Australia Market extends gains for fourth session

The Australian equity market closed higher for fourth session in row on Thursday, 20 June 2019, as risk sentiments strengthened on following Wall Street's rally overnight after the U.S. Federal Reserve signalled rate cuts of as much as half a percentage point over the remainder of 2019. At closing bell, the benchmark S&P/ASX200 index inclined 39.27 points, or 0.6%, at 6,687.40 points, while the broader All Ordinaries added 39.36 points, or 0.58%, at 6,767.90.

The US share market climbed for a third day on Wednesday, after the Fed left interest rates unchanged at its monetary policy meeting, dropped the word patient from its statement and said it would act as appropriate to sustain the economy. Overnight on Wall Street, the Dow Jones Industrial Average added 38.46 points to close at 26,504, while the S&P 500 rose 0.3% to finish its trading day stateside at 2,926.46. The Nasdaq Composite advanced 0.4% to close at 7,987.32.

 

The Federal Reserve signaled potential interest cuts later this year, reassuring investors worried that the US-China trade war could stall economic growth. Saying it will act as appropriate to sustain economic expansion, the central bank signaled rate cuts of as much as half a%age point over the remainder of 2019. In its statement following a two-day policy meeting, the Fed held rates steady, as expected, but dropped a previous promise to be patient in adjusting rates. The central bank remained mostly optimistic about the economic outlook, but said inflationary pressures have receded, compelling it to lower its forecast for PCE inflation in 2019 to 1.5% from 1.8%, below its 2% target. At the same time, it left its gross domestic product estimate at 2.1%. Meanwhile, the Federal Open Market Committee's dot plot of likely federal funds rate changes shows one rate cut next year and one hike in 2021 but there was a wide range of forecasts around that median.

Meanwhile, on the U.S.-China trade front, hopes in Beijing appear to have risen for a trade deal between the two economic powerhouses. U.S. President Donald Trump and Chinese Xi Jinping are set to meet at the upcoming G-20 summit in Japan, which will happen next week. Trump said talks between the respective teams would begin prior to that.

Financial stocks were higher, tracking a widespread push among global equities after the Federal Reserve hinted at interest rate cuts as early as July due to growing external and domestic economic risks.

Materials and resources closed down on concerns about increased iron ore supply after Brazilian miner Vale SA said it would resume operations at its Brucutu mine within 72 hours, and reaffirmed its 2019 sales guidance. Rio Tinto (RIO) was down 3.8% after warning of issues with a mine in the Pilbara which means it is likely to produce less iron ore than hoped this year. RIO now expects output between 320-330mt (previously 333-343mt). Fortescue Metals (FMG) and BHP are also under pressure.

Caltex (CTX) declined by 19% due to a substantial cut to earnings guidance. CTX now expects profits to more than halve compared to a year ago. This was blamed on a slowing Australian economy, lower refining margins and a weaker local currency. Viva Energy (VEA) - which supplies fuel to Coles Express petrol stations - is down by close to 10%.

CURRENCY NEWS: The Australian dollar fell against the U.S. dollar partly due to lower interest rates. The Australian dollar changed hands at $0.6892 after seeing an earlier low of $0.6875.

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