ASX slides as economic adviser Gary Cohn exit sparks trade war worries
Australian shares dropped for the fifth time in six sessions as simmering trade war worries resurfaced with the surprise resignation of White House economic adviser Gary Cohn.
The S&P/ASX 200 index lost 60 points, or 1 per cent, to end the day at 5902, while the All Ordinaries fell 56 points, or 0.9 per cent, to 6005. The Australian dollar traded at US78.01¢ with traders also weighing a slightly softer-than-expected GDP reading.
US stock futures fell sharply as the Australian trading session got underway after the news of Mr Cohn's imminent departure from the White House reignited concerns that the steel and aluminium tariffs announced by the US last week will escalate into a full-blown global trade war.
The departure of Mr Cohn immediately raised questions about who will take his place, said IG Markets' chief market strategist Chris Weston, while noting market speculation that Peter Navarro, "a hard-liner in the vein of Trump," could be in line to succeed Mr Cohn.
"Markets are concerned that the US is going to put these pretty punchy trade measures in and they are thinking - what happens if the EU and China retaliate?" Mr Weston said of the market declines after the news emerged.
Banks were taking the brunt of the selling in Australia, with Bank of America Merrill Lynch analysts also weighing in on the sector.
Westpac fell 1.6 per cent to $29.88 after the broker cut the lender from buy to underperform, while lifting CBA from underperform to buy. CBA shares moved down 0.7 per cent to $75.14 while NAB declined 1.3 per cent to $29.70 and ANZ also fell 1.3 per cent, to $28.22. Macquarie Group fell 1.4 per cent to $102.15.
In the mining sector, BHP pulled back from some strong gains made in the previous session with a 1 per cent decline to $29.42 while South32 lost 2.6 per cent to $3.34.
Gold miners gained, however, after the gold price, which tends to benefit when markets are seeking a safe haven, hit a one week high of $1,335.02 an ounce.
Newcrest rose 1.8 per cent to $22.05, Resolute Mining climbed 3.4 per cent to $1.21 while Regis Resources rose 2 per cent to $4.58.
Rare earths miner Lynas moved higher for the third straight session with a 1.7 per cent advance to $2.39 and Retail Food Group took back a fraction of its recent losses with a 5.3 per cent advance to $1.20.
Stockwatch
Nufarm gained 2.3 per cent to $8.13. Citi upgraded the agricultural chemical company to buy while lifting earnings per share forecasts by between 5 and 21 per cent to incorporate Century, FMC and Omega 3 into its forecasts. "We believe that these acquisitions should expand Nufarm's European presence in higher margin, cash generative products," the broker said. It added that it believes the company is entering its next significant growth phase.
Growth in focus
The Australian economy grew 0.4 per cent in the December quarter for an annual increase of 2.4 per cent in seasonally-adjusted terms, the ABS said. The data came in slightly below forecasts - economists had been expecting a reading of 0.5 per cent for the quarter and 2.5 per cent annually, according to data compiled by Bloomberg. That was a sharp slowing from the September quarter, where GDP grew an upwardly revised 0.7 per cent, from a previous reading of 0.6 per cent, and a revised 2.9 per cent on an annual basis.
Brokers and the banks
Bank of America Merrill Lynch upgraded Commonwealth Bank of Australia and downgraded Westpac citing loan growth and capital trends, valuation and recent stock performance. Overall, the broker said it remains positive on the sector, with its sector valuation dashboard suggesting that the sector remains closer to oversold than overbought. "We see particular appeal for investors that seek quality, dividends or domestic rate exposure," the broker said.
$A whipped
The Australian dollar traded at US78.01¢ in a choppy session marked out by the resignation of Gary Cohn from the White House team and the release of Australian GDP. "The Australian dollar is being whipped around by US dollar news and so GDP didn't move the needle this time," Annette Beacher at TD Securities said. Ms Beacher added that she remains more constructive on the Australian dollar than consensus. "The underlying economy remains solid and the cash rate won't remain at 1.5 per cent forever," she said.
Japanese yen finds favour
The safe-haven Japanese yen strengthened against the US dollar on Wednesday. At last check, the dollar was buying 105.63 yen, down from 106.18 yen earlier in the session. "Gary Cohn was seen as a calming, steadying influence on the administration's economic plans," noted Rakuten Securities Australia COO Nick Twidale in a reference to the market dismay over the resignation of the White House economic adviser.
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