executive Myles Anceschi. The broker said that Mr Anceschi’s new strategy could be summed up as measured growth, while consolidating the various major brands the company owns. It said that the new management team was making the right moves around brand building, engaging with suppliers and managing the overseas businesses in a more integrated fashion. The broker did downgrade the company’s EPS by 2.7 per cent for FY19, saying that its previous valuation had included a takeover premium. The broker downgraded the company’s target price by 28 per cent to $4.28.
What moved the market
Trade tariffs have hit Chinese equities hard, with the country underperforming against other emerging markets since US President Trump approved the tariffs in the middle of the year. While Chinese equities had been outperforming other emerging markets during the first half of the year, they have now slid lower and are now well below other emerging markets. The Shanghai Composite index closed at a near four-year low on Monday, falling 1.1 per cent to 2,651.79. Its unlikely that the country’s sharemarket rebounds any time soon with further tariffs being discussed by Trump and the country’s economic growth slowing.
The price of copper fell close to the 14-month low it touched in August on Monday as the US prepared to impose further tariffs on Chinese goods. The London Metal Exchange closed trading prior to an official announcement from Washington that the US would indeed impose 10 per cent tariffs on $US200 billion ($280 billion) worth of Chinese goods, rising to 25 per cent at year-end. President Trump said in a statement that if China retaliated, it would impose tariffs on a further $US267 billion ($373 billion) of additional imports. Industrial metal prices in London on Tuesday are likely to fall further following the announcement.
South African rand
South Africa’s money-market rates are indicating that the South African Reserve Bank could increase rates on Thursday, despite only three out of 19 economists in a Bloomberg survey predicting such a move. Forward-rate agreements are factoring in a more-than-even chance of a 25 basis point hike later this week. The rand has fallen nearly 10 per cent since the previous Monetary Policy Committee meeting in July and while the Reserve Bank does set a target level for the currency, the likely impact of the rand’s decline on inflation could prompt the bank to lift the country’s interest rate.
The Australian dollar traded turbulently on Tuesday, moving within a 0.8 per cent range through the day. The announcement that President Trump would go ahead with his plans to tariff China pushed the Aussie to its lowest point since Wednesday last week. The dollar quickly rebounded however on reports that China were prepared to return to the negotiating table, intent on avoiding tariffs on a the further $US267 billion ($373 billion) worth of Chinese goods. The Reserve Bank of Australia also seemed slightly more upbeat in its September meeting minutes released on Tuesday, helping the Aussie to advance just shy of $US72¢.