GE was higher after announcing the sale of its biopharma business to Danaher for $US21.4 billion.
In early local news:
Santos CEO comes out firing on Narrabri: Santos CEO Kevin Gallagher wants politics out of the independent planning process for NSW’s Narrabri coal seam gas project.
Both the Aussie and Kiwi outperformed overnight, noted NAB senior FX strategist Rodrigo Catril, “respectively with the US-China trade news and broad improvement in risk appetite the main drivers for the antipodean gains”.
“Buoyant risk appetite and commodity prices are currently more than offsetting the domestic concerns over a subdued consumer, declining house prices and cautious RBA. As noted yesterday, our fair value model [for the $A] has continued to tick higher, suggesting a move above US72¢ looks reasonable from a fundamental basis.”
Today’s Agenda
No local data
Overseas data: German GfK consumer confidence March; US FHFA house prices December, S&P CoreLogic CS house prices December, Richmond Fed manufacturing February, CB consumer confidence February, New home sales January
Market Highlights
SPI futures down 15 points or 0.2% to 6130 at about 8.50am AEDT
AUD +0.6% to 71.70 US cents (Overnight peak 71.84)
On Wall St: Dow +0.2% S&P 500 +0.1% Nasdaq +0.4%
In New York, BHP -0.3% Rio -0.2% Atlassian +1.4%
In Europe: Stoxx 50 +0.3% FTSE +0.1% CAC +0.3% DAX +0.4%
Spot gold -0.3% to $US1325.84 an ounce at 1.08pm New York time
Brent crude -3.5% to $US64.75 a barrel
US oil -3.5% to $US55.27 a barrel
Iron ore -2.1% to $US84.84 a tonne
Dalian iron ore -2.5% to 597.50 yuan
LME aluminium -0.3% to $US1906.50 a tonne
LME copper flat at $US6480 a tonne
2-year yield: US 2.51% Australia 1.72%
5-year yield: US 2.48% Australia 1.74%
10-year yield: US 2.66% Australia 2.10% Germany 0.11%
US-Australia 10-year yield gap as of 8.50am AEDT: 56 basis points
From Today’s Financial Review
Australians face weak incomes for years: Real incomes will barely grow over the next six years and living standards are destined for a slowdown, unless a wave of major economic reforms can unleash a productivity boom like in the 1990s.
The short seller taking on Buffett’s ‘inevitables’: “You can have revenue growth, you can have cost savings, but you certainly can’t have both,” Montaka’s Andrew Macken concluded of his successful bet against Kraft Heinz.
Chanticleer: GetSwift fights to the death: The fast-growing software company’s three independent directors could come under shareholder pressure to change their hard-line defence to ASIC in this post-Hayne world.
United States
The S&P 500 index ended 4.9 per cent below its late September record closing high after narrowing the gap to 4.3 per cent earlier in the session.
Investors were also looking ahead to an appearance by Fed Chairman Jerome Powell before a US Senate committee on Tuesday.
“In the short term trade got taken off the table today so next up on the calendar is Powell speaking to Congress. It’s possible investors are starting to clam up a bit because of what they think Powell may say,” said Michael Cuggino, portfolio manager at Permanent Portfolio Funds in San Francisco.
Investors were also wary of weakening estimates for current quarter earnings, with Wall Street on Monday expecting a 0.9 per cent decline in S&P first-quarter earnings per share compared with expectations for 5.3 per cent growth on January 1, according to IBES data from Refinitiv.
“It’s hard to get valuations to continue to rise in the face of falling earnings estimates,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab in Boston.
LPL’s Ryan Detrick: “How persistent has the strength been since late December? Today could be the 35th consecutive day the S&P 500 closes above its 10-day MA. That would be the longest streak in nearly NINE years.”
FactSet’s John Butters on the S&P 500 net profit margin: “For the first quarter, the S&P 500 is projected to report a year-over-year decline in earnings of 2.7%, but year-over-year growth in revenues of 5.2%. Given the dichotomy in growth between earnings and revenues, there are concerns in the market about net profit margins for S&P 500 companies in the first quarter. What are the expectations for net profit margins for the S&P 500 for Q1?
“The estimated net profit margin for the S&P 500 for Q1 2019 is 10.8%. If 10.8% is the actual net profit margin for the quarter, it will mark the first year-over-year decline in the net profit margin for the index since Q4 2016. It will also mark the lowest net profit margin reported by the index since Q4 2017.”
President Trump’s take on Wall St, from an early morning tweet: “Since my election as President the Dow Jones is up 43% and the NASDAQ Composite almost 50%. Great news for your 401(k)s as they continue to grow. We are bringing back America faster than anyone thought possible!”
Europe
May stands firm on Brexit date: British Prime Minister Theresa May is adamant the country can leave the EU on March 29, despite pushback from European leaders.
The pan-European STOXX 600 closed up 0.3 per cent and Germany’s trade-sensitive DAX rose 0.4 per cent.
Italy’s FTSE MIB outperformed the market, climbing 0.9 per cent as government bonds jumped after Fitch affirmed the country’s BBB credit rating.
Auto shares jumped 2.1 per cent to their highest since early November as the tariff reprieve triggered relief for companies most at risk from slower global trade.
