ASX gains as rate cut prospects rise


Australian shares rose on Thursday on expectations the Reserve Bank of Australia will be forced to cut rates sooner in order to battle rising unemployment.

The S&P/ASX 200 Index rose 43.6 points, or 0.7 per cent, to 6327.8 while the broader All Ordinaries closed 46.6 points, or 0.7 per cent, higher at 6417.5.

The local sharemarket made a firm start to the day's trade before dropping through the morning. It rallied firmly though following April's labour force data, as the rising unemployment rate increased bets the RBA would cut rates sooner than expected.

The rising unemployment has helped lift the market amid speculation it will make rate cuts more likely.

The rising unemployment has helped lift the market amid speculation it will make rate cuts more likely.Credit:AP

"By opting to highlight jobs growth and the direction of the unemployment rate the market is now focusing on a lagging indicator of economic activity rather than a forward looking one," said J.P. Morgan Asset Management global market strategist Kerry Craig.

"Central banks can often say too much, or sometimes not enough. But with markets so closely tuned to movements in the labour market, a clear message on what’s moving the needle will be required."

HSBC chief economist Paul Bloxham said the RBA will be forced to cut the cash rate twice before August is out, having previously said the bank to remain on hold through 2019.

Xero rose 10.8 per cent to $60.15 on Thursday after reporting it was edging closer to achieving profitability, recording positive free cash flow in 2019 and a modest net profit in the second half. The company did make a net loss for the financial year ended March 31 of $NZ27.1 million ($25.7 million).

CSL shares rose after UBS lifted its price target on the healthcare giant following an analysis of its competitors, suppliers and partners' first quarter financial results. CSL advanced 1.1 per cent to $202.98.

Aristocrat Leisure closed the session 5 per cent higher at $26.87. In a note on Thursday, UBS analyst Matt Ryan said there would be continued near-term growth, despite its US revenue share almost doubling over the last five years. It said it was likely its growing online market share would drive share gains.

The major banks were mixed on Thursday. Commonwealth Bank shares rose 1.1 per cent to $73.33 amid reports it would cut 10,000 jobs while ANZ advanced 1.4 per cent to $26.66. NAB closed 0.3 per cent lower at $24.20 while Westpac was the largest weight on the index and responsible for most of the market's losses as it traded ex-dividend, falling 3.9 per cent to $25.85.

BWX slid heavily after an announcing on Thursday it had reduced its earnings outlook, appointed a new chief executive and would make changes to it governance structure. The company said it expected trading earnings before interest, tax, depreciation and amortisation to be in the range of $21 million to $23 million. In February, the company said it expected underlying earnings before interest, tax, depreciation and amortisation to be in the range of $27 million to $29 million. BWX's shares tumbled 15 per cent to $1.70.

Stock watch


UBS increased its price target on healthcare giant CSL by 7.5 per cent after reviewing its competitor, supplier and partner first quarter financial results. "While cognisant of potential competitive pressures to certain Behring products, our overall investment view is unchanged, with market dynamics continuing to support robust immunoglobulin growth while we expect China albumin growth to recover from the fourth quarter of 2018-19," said analyst Saul Hadassin. "For Seqirus, favourable market segmentation places the business in a sound position to grow share without using price as a lever." It said CSL Behring needed to demonstrate improved earnings growth to justify its current valuation multiples. UBS increased its target price on CSL from $207.50 to $223.

What moved the market


Germany's sharemarket could be poised to slide this year if the trade war between the US and China escalates, with the bourse very exposed to the tensions through the heavy weighting of car manufacturers on its index. "Looking ahead, we have long been of the view that stock markets in the euro-zone would fall this year as the global economy slowed, and that in the event equities in Italy would fare especially badly owing to problems at home," said Capital Economics markets economist Simona Gambarini. "However, should the US extend tariffs to all imports from China and/or impose duties on its imports of autos, we suspect that the DAX would do just as poorly and that the CAC would also fall sharply."


Copper prices extended their gains from the previous session after reports emerged US President Donald Trump was planning on postponing a decision to impose import tariffs on automobiles and parts by up to 180 days. The US is treading carefully with its relationship with the EU and Japan, as it focuses its efforts on negotiating a trade deal with China. The US is also trying to improve its trade relationship with Mexico and Canada. The price of copper on the London Metal Exchange rose 0.9 per cent to $US6,054 a tonne on Wednesday.

Aussie dollar

The Australian dollar weakened on Thursday after the unemployment rate rose to 5.2 per cent from a revised 5.1 per cent the previous month. The Aussie had declined slightly just before the labour force print as it traded near its weakest point in three years, aside from January's flash crash. It extended its loss following the employment data which showed Australia's unemployment had been steadily rising since March. The Aussie dollar hit a low of US69.08¢.

RBA rate cut

Interest rate futures have attracted strong interest in the last week, with the probability interest rate cuts rising as much as 42 percentage points in just the last six days. Following Thursday's labour force data, the market is now fully pricing in two cuts before December, with a 54 per cent chance they cut rates as soon as June. "The RBA has work underway on whether the labour market or GDP data is the better guide to the economic state of play," said CBA senior economist Belinda Allen. "To that to‑do list they can add what is the better labour market guide: jobs or the unemployment rate?"