Australian shares advance on strength of major banks
The Australian sharemarket recorded only its second advance in the last eight sessions despite a broad retreat of commodity prices overnight.
The S&P/ASX 200 index rose 32.4 points, or 0.5 per cent to 6210.2 on Tuesday, driven by strong gains from the major banks. In Asia, the Hang Seng fell 1.6 per cent and China's CSI 300 was flat, reversing earlier losses, after Chinese equities entered a bear market last month.
"Aussie banks underperformed significantly over the year to May, both relative to the Australian market and overseas peers," Deutsche Bank equity strategist Tim Baker said. "But lately they've attracted interest given their cheapness, and given their large size."
The four major banks were among the market leaders on Tuesday. Commonwealth Bank led the market with a 1.8 per cent gain to $73.97. NAB shares lifted 1.2 per cent to $27.74, Westpac closed 0.7 per cent higher at $29.39 and ANZ closed at $28.08, a 0.9 per cent gain.
a2 Milk shares advanced 3.4 per cent to $10.72 after it announced it had extended its supply agreement with Synlait Milk. The deal includes an increase in infant formula products over which Synlait already has exclusive rights. Synlait Milk's shares also rose on the announcement, closing 2.4 per cent higher at $10.65.
Treasury Wine Estates announced plans to produce its premium Penfolds brand in California as part of the company's revised North American strategy, with the first of the US wines set to hit the market in 2022. Its shares closed 1.6 per cent higher at $17.39.
Beach Energy shares rose 5.7 per cent to $1.86 on a broker upgrade from JP Morgan. The broker upgraded the company from 'underweight' to 'neutral' and upgraded its price target from $1.40 to $1.80.
Shares in the materials sector fell after a heavy overnight commodity retreat that saw the Bloomberg Commodity Index fall by 1.9 per cent, its biggest decline since November 2016. The fall was largely due to the increasing trade tensions with the US and the strong overnight advance of the US dollar.
BHP Billiton led the market lower with a 1.6 per cent loss, closing at $33.05. Rio Tinto fell 3 per cent to $80.80 and South32 closed at $3.57, down 1.9 per cent.
Insurance Australia Group shares fell 3.2 per cent to $8.19. A report in The Australian Financial Review revealed the company was preparing for a public relations nightmare when it faces the banking royal commission in September.
ASX newcomer Marley Spoon saw its shares fall for a second day with almost a quarter of the company's value wiped out in just its first two days on the market. The meal kit provider's shares fell 8 per cent to $1.10, following a 15.9 per cent fall on Monday.
Stock watch
Sigma Healthcare
Morgan Stanley has maintained its underweight rating on Sigma Healthcare but heavily downgraded its price target and EPS for the company. Sigma's shares fell 40.1 per cent on Monday after the company lost a supply deal with Chemist Warehouse to EBOS Group, representing 41 per cent of Sigma's 2018 financial year revenue. Chemist Warehouse was the company's biggest customer and will impact earnings heavily. The broker did say that the associated working capital release of $300 million could limit some downside but it would have to wait for Sigma to outline a more precise direction. Morgan Stanley has revised the company's price target from 80¢ to 43¢ and reduced its EPS forecasts by 67 per cent for the 2019 financial year, citing further disruption risks from Amazon and DHL Express.
What moved the market
Bank performance
The major banks outperformed the S&P/ASX 200 index during June, rising 4 per cent against the benchmark index's 3.3 per cent rise based on total shareholder return. The banks have been underperforming against the market for most of the year but appear to have rebounded from a weaker result despite mortgage growth slowing. Commonwealth Bank and Westpac have led the shareholder returns, while Bendigo and Adelaide Bank, and Bank of Queensland recorded much more modest gains. It remains to be seen whether the banks can continue to consistently deliver these shareholder returns, with analyst predicting a weaker pipeline of future growth for the banks.
Platinum
Platinum prices have fallen close to a near 10-year low as the trade spat between the US and the European Union continues. Tariffs on auto imports have become the centrepiece of a brewing trade war between the two governments, hurting commodities used in the manufacturing of vehicles, such as platinum. The platinum price slipped 4.2 per cent on Monday recording its worst one-day drop in more than two years. The European Union warned that the US tariffs could harm the automotive industry of the world's biggest economy. Analysts and strategists say that if the tariffs were imposed, car sales were likely to plummet and will likely lead to reduced auto production levels.
US dollar
The US dollar advanced against most major currency overnight as trade concerns heightened after a leaked memo revealed the Trump administration had considered leaving the World Trade Organisation. The greenback also strengthened on US manufacturing activity which surged during June, above market consensus forecasts.The Institute for Supply Management said on Monday that its index of national factory activity jumped to 60.2 for the month, from 58.7 in May. The rising US dollar hurt commodity prices overnight with the Bloomberg Commodity Index falling to its lowest price since February and the Bloomberg US dollar index trading close to a 12-month high.
Lithium miners
Credit Suisse has initiated its coverage on Australian lithium producers Pilbara Minerals, Orocobre and Galaxy Resources, saying that it rated Pilbara Minerals as its most favourable stocks. The broker forecasts strong demand expectations for lithium raw materials, driven by electric vehicle and off-grid energy storage demands. It is forecasting the market to move into oversupply during 2020-23, saying that longer term, the pace of demand growth will tighten the market. It expects prices to level but believes the extent of lithium declines will be limited, supported by continued demand.