Australian shares have rebounded from 12-month lows touched in the back end of last week, with every sector on the benchmark index closing in the black on Monday.

The S&P/ASX 200 Index closed 63 points, or 1.1 per cent, higher at 5728.2, while the broader All Ordinaries rose 54.2 points, or 0.9 per cent, to 5813.8.

“Having fallen roughly 11 per cent from their August high, Australian shares had become technically oversold and due for a bounce,” said AMP Capital chief economist Shane Oliver.

“Value has been restored and market pricing looks to be below that, consistent with the outlook for ongoing modest profit growth and continuing low interest rates.”

The healthcare sector was the best performing on the market on Monday. CSL led the market, lifting 3.7 per cent to $183.40, adding 10.9 points to the index alone. Mayne Pharma closed 5.7 per cent higher at $1.11 while ResMed advanced 3.7 per cent ot $14.78. 

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It wasn’t all good news for sector however, with Primary Health Care investors continuing to look for the exit after digesting Friday’s news that the company would compensate employees $18 million after botching their pay as far back as 2011. Its shares closed 3.2 per cent lower at $2.45.

There was broad positivity from most of the index heavyweights. Woolworths lifted 2.5 per cent to $27.98, Wesfarmers rose 0.8 per cent to $45.95, Telstra advanced 2 per cent to $3.11 and Macquarie Group closed at $112.81, up 1.5 per cent.

The major banks also led the market higher with some modest gains. Commonwealth Bank rose 1.3 per cent to $66.64, Westpac lifted 1.2 per cent to $26.28, ANZ climbed 1.2 per cent to $25.20 and NAB closed the session 1.1 per cent higher at $24.96.

Emeco Holdings recorded its eighth straight loss with the mining equipment rental business closing just two sessions in the black of the last 16. Its shares fell 8.8 per cent to 26¢ on Monday. 

BWX shares fell 16.2 per cent to $2.80 after the company flagged a hit to earnings on the back of the failed management buyout by former CEO John Humble and former finance director Aaron Finlay in partnership with Bain Capital Private Equity. The company said it expected EBITDA for the 2019 financial year to be broadly in line with 2018 financial year’s earnings of $40.3 million. Consensus forecasts had been expecting earnings of $47.5 million.

Stock watch

Appen

Bell Potter downgraded its price target for Appen on the back of the company’s recent poor share price performance. While the broker did lift its 2018 EPS forecast by one per cent on the back of currency movements, it said there was a negligible change in its 2019 and 2020 forecasts, assuming an average Australian/US dollar exchange rate of US75¢. The broker is continuing to forecast strong double digit growth in both EBITDA and NPAT for both years. Analyst Chris Savage flagged some perceived risks in revenues from Facebook – Appen’s largest customer – due to the large reduction in its 18-29 year old users. Appen’s share price has fallen 34.2 per cent since hitting a record high September 3. As a result of the market movements and revenue hits, Bell Botter downgraded Appen’s target price by 21 per cent from $14.50 to $11.50.

What moved the market

Yields and equities

The 2-year US Treasury yield has barely moved in response to the ongoing weakness in the US sharemarket, leaving many to wonder why. With many saying that fears about the economic outlook have weighed the US equity market in recent weeks, that same fear doesn’t appear to have been felt in the bond yield. “It is striking how little it has moved recently given the ongoing slump in the S&P 500,” said Capital Economics market economist Oliver Jones. “We suspect that it will fall significantly in 2019, though, as the strength of the US economy fades and the Fed stops hiking rates.” He added that many believe the slowdown will not happen until 2020 or 2021.

Wheat

Wheat futures shot higher on Friday after Egypt purchased US wheat, a sign that America’s grain is becoming more competitive globally. Egypt’s state grains buyer, the General Authority for Supply Commodities (GASC), purchased 470,000 tonnes of wheat, including one 60,000-tonne cargo of U.S. wheat, having not bought US wheat at a tender since May 2017. “It confirms that the US is the alternative supply source…,” said CBA’s agri commodities strategist Tobin Gorey. “And to a destination that nowadays rarely buys US wheat.” Chicago Board of Trade December wheat rose 18 cents to $5.05-1/4 per bushel, lifting from a nine-month low. 

Chinese Yuan

The yuan traded with some volatility in the back end of last week after data showed profit growth at the country’s industrial firms slowed for the fifth consecutive month during September. Sales of raw materials and manufactured goods retreated during the month, a sign that domestic demand in the world’s second biggest economy is cooling. Industrial profits rose 4.1 per cent from a year earlier during September to 545.5 billion yuan, less than half the 9.2 per cent figure in August, as the slowest month since March. The renminbi fell as much as 0.3 per cent against the US dollar on Friday, hitting its lowest point against the greenback since January 2017.

Oil

Oil prices softened in the back end of last week as investors looked beyond risks surrounding Saudi Arabia’s supply, although analysts believe those risks still remain. “Oil prices continued their decline last week as volatile market conditions spurred risk-off sentiment resulting in a crude sell-off. Investors seemingly ignored concerns that US sanctions on key Saudi elites could spark an oil supply retaliation,” said RBC Capital Markets’ oil and gas analyst, Ben Wilson. “The dilemma remains with the Kingdom; increase supply of oil to appease White House concerns over rising gasoline prices or restrict supply to support prices.”

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