ASX tumbles on European, US geopolitical tensions
Australian shares have fallen this week as trade tensions and geopolitical uncertainty left investors trading cautiously.
The S&P/ASX 200 index closed on Friday at 5990.4, down 42.4 points, or 0.7 per cent for the week.
Political uncertainty in Italy caused stocks to stumble in the earlier part of the week before the US committed to impose tariffs on the European Union, Canada and Mexico on Friday.
Macquarie shares tumbled 3.3 per cent to $113.02 this week as uncertainty dominated the global markets. ANZ fell later in the week after it was revealed the bank could face criminal cartel charges, its shares closing at $26.81, down 3.8 per cent for the week.
Telstra shares fell for a second week in three after credit ratings agency Standard & Poor's downgraded the telco's long-term rating from 'A' to 'A-'. Its shares fell 3 per cent this week to $2.79.
Metcash shares closed 21.3 per cent lower this week to $2.90 after Drake Supermarkets announced it wouldn't continue its relationship with the company past its current agreement, which runs until June 2019. This left Metcash with a potential $270 million profit hit with Citi analysts warning that the company's share price could fall by a further 20 to 30 per cent if the company is unable to retain up to three more contracts.
MYOB shares fell this week after the group announced it had scrapped its planned $180 million acquisition of Reckon's accounting practice management software business, citing the lengthy regulatory process as the key reason for pulling out. Its shares closed at $2.87, down 6.8 per cent over five days.
Star Entertainment released a trading update on Monday, which showed softer-than-expected results and higher-than-anticipated capital expenditure for the 2019 financial year. This caused its shares to fall 7.6 per cent this week to $4.90.
Reliance Worldwide shares rose after it announced it had successfully completed an institutional raise of $946 million to fund its acquisition of UK-based John Guest. It closed the week at $5.61, up 23 per cent.
Sino Gas & Energy shares rose on the news that company's board backed a $530 million takeover offer from Lone Star at a 25¢ a share price. It rose 17.1 per cent this week to close at 24¢.
iSelect confirmed on Friday that it had received takeover bids from a number of parties following the company's price fall on the back of an earnings downgrade. The company said it was "reviewing these approaches and assessing their merit". It closed at 83¢, up 50 per cent for the week.
Stock watch
Domino's Pizza Enterprises
Macquarie has upgraded Domino's Pizza from 'neutral' to 'outperform', upgrading the company's target price to $55. The broker said that the Europe growth outlook was strong with per-store economics and store count driving double-digit earnings growth. The ASX listed company is the exclusive franchisee for France, Belgium, the Netherlands, Monaco and Germany where the broker says the company can now drive scale benefits. While the outlook for the Australian market wasn't as positive, Macquarie said that domestic franchising regulations were manageable, adding that strong top-line outlook could support franchisees. The broker says that the second half of the year will be less challenging for the company than the first half with the World Cup a support for June.
What moved the market
House prices
Australian house prices recorded their first annual decline since October 2012, evidence that tighter lending standards are softening demand Sydney and Melbourne. House prices in May recorded their eighth straight month of weakening and they are set to continue falling as a result of the royal commission. The rate of decline has already begun to increase with May's 0.4 per cent month on month decline, the largest drop since prices started declining in August of last year. Sydney has been leading the dip, its prices falling by 0.5 per cent this month, its tenth decline in a row. The data suggests that demand is beginning to weakening in most major cities relative to supply.
Aluminium
Aluminium prices jumped to a two-year high on the news that the United States was moving forward with its plans to place a 10 per cent tariff on aluminium import from the European Union, Canada and Mexico. The metal jumped 1.2 per cent on the London Metal Exchange on Thursday. Although the price remains well below the price levels the market experienced in April when the US imposed sanctions on Russian aluminium giant Rusal, the metal still remains at a historically high price. The US announced that Australia and Argentina will be excluded from tariffs which also included a 25 per cent tariff on steel, although quotes and volume limits will apply.
US dollar
The US dollar lifted marginally against major currencies on Thursday after announcing tariffs on steel and aluminium imports from the European Union, Canada and Mexico. The greenback rose significantly against the Canadian dollar on the news that tariffs would be imposed, recovering the losses it had made in the previous session as the Bank of Canada laid the ground for interest rate hikes. The US dollar also lifted against the Mexican peso although movement agains the Euro was modest as political confidence returned to the eurozone. A number of releases, including unemployment and payroll data, are set to be released on Friday in the US and could move the greenback further.
Italy
After days of political turmoil in the country, Italy finally looks to have avoided the prospect of a second election after the nation's populist parties were given the green light to form a coalition government. The parties conceded some ground to make the coalition possible, backing down from their nomination of eurosceptic Paolo Savona as the economic minister. "An accord has been reached for a Five Star-League government with Giuseppe Conte as prime minister," the new coalition said in a statement on Thursday night. Mr Savona could be given the European affairs ministry in the new-look government while Giovanni Tria is expected to be handed the economy portfolio.