Cautious optimism pushes ASX higher

South32 led the market on Thursday after announcing a strong quarter of production. The company retained its previous production guidance, but increased its expectations by 7 per cent for Illawarra Metallurgical Coal. It also achieved record ore production at Australia Manganese in the second half of 2018. The miner’s shares rose 3.6 per cent to $3.45.

Woodside Petroleum shares rose 0.7 per cent to $33.74 after the company reported a 43 per cent jump in fourth-quarter sales revenue, driven by a strong December quarter for LNG plants. Despite the jump helping the oil and gas producer beat production guidance, it gave a relatively flat outlook for output in 2019.

Whitehaven Coal shares climbed 3.7 per cent to $4.71 after it announced a record quarter of run-of-mine (ROM) coal production of 7.4Mt in the December quarter. Managing director and CEO Paul Flynn said the outlook for the market remained positive and strong Asian demand continued to support robust coal prices.

Kogan.com announced record trading during the peak Christmas period, driven particularly by Black Friday and Boxing Day sales. The online retailer’s total revenue grew by 9.7 per cent during the first half of the financial year, compared with the first half of 2017-18. Its shares closed 22.2 per cent higher at $3.97.

 

There were some muted losses from index heavyweights although they did little to move the market. CSL slid 0.5 per cent to $196.38, AGL Energy closed 2 per cent lower at $20.70, BHP Group went down 0.2 per cent to $32.87 and Wesfarmers declined 0.1 per cent to $32.37.

Stock watch

Atlas Arteria

Morgan Stanley reduced its price target on Atlas Arteria from $6.99 to $6.66 on Wednesday, while maintaining an ‘equal-weight’ stock rating. Analyst Rob Koh opted for a more conservative valuation approach to the highways, roads, bridges, and private toll collecting company, citing the impact of the ongoing “yellow vest” political protests. These impacts include a likely sharp slowdown in traffic on the Autoroutes Paris Rhin Rhône (APRR). Other relevant factors arising from the protests potentially impacting the company’s revenue include discounts to tolls, corporate tax cut delays, and one off employee bonuses. The analyst justified maintaining Atlas Arteria’s ‘equal-weight’ stock rating on the basis of moderate traffic growth even with “yellow vest” factors at play, sale opportunities of its remaining stake in APRR, and good share price.

What moved the market

Brexit odds

According to bookmakers’ odds, the likelihood the United Kingdom doesn’t leave the European Union is close to 80 per cent after the latest Brexit deal was voted down in British Parliament on Tuesday. Capital Economics has put the probability of a deal being ratified before March 29 at just 5 per cent, down from 25 per cent. “The flipside is that we think that the probability of a “fudge and delay”– during which Article 50 is extended – has risen to 70 per cent, from 50 per cent,” said assistant economist Liam Peach. An extension of Article 50 appears to be the most likely strategy going forward.

Aluminium

Aluminium prices are set to fall when trade opens on the London Metal Exchange on Thursday after Russian aluminium miner Rusal escaped attempts by the Democratic Party to keep sanctions on the company. The Trump administration will proceed with its intention to soften sanctions against companies associated with Russian oligarch Oleg Deripaska, including Rusal, after an attempt in the Senate to reinstate the sanctions failed. Senate Democrats were unable to push through a sanctions resolution on Wednesday despite 11 Republicans supporting the resolution. A similar vote will be brought forward on Thursday in the House of Representatives.

 

Euro

The euro hit a seven-week low against the British pound on Wednesday as concerns over the euro zone economy weighed the central currency. Data from earlier in the week showed Germany will likely to escape a technical recession when fourth-quarter GDP growth figures are released in February, although its economic growth in 2018 will be significantly lower than 2017. European Central Bank chief Mario Draghi also acknowledged a slowdown in economic growth across the euro-area economy, although he was quick to deny the possibility of a recession.

Housing Finance

The value of all housing-related lending fell by 2.5 per cent in November, as home loan approvals in the investor and owner-occupier categories extended their falls. “A chunky fall in lending to investors led the decline. Although lending to owner-occupiers was lower in the month too,” said CBA senior economist Kristina Clifton. “Regulatory changes kicked off the falls in housing lending, although a shift in sentiment towards housing where people are expecting prices to fall rather than rise is also a major factor in the current cooling. New South Wales and Victoria have had the biggest falls in lending.

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