Resources stocks lift as ASX grapples with low summer volumes

The Australian sharemarket rose for the first session in three, led by materials and energy stocks which were buoyed by a rally in commodity prices.

The S&P/ASX 200 Index added 9.1 points or 0.15 per cent to close at 6070.39. The NZX 50 Index added 0.3 per cent to 8424.91.

The confectioner Yowie appears to have delivered the first downgrade of 2018.

Photo: Gillianne Tedder

BHP Billiton rose 1.7 per cent to $30.18, Rio Tinto 2.2 per cent to $78.19, and Fortescue Metals Group 3 per cent to $5.08. The resources stocks offset a slump in financials, which fell by 0.14 per cent.

Auckland International Airport shares advanced 0.5 per cent to $6. The business is looking to provide some strategic clarification on its one-quarter interest in North Queensland Airports before its interim results in February, with a preference for a sale.

Fastbrick Robotics fell almost 5 per cent to 19.5¢ upon naming a new chief financial officer, Aidan Flynn, who joins from Carnegie Clean Energy. The $200 million robotic constructor has made two senior leadership appointments in the past month.

DuluxGroup fell 0.8 per cent to $7.60. Its joint-venture interest will sell most of its coatings portfolio in Hong Kong and mainland China to Yip's Chemical Holdings Limited. The sale follows a strategic review. The paints group sees 2017-18 earnings before interest and tax for Hong Kong and China "broadly in line" with 2016-17.

Maca Limited, up 0.9 per cent to $1.73, agreed to support a proposed recapitalisation of Blackham Resources. The contractor is the mining services provider to gold explorer Blackham, which is in voluntary administration.

Shares of listed wood fibre processor Midway were down 3.5 per cent to $2.48. First-half earnings were lower than expected because of a delay in export shipments, but Midway still sees its earnings target being met for 2017-18, even after accounting for the impact of a stronger Australian dollar.

US stocks rose in the first session of the new year and the Nasdaq closed above 7,000 for the first time on Tuesday as investors were optimistic that 2018 will bring more gains for the market.

The Nasdaq, driven by gains in Apple, Facebook, Amazon and Alphabet, breached 6,000 points in April of last year. The S&P 500 also hit a record high close. Besides technology, S&P consumer discretionary, healthcare, energy and materials indexes all were up more than 1 percent on the day.

Major stock indexes closed out 2017 with their best performances since 2013. Many investors say the rally could continue this year with help from the recently approved US tax overhaul that is anticipated to boost profits as well as the economy.

Japan's equity market was closed.

What moved the market

Big dollar

The US dollar sank to a three-month low as rising commodity prices reignited bets that the global reflation trade will take hold in 2018, dimming the greenback's appeal relative to currencies of faster-growing economies. The US currency fell against most major and emerging-market counterparts on Tuesday as the Bloomberg Commodity Index reached its highest level in about 11 months. Combined with reports showing strength in Chinese and European manufacturing, there is probably more pain ahead for the US dollar as investors anticipate money flowing into other economies. China's central bank raised the yuan fix to the strongest since May 2016.

Nine Inch Nails

The S&P GSCI Industrial Metals Index jumped to its highest level in nearly five years, and is now up by around 55 per cent since its nadir in early 2016, Capital Economics's Liam Peach writes. The rally is consistent with stronger activity data out of China, where the Caixin manufacturing purchasing managers index for December jumped to 51.5, more positive sentiment, and capacity cuts. Capital is cautious on the outlook this year, when growth in global commodity demand is unlikely to pick up sharply as it did in 2017, and tighter monetary conditions are likely to reduce credit growth in China.

Timber

The battery commodities cobalt and lithium were the star commodities of 2017, but HSBC finds rich gains were also had in barley (up 44 per cent), lumber (up 37 per cent), and wool (up 30 per cent). Global barley production is forecast to contract by around 4 per cent in the 2017-18, mainly due to a sharp fall in Australian production. Stellar growing conditions in 2016-17 saw output surge, while a return to more normal conditions is projected to lead to a 40 per cent decline in Australian output. As for lumber, prices have surged on continued growth in Chinese demand, along with new restrictions on domestic production.

Youch

The first downgrade of 2018 appears to come from confectioner Yowie Group which crashed 30 per cent to 14.5¢ a share. Mark Schuessler immediately replaces Bert Alfonso as CEO after delivering investors a brutal trading update with downgraded sales growth guidance for 2017-18 to 17 per cent, from 55 per cent. First-half North America sales were $US8.2 million, down 11.7 per cent on last year because of the disappointing launch of the lower-priced Discovery World brand, late arrival on Canadian shelves, and a softer quarter for the chocolate category. Yowie also appears to have suffered from its largest US customer scaling back "feature activity".

Stock watch: Origin Energy

Morgan Stanley raised its share price target for Origin Energy to $10.88 from $8.88 and maintains its "overweight" recommendation. The broker outlines five factors favouring the stock in 2018, including benefiting from a planned spending reduction at the $25 billion Australia Pacific LNG project in Queensland. Beyond that, Origin has a profile of improving margin within its gas business in a tight domestic market for gas; benefits from rising retail energy prices; and stands to gain from the falling cost of renewables. Finally, its market multiple is still being positively re-rated to 14.8 times earnings over the last half from a low of 12.4 times. Morgan Stanley's price target implies a 2018-19 price-earnings multiple of of 17.2. Origin shares traded at $9.55, up 1.2 per cent on Wednesday.

With Reuters and Bloomberg

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