After a blistering start to the week that had some speculating the ASX would hit 6000 points, shares lost some steam on Wednesday to close only slightly higher, with big losses in Telstra and global uncertainty weighing on sentiment.
Investors were generally cautious throughout the session, as a drumbeat of alarming global geopolitical news sent the safe-haven yen and gold to five-month highs and yields on top-rated sovereign bonds to their lowest for the year so far.
Telstra, worth around 3 per cent of the ASX200, was easily the biggest drag on the market, falling 7.5 per cent. Photo: Craig Sillitoe
Still, the benchmark S&P/ASX 200 Index managed to eke out a 0.1 per cent gain to 5934 points, chalking up its fourth rise in a row thanks to some late buying in the banks.
“Gold, bonds, the Japanese yen and the Volatility Index are all pointing to an elevated level of caution in global markets,” said Greg McKenna, chief market strategist at FX provider, AxiTrader. “The worry is the rhetoric is heating up between the US and North Korea. The reality is there is a sense of risk aversion rising in markets.”
The benchmark S&P/ASX 200 Index managed to eke out a 0.1 per cent gain.
News that North Korea might launch a nuclear strike if provoked, weighed heavily on investors’ minds, while President Donald Trump said the US would “solve the problem” with or without China. Additionally, the US said Syria was behind a chemical attack on civilians this month and accused Russia of trying to cover up for its ally by spreading disinformation.
“My sense is that gold and forex traders have it right and are paying a little more attention to the real risks the Russia/US face off and the troubles on the Korean Peninsula pose,” said Mr McKenna.
Oil climbed 0.2 per cent to $US56.35 a barrel, marking its seventh day of increases, which provided some support for Australian energy stocks.
Telstra, worth around 3 per cent of the ASX200, was easily the biggest drag on the market, falling 7.5 per cent to its lowest since late 2012 after TPG announced it was successful in its bid to launch a 4G network around the country.
Fellow communications company Vocus Group was caught up in the selloff, plunging 5.6 per cent on Wednesday, down 30 per cent since February, thanks to uncertainty around the NBN.
The big four banks enjoyed some buying support, closing between 0.2 per cent and 1 per cent higher.
Stock watch: Telstra
Telstra, which has significantly underperformed the broader market this year, dropped a further 7.5 per cent to $4.22, after rival TPG won an auction for mobile phone airspace that will pave the way for the firm to service 80 per cent of the population. Telstra shares have been under pressure since the telco in February unveiled a profit far below analyst expectations, due to increased competition in the mobile phone market, its key money spinner. The entry of a fourth player into the market is expected to come out of the profits of existing operators, with Telstra seen as most vulnerable. UBS analyst Eric Choi, who has queried the sustainability of Telstra’s high payout levels, said any entry by TPG into mobile posed “further downside risk” for Telstra’s dividends. Some traders suggested the slide in Telstra was exacerbated by TPG being in a trading halt due to a capital raising. “Another way to get into the (TPG) offer would be to sell off another major telecom stock,” one trader said.
An overnight surge propelled the stocks of local gold miners higher. The precious metal, another one of the safe havens investors seek in times of uncertainty, rose 2 per cent overnight and surged during the day to $US1274 an ounce in late trade, the highest since the US election in early November. “Gold has finally broken and closed above its 200-day moving average at $US1257.50 which now becomes support ahead of the $US1240 level,” said OANDA senior analyst Jeffrey Halley. “From a technical perspective the way is now clear for a run at $US1300 and possibly higher.”
The disconnect between business and consumer sentiment continued on Wednesday, with the Westpac consumer confidence index dipping 0.7 per cent in April, from March when it rose 0.1 per cent. That left the index at 99.0, up 4.1 per cent on this time last year but just below the level where the number of optimists matches pessimists. Worries about the economic outlook overshadowed growing optimism about the state of family finances. The figures came a day after NAB’s monthly index showed a spike in business conditions to their best since the GFC.
Producer price inflation remains rapid in China but has begun to come off the boil. Producer prices rose 7.6 per cent over the year through March, down from 7.8 per cent in February. This marks the first monthly decline since August 2015 and reflects falls in the prices of some commodities, Capital Economics China economist Julian Evans-Pritchard said, predicting producer price inflation to drop further in coming months. Consumer price inflation, which came in at 0.9 per cent, may regain some ground but should remain below 2.0 per cent, he says. “The upshot is that those anticipating a further reflation in China are likely to be disappointed.”
Hedge fund billionaire Paul Singer’s push for a strategy change at BHP Billiton is rattling debt investors in the world’s biggest miner much less than iron ore’s slide into a bear market. As the value of BHP’s top-earning commodity started to plunge this year, the cost of insuring the producer’s bonds has been driven higher, but there’s been little reaction in BHP’s credit default swaps this week to the move by Singer’s Elliott Management. “From a sentiment point of view, having an activist shareholder on board typically solicits a cautious response from bondholders,” said Citi. For BHP, “the iron ore move … has been more significant.”