Australia Market ends steady ahead of G20, Fed and Iran

The Australian equity market closed edge higher after spending all day in red on Monday, 24 June 2019, as investors kept a cautious stance ahead of the Fed speakers speech, the G20 meeting and tensions between the US and Iran. At closing bell, the benchmark S&P/ASX200 index dropped 36.63 points, or 0.55%, at 6,650.79 points, while the broader All Ordinaries sank 33.65 points, or 0.5%, at 6,734.30.

Federal Reserve Chairman Powell and Vice Chair Williams are both scheduled to speak tomorrow. Investors will be looking for any further clues on the path, timing and magnitude of Fed interest rates in the months ahead and whether they validate market expectations of easing at the July FOMC meeting. Markets are already pricing in several cuts and a result the USD has weakened sharply over recent months, suggesting that the bar to an even more dovish stance is high. Nonetheless, the Fed is at least likely to deliver a 25bp rate cut at the July meeting followed by at least one or two further hikes this year.

The main event this week (Fri-Sat) is the G20 meeting in Japan and in particular the potential meeting between Presidents Trump and Xi on the sidelines. Expectations/optimism towards some form of progress on trade talks appears high.

Trump and Xi are likely to discuss a range of issues, with trade teams from both sides preparing the topics for discussion, after talks broke down last month. Market participants were nervously awaiting outcome of the expected meeting between Presidents Donald Trump and Xi Jinping later this week for any signs of de-escalation in a trade war that is damaging the global economy and souring business confidence. The leaders will meet on the sidelines of the G20 summit in Japan.

China and the United States should be willing to make compromises in trade talks and not insist only on what each side wants, Vice Commerce Minister Wang Shouwen said on Monday.

US Vice President Mike Pence on Friday decided to call off a planned China speech, which also increased optimism ahead of trade talks. Pence had upset China with a fierce speech in October in which he laid out a litany of complaints ranging from state surveillance to human-rights abuses.

Elsewhere geopolitical tensions remain in focus as President Trump threatens Iran with additional sanctions in an effort to force Iran to renegotiate the 2015 nuclear accord, as early as today. This follows Trump's decision to call off planned air strikes in response to Iran's shooting down of an unmanned drone.

Metals and mining stocks closed firmer, buoyed by expectations that tight iron ore supply at Chinese ports as a result of a decline in supply from Brazil amid increased domestic demand would continue supporting prices. BHP Group and Rio Tinto closed up 0.4% and 0.2%, respectively.

Telstra added 1.6% to A$3.84 after price target upgrade from brokerage firms. Brokerage house Morgan increased his target price from A$3.78 up to A$4.47, saying 5G revenue will drive subscriber growth and forced churn under the NBN has slowed, which lessens price competition.

Westpac's move from a low of A$28.00 to a closing price of A$28.33, after Australia's second-biggest lender's Chairman Lindsay Maxsted said, citing an internal report, that the bank's culture can slow decision-making and dilute accountability. The bank's self-assessment also found that the approach to cultural issues was "less mature than our approach to managing financial risks", Maxsted said in a letter to shareholders.

CURRENCY NEWS: The Australian dollar inclined against the U.S. dollar on Monday. The Australian dollar changed hands at $0.6956 after rising from levels below $0.684 last week.

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