Material and healthcare sectors lift ASX as investor confidence returns
Strong performances from the mining and healthcare sectors lifted the local sharemarket as Australian investors showed renewed confidence.
The S&P/ASX 200 index closed 38.2 points, or 0.6 per cent higher, at 6265.8 lifting from a big loss on Monday.
The major mining stocks recovered from a slump in the previous session as the price of iron ore lifted.
BHP Billiton led the market gains as it rose 1.7 per cent to $33.01 while Rio Tinto closed 1.3 per cent higher at $80.90. South32 also closed higher at $3.57, up 2.3 per cent following a broker upgrade from Citi who lifted the miner's price target by over 13 per cent to $4.30.
UBS initiated coverage on Lynas Corp with a $3.30 price target, saying that the company had the best global Rare Earth deposit in its view. Its shares rose 11.2 per cent to $2.38.
Wine Australia released figures on Tuesday which showed wine exports have grown at the fastest rate in 15 years during the last 12 months while sales to China rose 55 per cent in the same period. Treasury Wine Estate shares rose in response, closing 5.5 per cent higher at $19.34.
The healthcare sector was the second-best performer on the market today behind the materials sector as several healthcare stocks lifted. CSL was among the market leaders with a modest 0.8 per cent rise to close at $202.45.
Estia Health announced that chief operating officer Ian Thorley would succeed Norah Barlow as the company's CEO later this year, sending its shares up 3.5 per cent to $3.24.
A broker note from UBS sent Ansell's shares up 3.7 per cent to $28.92. The broker updated the company's price target from $25 to $27.45 saying that it was very likely the company's results for the year would surprise investors to the upside.
Afterpay Touch shares softened after The Australian Financial Review revealed that the Treasury Department had quietly released draft legislation of Friday that would see Afterpay fall under the regulation of ASIC. Its shares fell 4.1 per cent to $14.43.
Kogan.com's quarterly results disappointed investors despite the company reporting revenue growth of 40 per cent and earnings growth of more than 90 per cent. The company's share price hit a six-month low as it fell 11.8 per cent to $5.84.
Stock watch
Mayne Pharma
Bell Potter upgraded Mayne Pharma from 'sell' to 'hold' following the pharmaceutical company's acquisition of generic topical cream Efudex, used to treat pre-cancerous and cancerous skin growths, from Spear Pharmaceuticals. The broker said "the product fits nicely into the portfolio of generic dermatology medicines in the current portfolio." It said it was estimating the product would contribute $US12 million worth of revenues and $US7.2 million of EBITDA in FY19 and that EPS would be 0.3¢ per share. The broker is also forecasting a weaker Australian dollar will further support the company's earnings. Bell Potter upgraded the company's price target from 77¢ to 84¢. UBS analysts also upgraded the company's price target, lifting the company from 95¢ to $1.02.
What moved the market
Bond yields
10-year US Treasury yields rose sharply overnight, hitting a five-week high and coming within just a few basis points of the 3 per cent line. The 10-year yield has risen as the Federal Reserve is seen likely to continue raising interest rates despite continued criticism from US President Donald Trump. US bonds traded heavily on Monday although the strong increase in the 10-year yield was unable to be matched by the 2-year yield, steepening the yield curve further after it flattened to its lowest level since 2007. The gap between the two now sits at 33 basis points, the curve's steepest level since June 29.
WTI crude
West Texas Intermediate crude oil prices slumped on concerns that the United States oil market could face a potential oversupply. Saudi Arabia and other larger producers are already ramping up their supplies to offset the losses from Iran when US sanctions on crude oil from the Islamic Republic come into effect in November. In the United States, crude inventories at the Cushing, Oklahoma deliver hub gained at the end of last week, surprising traders who had been expecting supplies to fall. The oil market is also being weighed by concerns that despite the increasing supply, demand will fall as the US-China tariff war continues.
Japanese Yen
The Japanese Yen hit a two-week high on Monday before softening slightly later in the session. The currency rose on the back of reports that the Bank of Japan was debating whether it would scale back its monetary stimulus program. This move also helped long-term borrowing costs both overseas and locally, as the Japanese 10-year bond yield leapt higher. "The 10 basis-point steepening in the Japanese yield curve is massive in the context of a market that rarely moves more than 1 basis point," ANZ economist Felicity Emmett said. "It reflects a broader fear that central banks are reducing their purchases while U.S. bond supply is set to rise significantly."
Chinese yuan
The Chinese yuan has slid to its lowest point in a year against the US dollar following a record injection of funding for the nation's banks. The Chinese government unveiled a range of measures aimed at boosting domestic demand amid worsening trade tensions between the country and the US. This comes in the wake of criticism from US President Donald Trump who accused China of deliberately trying to weaken the renminbi. On Monday, a Chinese Foreign Ministry spokesperson said that the yuan was "determined by the market". Analysts have weighed in on the decision to weaken the currency, saying that while it will soften the blow of a trade war short term, it wasn't a viable strategy long-term.