The Australian sharemarket closed the week higher, despite slipping away from its post-election 11-year high as trade war concerns were mounting.
The S&P/ASX 200 Index rose 90.7 points, or 1.4 per cent, to 6456 this week, while the broader All Ordinaries Index added 85.4 points, or 1.3 per cent, to close at 6545.6.
"The week started with a bang as the Morrison miracle and an almost unanimous vote of confidence from traders on rate cuts from the RBA gave the market a shot in the arm," said Saxo Capital Markets Australia market strategist Eleanor Creagh.
"But escalating trade tensions and stalled negotiations caught up to the ASX by week end", she said, pointing to US President Donald Trump's persistent threats against China, and China's vows to retaliate.
The big four banks led the market gains, rallying on Monday on the back of the election result before adding to those gains after APRA planned to scrap a key home loan rule, which will increase the amount of money people can borrow. Westpac closed the week 10.7 per cent higher at $28.12, Commonwealth Bank added 7.3 per cent to end at $78.18, ANZ rose 7.7 per cent to $27.84 and NAB advanced 7.9 per cent to $25.81.
Private health providers were also buoyed by the election result. Medibank Private climbed 12.2 per cent to $3.23, NIB Holdings ended the week 14.1 per cent higher at $6.72 and Ramsay Health Care advanced 8.3 per cent to $70.25.
Companies exposed to the building sector also jumped during the week. Building products producer CSR added 20 per cent to end the week's trade at $4.14, Boral climbed 11.5 per cent to $5.23, GWA Group advanced 15.8 per cent to $3.60, Adelaide Brighton closed 13.4 per cent higher at $4.24 and developer Stockland rose 13.2 per cent to $4.45.
Retailers also welcomed the Coalition's election. Super Retail Group climbed 13 per cent to $9.23, JB Hi-Fi added 8.7 per cent to close at $27.81 and Harvey Norman rose 9.4 per cent to $4.19.
The price of oil slumped in the back end of the week as concerns about the global economy mounted in the face of the escalating trade war, pushing the energy sector lower. Woodside Petroleum fell 4 per cent to $35.70, Origin Energy declined 4.8 per cent to $7.51 and Santos dropped 4.3 per cent to $6.98.
The information technology sector was the worst performer on the market this week, as trade war jitters led investors to sell out of riskier assets. Technology One fell 22.9 per cent to $7.17 after its results fell short of the market's lofty expectations and Computershare declined 6.5 per cent to $16.62 after reaffirming its guidance, also disappointing investors.
Morgans increased its price target on Aristocrat Leisure following its strong first-half result, saying its North American division was a standout. The broker said even with the result benefiting from a lower exchange rate and tax rate, the result was still ahead of its expectations and consensus. "Aristocrat continues to retain a dominant position in the North American market and witnessed strong growth in outright platform sales and installed gaming operations," said analyst James Lawrence. "Importantly the company has a significant opportunity in adjacent markets in North America with the moves into the Washington CDS and Video Lottery Terminal markets showing good early signs."
What moved the market
US dollar and trade
A firmer US dollar could undermine global trade, according to Morgan Stanley analysts, who point to the historical trend between the greenback's strength and movements in world goods exports. "This relationship suggests that robust trade growth and a strong US dollar are unlikely to coexist for long," the analysts noted. "Weak corporate balance sheet quality only exacerbates this. The stronger the US dollar is, the slower global trade and manufacturing activity may become. From this perspective, euro weakness may not be as positive for European manufacturers like Germany as one might think."
Oil prices fell heavily on Thursday as the trade war tensions racheted higher, adding fears that demand would dry up and combine with soaring supplies in the US. On Wednesday, the US Energy Information Administration reported US crude inventories rose to their highest level since mid-2017, pushing prices slightly lower. On Thursday, fears the trade war would be more protracted pushed the price ever lower, with crude prices record their steepest intraday decline since December 24. Crude oil prices still remain firmly elevated for the year-to-date.
The Australian dollar firmed against the US dollar on Thursday, rising back above US69¢, even as the trade war tensions between the US and China escalated. "The usual pattern when such events occur is for the US dollar to rise and Australian dollar to fall. The opposite occurred [on Thursday night]," said CBA chief currency strategist Richard Grace. "Making the Aussie's lift even more impressive was [that] the lift came despite a large drop in crude oil prices because of increased supply and inventory. Australia’s LNG export prices are tied to the price of crude oil."
Interest rate futures indicated an increased likelihood the cash rate would be at 0.75 per cent on Friday after Westpac chief economist Bill Evans said he expected the RBA to cut the cash rate three times before the end of the year. "Westpac is now forecasting three cuts in 2019 in June; August and November to push the cash rate from 1.5 per cent to 0.75 per cent and to hold at that level through 2020," he said on Friday.