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Mining rally outweighs trade jitters

Myriam Robin and Jens Meyer
Updated

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The Australian sharemarket took news of America pulling out of the Trans Pacific Partnership in stride on Tuesday, rising strongly on the back of rallying iron ore futures and some upbeat company news.

The benchmark S&P/ASX200 rose 0.7 per cent to 5651.6, while the broader All Ordinaries added 0.7 per cent to 5707.5.

Paterson Securities economist Tony Farnham said the US withdrawal from the TPP, which sparked some jitters in currency markets, was largely expected, and therefore priced into shares.

Roy Hill had a rough March quarter buy exports recovered in April. Bloomberg

"It's been a long-winded process," Mr Farnham said. "The US decision was well-telegraphed. [Trump] said he was going to do it, so it's not as if it's unexpected."

Leading the market higher were the big miners, boosted by soaring Chinese iron ore futures. Fortescue Metals jumped 5.5 per cent to $6.54, while metal producer South32 recovered Monday's losses to close Tuesday up 6.25 per cent. BHP rose 2.4 per cent to $27.01 while Rio Tinto added 3.8 per cent to $64.74.

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Also pulling the resources sector higher was BlueScope Steel, which reached its highest price in six years on the back of an upgraded earnings forecast, surging 8 per cent to $11.21.

The healthcare sector was another winner, with Resmed rising strongly after it posted a 17 per cent rise in second quarter sales, above market expectations. Its shares soared 7.2 per cent, while Sigma Pharmaceuticals rose 3.4 per cent.

Slumping further was troubled Bellamy's, down another 1.8 per cent to $3.78 as former CEO Laura McBain quit the board and IMF Bentham told the ASX it was bringing a second class action against the organic baby food and formula maker.

While the day saw some support for bank stocks, they finished the day mostly down, with ANZ losing 0.4 per cent, NAB finishing level, Westpac losing 0.4 per cent. The Commonwealth Bank bucked the trend to finish up 0.4 per cent.

How the market performed Tuesday. 

As well as being largely expected, OFX head of treasury Will Shepherd said the scale of the loss of TPP would have a minimal effect on the Australian economy. "According to a World Bank report published in 2016, Australia's economy was projected to get a boost of just 0.7 per cent by 2030 as a result of signing up to TPP."

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Stock Watch: McGrath

McGrath shares have slumped 60 per cent over the past year following a dismal sharemarket float. But are its shares worth a punt after Monday's latest selloff, sparked by a profit warning? Not so fast, says Bell Potter, downgrading the stock to a 'hold' and slashing the price target to 86 cents, from $1.20. The broker told clients it was more worried about McGrath's "large agent churn" than the low listing volumes cited by the company as the main reason for sinking earnings. "The key driver of the downgrades we have made to our McGrath forecasts over the past several months has been lower listing volumes which has been industry rather than company specific," the broker said, adding that this time, "We are more concerned about the large agent churn rather than the low listing volumes as it implies an internal issue that puts at risk the leverage we perceived the company to have to a recovery in listing volumes." Shares closed down another 5.6 per cent at 76.5 cents.

Market movers

Iron ore futures

Mining shares rallied hard in the afternoon, thanks to soaring Chinese steel and iron ore futures as traders bet demand will pick up following the Lunar New Year break. The most-active rebar on the Shanghai Futures Exchange jumped 4.1 per cent, while iron ore on the Dalian Commodity Exchange climbed more than 7 per cent at one stage. "Investors are probably building positions in belief that prices may go up after the holiday which will be supported by restocking," said Richard Lu, analyst at CRU consultancy in Beijing. Trading was more tepid in physical markets, with the iron ore spot price rising just 0.9 per cent to $US81.13 a tonne on Monday.

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BlueScope upbeat

Hot on the heels of Monday's Brambles shocker, BlueScope Steel's profit upgrade helped soothe some nerves ahead of the earnings season. The steel maker upgraded its first-half underlying profit forecast by almost 18 per cent, attributing the rise to the jump in steel prices as well gains in the North American building products business. It didn't hurt sentiment that ResMed posted strong numbers, well ahead of expectations. Traders said the overall feeling among equity investors on Tuesday was relief.

Greenback weakness

The greenback may be under pressure at the moment, but eventually the US dollar will strengthen again and the Federal Reserve will normalise policy at a faster rate than the market expects, according to Goldman Sachs chief economist Jan Hatzius. The strength of the US currency is "mainly based on interest rate differentials," according to Hatzius, who sees this continuing, with the Federal Reserve normalising policy while "the ECB and the Bank of Japan still can keep policy very easy for a long time to come". Goldman tips the Fed will raise rates three times this year to 1.5 per cent, higher than the median estimate of 1.25 per cent.

DUET doubts

DUET Group shares have come under a bit of pressure over the past sessions amid growing market concerns Canberra will block or impose restrictive conditions on Hong Kong's Cheung Kong Infrastructure Holdings' $7.5 billion takeover offer for the utilities group. The federal government announced a new infrastructure body on Monday that will check whether foreign-led bids for key assets, including power grids and ports, pose any national security risks. DUET shares slipped 0.35 per cent to $2.84 on Tuesday, well below CKI's $3 a share offer, after earlier in the session losing as much as 3.5 per cent.

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