Telstra leads ASX higher as Trump trade deflates

Out-of-favour shares such as Telstra rebounded to lead the sharemarket higher on Thursday. Photo: James DaviesShares lurched higher in a quiet trading session as the frantic “Trump trades” that shook up financial markets over the past week faded further.
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The S&P/ASX 200 index ended the day 0.2 per cent higher at 5338.5, after sliding as much as 0.8 per cent in early trade following losses on Wall Street.

Battered yield-sensitive bond proxies such as Telstra and Transurban, which had been sold off on speculation that ambitious stimulus plans by a Trump administration would lift inflation, were among the winners of the day as global bond markets continued to recover.

The yield on Australia’s benchmark 10-year bond fell further to 2.574 per cent, from the 10-month high of 2.737 per cent it had struck on Tuesday (bond yields and prices move in opposite direction), but traders doubted the bond recovery rally would last much longer.

“The momentum is clearly in favour of rising (bond) yields and a continued sell-off for bond proxies, so this is likely only a short-term reprieve for distressed investors in these stocks,” said Atlantic Pacific Securities advisor Gary Huxtable.

Still, on Thursday bond proxies enjoyed their moment in the spotlight, with Transurban rising 2.5 per cent, Duet Group up 2.3 per cent and Westfield gaining 1.4 per cent.

Telstra provided the biggest tailwind for the benchmark index, rising 2.5 per cent after the telco reaffirmed its earnings guidance and flagged $1 billion in cost cuts over the next four years.

The energy sector was the biggest loser after oil prices dropped, while banks were also sold off following drops in the sector on Wall Street. US banks had been among the biggest winners since the US election on rising yields as well as hopes President-elect Donald Trump will axe regulation.

There was still real uncertainty as to what a Trump administration and its plans meant for bonds, equities, interest rates, said Bell Potter’s director of institutional sales and trading, Richard Coppleson.

“Look plenty are bearish – I’m not. I still see markets a lot higher in six weeks,” Mr Coppleson said, noting that he expects a 5 per cent rally in the ASX before the year ends.

Mr Coppleson predicted the rally would be driven by the heavyweights of the market, which until a few months ago had been laggards.

“Not many have noticed, but the top 20 have been seeing flows” out of other ASX200 stocks and out of small caps, he said, adding that the blue chips had been quietly outperforming since September. Stock of the day: Isentia

Isentia shares slumped the most on record after the market intelligence company shocked investors with a profit warning due to weakness in its content marketing unit. The stock fell a whopping 26.8 per cent to $2.38 after Isentia said first-half pre-tax earnings (EBITDA) were expected to be lower than last year’s, but full-year revenue and EBITDA would likely grow in the “high single-digit” range. The company added that in part due to “decisions made in regards to strategy”, its content marketing unit would report an overall loss.

The stock, which listed two years ago, has plenty of fans, including well-known fund manager Roger Montgomery who said in July the business had “plenty for investors to get excited about”. Analysts have also been mostly upbeat about the stock, with five rating it a ‘buy’ and one a ‘hold’, as well as an average price target of $4.18, but expect some revisions over the following days. Market movers

Jobs shaky

The unemployment rate remained at 5.6 per cent in October, despite fewer jobs being created than expected. Economists said that despite surprisingly strong growth in full-time jobs, the Reserve Bank was unlikely to interpret the numbers as a sign of labour market strength as measures of spare capacity, such as the composition of employment, the employment to population ratio and hours worked, all remained soft. The Aussie dollar initially slipped slightly on the numbers but recovered in late trade to US74.80¢.

Gold recovers

The precious metal moved higher on Thursday as a rally in the US dollar showed signs of fatigue after the currency hit its highest in nearly 14 years against a basket of currencies. Spot gold was up 0.2 per cent at $US1227.25 an ounce in late Asian trade. Traders said that after last week’s sell-off the metal had found a bottom around $US1220, but that there were few impulses around to drive it higher, which should sideline investors.

Goodman’s strike

Industrial property giant Goodman Group received its first strike against its remuneration report, after investors followed advice by proxy advisers ISS and CGI. The $11.3 billion company had granted long-term performance rights as part of a move away from fixed pay and cash bonuses. Part of the dispute was about how the size of the performance rights are calculated and how the cost of these bonuses affected the value of the company. But shares rose 1.7 per cent to $6.43 after management reaffirmed guidance and flagged a further reduction to gearing.

Bull market doubts

Billionaire bond investor Bill Gross said “populist” President-elect Donald Trump will fail to deliver a bull market in equities and that the savage global sell off in bonds will now likely “plateau”. Gross argued that while lower taxes could result in increased spending in the economy, the higher budget deficits that are expected to result from the tax cuts will also push interest rates and prices higher, leading companies to pay more for their goods and investments. That in turn would cut into earnings and price-to-earnings ratios.

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