Weekly market update
Written and accurate as at: Mar 26, 2018 Current Stats & Facts
The Australian Share Market finished lower last week amid renewed concerns of a breakout of a trade war between China and the US, as President Trump announced his decision to potentially impose tariffs of up to 25% on the $US60 billion worth of goods currently imported from China. While the news is an eye-catching headline, we believe it was something the market had been anticipating following the recent steel/aluminium tariffs increase. In our view, the latest announcement itself is within expectations and before any tariffs are implemented we will likely see a lengthy period of consultation with industry. The response from China has to date also been on a minor scale. That said, the escalated tension between the two countries has caused jitters about global growth stalling or pulling back. As such, safe-haven assets including gold and bonds rallied, and the global growth-oriented proxies including commodities (excluding oil) sold off.
Against this backdrop, our market saw some market sensitive names sell off – both Magellan (MFG, -6.0%) and Janus Henderson (JHG, -5.0%) finished the week weaker. The infrastructure names, including Sydney Airport (SYD, -4.7%) and Transurban (TCL, -5.5%) also reacted negatively to the Fed’s latest hike. Losses could be reversed quickly this week following the bond market rally towards the end of last week on Trump’s announcement.
On the positive side of the spectrum, the share price of Alumina (AWC, +5.5%) continued to edge higher. The ongoing outage at Alunorte, the world’s largest Alumina refinery in Brazil (currently operating at 50% capacity following government orders in late February) has been tightening up market supply of alumina, driving up prices. Oil stocks such as Woodside Petroleum (WPL, +2.7%) and Santos (STO, +3.9%) also performed well last week as the global oil price hit US$70/b. We believe there are a couple of factors that have been contributing to this recent price surge: production curtailment from Saudi Arabia and Russia has been genuine to date and seems likely to be prolonged from here. Also, John Bolton (who’s taken a hawkish stance against Iran) becoming the new US national security adviser is supportive for oil prices. There have been speculations that the oil price could break the US$80/b mark, which would equate to Saudi’s fiscal position being brought back to neutral.