Car-parts makers Hella, Faurecia and Valeo were the top performers, up 3.2 to 4.3 per cent.
Some investors remained cautious, though.
“I believe the easiest part is done,” said Stephane Dutu, fundamental analyst at Unigestion in Geneva.
“I believe Mr Trump has oversold the positive aspects of the discussions … the overall deal will be less impressive than what the Chinese and especially Mr Trump are saying about it.”
Disappointing results drove some significant declines. Shares in Bank of Ireland dropped 3.1 per cent after it cut its outlook for 2019 and reported a weaker fourth-quarter net interest margin (NIM).
Asia
Chinese stocks posted their biggest single-day gains in more than three years on Monday after US President Donald Trump said he would delay an increase in tariffs on Chinese goods thanks to “productive” trade talks.
China’s Shanghai Composite index surged 5.6 per cent to end the day at 2961.28 points, its highest close since June 15, 2018 and the strongest daily percentage gain since July 9, 2015.
The blue-chip CSI300 index also posted its biggest one-day rise since July 9, 2015, ending 5.9 per cent higher at 3729.48 points, the highest closing level since June 15.
After falling more than 11 per cent in the fourth quarter of 2018 due to concerns about slowing domestic growth and the trade war, the Shanghai Composite index has staged a rebound in 2019. As of Monday’s close, it is up 18.7 per cent so far this year. The CSI300 has gained 23.9 per cent in the year to date.
The reaction in Hong Kong was more muted, with the Hang Seng index even dipping briefly into the red in the morning session. But a 0.5 per cent gain was enough to push the index to its highest close since June 25, 2018, at 28,959.30 points.
The Hang Seng’s China Enterprises index ended 1.8 per cent higher.
Currencies
Trump’s announcement also pushed China’s yuan higher, with the onshore unit trading as firm as 6.6738 per dollar, its strongest level since July, before easing to 6.6903 by 0710 GMT.
Its offshore counterpart strengthened to 6.6742 per dollar, its firmest since July 13, and was changing hands at 6.6910 per dollar around 0710 GMT.
“A delay in the tariff deadline is what has been expected. Still, a near confirmation of such a delay, together with reassurance from Trump’s comments, is supportive of the yuan,” said Frances Cheung, head of macro strategy at Westpac.
“Beyond the initial reaction, however, market will need a follow-up in terms of a trade deal for further impetus,” she said.
Stephen Chiu, FX and rate strategist at China Construction Bank (Asia) in Hong Kong said he expected the yuan to strengthen to the 6.6-per-dollar level once the United States and China reach a trade deal.
“Therefore, as the two sides get close to settling such a trade agreement, the pace of the current rally in the yuan will slow down,” he said.
Commodities
Barrick offers $US17.8b for Newmont: Barrick Gold is aiming to create the world’s largest gold producer by offering a hostile $US17.8 billion ($24.8 million) for rival Newmont in an all-share deal.
Trump attacks OPEC, says oil prices are ‘too high’: US President Donald Trump has resumed his attacks on OPEC, saying oil prices are too high and demanding the cartel “relax and take it easy”.
Billionaire Beny Steinmetz’s BSG Resources (BSGR) will walk away from Guinea’s massive Simandou iron ore project as part of a settlement ending a long-running dispute with the West African nation, the company and Guinea’s government said on Monday.
Development of Simandou – one of the world’s biggest iron deposits, containing billions of tonnes of high-grade ore – has been hindered by years of legal wrangling as well as the $US23 billion cost of the required infrastructure.
Rio Tinto holds a 45.05 per cent stake in Simandou’s remaining blocks 3 and 4.
Benchmark copper on the London Metal Exchange (LME) touched its highest since July 4 at $US6540 a tonne but finished little changed at $US6480.
“For copper, it’s the hopes about easing trade tensions between the U.S. and China, and we saw further evidence over the weekend that this is happening,” said Julius Baer commodities research analyst Carsten Menke.
He added that sentiment was also boosted by positive credit data, even though it would not directly affect copper demand.
Speculative positioning in copper moved from a marginal net short to a net long of 4.7 per cent, or 7900 lots, broker Marex Spectron said in a note, adding that this was a level not seen since June 2018.
Australian Sharemarket
What we learned from Monday’s profits: Here’s a nice turn of events: A big industrial company announces a plan to invest as much as $1 billion, and the stock actually rises.
Australian shares closed higher on Monday amid signs a trade deal between the US and China was close .
The S&P/ASX 200 Index closed 19 points, or 0.3 per cent, higher at 6186.3 after recovering from a dip into the red earlier in the session.
Afterpay shares soared on Monday after telling investors it did not expect “any material impact on our business or business model” from the recommendations from a Senate committee report released following the market close on Friday. Afterpay Touch shares climbed 19.2 per cent to $20.50 while fellow buy now, pay later provider Zip Co’s shares advanced 3.8 per cent to $1.50.
Street Talk
Deloitte fuels Lube Mobile sale, buyers courted
Blocks light up the boards; eyes on Inghams, Reliance
Perpetual taps three brokers for ‘bond and loan’ raising
with Reuters, Bloomberg, AAP
Comments? Questions? Let us know what you think of Before the Bell: timothy.moore@fairfaxmedia.com.au
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