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Corporate earnings buoys ASX despite disappointing Trump tax

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Generally strong company earnings kept the ASX chugging higher this week, though global disappointment at the unclear tax proposals from the US administration weighed on global market sentiment. 

There was solid buying support for the big four banks, as investors factor in an increase in home loan interest rates, while wayward commodity prices have weighed on the big miners. 

Over the week, the benchmark S&P/ASX 200 Index and the broader All Ordinaries Index rose 1.2 per cent, respectively. Over the week, the benchmark S&P/ASX 200 Index and the broader All Ordinaries Index rose 1.2 per cent, respectively.  Photo: Luis Enrique Ascui

Over the week, the benchmark S&P/ASX 200 Index and the broader All Ordinaries Index rose 1.2 per cent, respectively. On Friday the ASX 200 reversed early losses to end the session broadly flight at 5924 points, while the All Ords nudged a touch higher to 5948 points. 

The benchmark top 200 index pushed through 5900 points mid this week, following a wave of renewed optimism among global investors on talk of US fiscal policy and after last weekend’s French election provided a market-friendly result.

“Although global events have buffeted our market around week to week, underlying all that market earnings are growing pretty strongly for fiscal 17,” said Tony Brennan, head of equity market strategy at Citi. 

“The continuation of these earnings will see the market over 6000 points I would think.”

Technology stocks have enjoyed considerable shareholder interest this week, especially after Alphabet and Amazon in the United States beat expectations. Computershare closed 3.6 per cent higher on Friday after releasing an investor presentation on Friday outlining its plans to improve its margin income. 

Gold miners were smashed as the safe haven trade diminished. Dominant geopolitical risks out of North Korea, Syrian and Europe has abated somewhat, which has seen bullion fall back to $US1265.2 an ounce. 

Australia’s largest producer Newcrest was off 10 per cent for the week, while Evolution was down 4.9 per cent and Regis Resources was down 0.6 per cent. 

Iron ore managed to hold around $US66 a tonne for the week though narrowing margins for steel producers, rising iron ore supply and current high inventories are expected to push the iron ore price lower over the medium term.

As such, resources giant BHP BIlliton was off 1.3 per cent, as oil prices declined, while Rio Tinto managed to claw 0.3 per cent higher over the week.

In other equities news, ResMed shares slipped 3.9 per cent on Friday after disappointing investors with a lower-than expected third-quarter results. Revenue came in 2 per cent lower than the consensus forecast made my analysts, but earnings per share of US71¢ (up 3 per cent) was in line with estimates. 

Stock watch: Network Ten

Network Ten continued its plunge on Friday, falling 25 per cent to 27¢, taking its total weekly fall to over 40 per cent. That gives one of Australia’s major metro broadcasters a market capitalisation of just 99.7 million. On Friday, a media analyst at Credit Suisse described Ten Network as “un-investable” following Thursday’s half-year results presentation. On Thursday, Ten’s management revealed a  $232 million loss, mostly attributed to a $214.5 million impairment on their broadcasting licence. Its $200 million debt facility, which expires in December, is guaranteed by three shareholders – James Packer, Lachlan Murdoch, and Bruce Gordon – and they are asking for proof that things will improve before they guarantee another loan. Credit Suisse sees nothing but red for the network for the next three years.

Tech boom 

The Nasdaq ended at a record high for a second session Thursday night, boosted by results-related gains in Comcast, PayPal and Intuit. The tech-heavy US index is likely to extend its record-breaking string of gains as heavyweights Amazon and Alphabet jumped more than 4 per cent each after the New York bell, following stellar earnings. Tech stocks also did well on the ASX; the best performing sector on Friday. But “the impact of this good news has been limited for the Australian market today given the limited representation of tech stocks in our index”, said CMC Markets’ Ric Spooner.

Metal sell-off

Base metals and other commodities were lower Thursday night, weighing on mining stocks locally and overseas. Iron ore and crude oil both dropped 0.3 per cent, while LME aluminium and LME copper shed 2 per cent and 0.4 per cent, respectively. “We are short on base metals currently,” said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan. “On the fundamental side I think that the market is getting worried about the tightening monetary process in China, which has just begun. There will be concrete evidence of an economic slowdown in the months ahead.”

Foreign demand drops

The number of foreign investment applications for residential housing will fall from 40,000 last year to an expected 15,000 this year according to Treasury analysis. As both sides of politics have turned up the heat on foreign buyers with policies that will increase fees on their purchases, federal Treasurer Scott Morrison is suggesting that it will be a less lucrative area for revenue collection. “We are already seeing signs the heat in our housing markets may be coming off,” Mr Morrison said. “Cooling foreign investor interest [is] already having an impact.”

Bellamy’s surge

The best ASX 200 performer this week was Bellamy’s, up 15.5 per cent. That’s despite the company having made no announcements in a week, and no analysts having upgraded or downgraded the company in some time. Competitor A2 Milk did have a big upgrade this week, trading at an all-time high on Thursday after telling shareholders its full-year revenue will be far higher than expected as infant formula demand from China “is outstripping supply”. Several analysts suggested that given A2’s stock issues, Bellamy’s has been able to win back some lost market share.

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