shock chinese trade data puts paid to the opening rally on the asx 1287072015

Australian stocks closed flat Monday as weaker than expected trade data out of China caused a sharp fall in the S&P/ASX 200, with the materials sector worst hit. It was yet another session when the index failed to move above the psychological 6,000 level.

In market action, stocks surged in the opening hour of trade and the S&P/ASX 200 hit a high of 5,996.40 before making an about turn into a sharp downtrend that lasted till the end of the session.

“China data is giving everyone the chills at the moment,” Macquarie Equities division director Lucinda Chan said, according to The Australian. “Growth is obviously easing way back,” she added.

Indices and sectors

The benchmark S&P/ASX 200 on Monday fell 8.1 points, or 0.1 per cent, and closed at 5,960.3, while the broader All Ordinaries index was down 7.3 points, or 0.1 per cent, at 5,928.1.

The chief gainers amongst sectors were telecommunications services (+0.83 per cent), healthcare (+0.67 per cent), energy (+0.52 per cent) and utilities (+ 0.45 per cent). The losing sectors were materials (-1.42 per cent), information technology (-0.91 per cent), and industrials (-0.58 per cent).

Stocks

Miners were the worst hit sector yesterday. BHP Billiton Limited (ASX:BHP) slumped 2.39 per cent to AU$29.42, Rio Tinto Limited (ASX:RIO) fell 2.79 per cent to AU$55.30, and Fortescue Metals Group Limited (ASX:FMG) slipped 2.20 per cent to AU$1.77.

Analysts at Citigroup issued a very bearish report on iron ore yesterday, expecting iron ore prices to decline to US$37 per tonne in the second half of this year, and stay around US$40 per tonne until end 2018. “Production plans of Big 4 miners remained largely intact with Rio and BHP revving up expansions and Vale’s southern expansion starting up. Roy Hill and Minas Rio will also be ramping up production of nearly 80 Mt/y of combined capacity,” wrote Citi analyst Clarke Wilkins and team, as reported by Barron’s. City downgraded BHP Billiton Limited (ASX:BHP) and Rio Tinto Limited (ASX:RIO) from Buy to Hold with price targets of AU$31 per share and AU$55 per share respectively.

According to ABC, shares in transportation company McAleese Ltd (ASX:MCS), which was contracted to haul iron ore for Atlas Iron Limited (ASX:AGO), were halted for trading. Atlas Iron Limited (ASX:AGO) on Friday decided to suspend production at its mines in Western Australia’s Pilbara region, and McAleese is reportedly reviewing the implications of the development on its business and operations.

Energy stocks were higher following the rising trend in crude prices. Woodside Petroleum Limited (ASX:WPL) was up 0.20 per cent at AU$34.97, Origin Energy Ltd (ASX:ORG) jumped 0.33 per cent higher at AU$12.02, Oil Search Limited (ASX:OSH) moved up sharply by 1.94 per cent to AU$7.88 and Santos Ltd (ASX:STO) gained 1.60 per cent to AU$7.64.

With the exception of National Australia Bank Ltd. (ASX:NAB), which closed higher by 0.13 per cent at AU$39.57, the other three major banks all closed in the red. Commonwealth Bank of Australia (ASX:CBA) was down 0.03 per cent at AU$94.10, Westpac Banking Corp (ASX:WBC) shed 0.28 per cent to AU$39.77 and Australia and New Zealand Banking Group (ASX:ANZ) declined 0.16 per cent to AU$36.74.

Retailers fared mixed yesterday. Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was down 0.41 per cent at AU$44.22, Woolworths Limited (ASX:WOW) gained 0.30 per cent at AU$29.65, Caltex Australia Limited (ASX:CTX) was up 0.11 per cent at AU$34.92, and Myer Holdings Ltd (ASX:MYR) gave up 3.10 per cent at AU$1.40.

In telecommunications, M2 Group Ltd (ASX:MTU) surged 10.74 per cent to close at an all-time high of AU$11.55 on news it will acquire Call Plus Group, an Internet services provider in New Zealand. Telstra Corporation Ltd (ASX:TLS) was up 0.64 per cent at AU$6.32, iNet Limited (ASX:IIN) slipped 0.90 per cent to AU$8.84 and TPG Telecom Ltd (ASX:TPM) jumped 1.38 per cent to AU$9.55.

Economic news, currency and insight

Official Chinese data showed that China’s trade surplus fell 62.6 per cent in March following a sharp fall of 14.6 per cent in the value of its exports, which was larger than expected and showed that the world’s second-largest economy was weakening. According to The Australian, analysts had expected exports to grow 8.2 per cent. Imports declined 12.3 per cent compared to expectations of a fall of 11.3 per cent.

The World Bank’s economic update on East Asia and the Pacific warned that Chinese growth would ease from 7.4 per cent in 2014, to 7.1 per cent in 2015, 7 per cent in 2016 and 6.9 per cent in 2017, according to The Guardian. The bank warned that Chinese economic slowdown could adversely affect Australia and its neighbours: “The significant negative impact on Australia and New Zealand, among the world’s largest commodity suppliers, would lead to indirect spillovers on the Pacific Island countries, given their tight links through trade, investment and aid.”

Though the gloom from the Chinese data put paid to the chances of the S&P/ASX 200 to rise above 6,000 yesterday, all is not lost according to National Australia Bank chief economist markets Ivan Colhoun. "If global sharemarkets keep rising, that will likely lift Australian shares to a new seven-year high despite all the worries about the mining sector and the lack of an April rate cut," Mr Colhoun said.

The Australian dollar was hit hard by the shock Chinese trade data, falling in offshore trade to within 0.2 US cent of a new seven year low, according to Business Spectator. At 07:20 this morning (AEST), the Australian dollar was trading at 75.87 US cents, down from 76.01 US cents on Monday.

On Wall Street, stocks closed lower on apprehensions that the strength in the US dollar and the cut in oil prices would take a toll on first-quarter earnings of US companies. "There is some trepidation about what the earnings announcements are going to look like, and so investors are cautious," said John Carey, portfolio manager at Pioneer Investment Management in Boston, and quoted by Reuters. "Most people are thinking earnings are going to be weak due the strong dollar, lower oil prices and sluggish consumer spending due to the winter weather. But we'll see." The Dow Jones Industrial Average fell 80.61 points, or 0.45 percent, to 17,977.04; the S&P 500 dropped 9.63 points, or 0.46 percent, to 2,092.43, and the Nasdaq Composite eased 7.73 points, or 0.15 percent, to 4,988.25.

The Australian stock market is also likely to open weaker today given that at 06:45 this morning (AEST) the June ASX SPI200 Index (AP) Futures was trading lower by 8 points at 5,942.0.