Markets Live: ASX eyes 6000 as shares jump

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Anticipation of US corporate tax cuts combined with strong European leads in the wake of the French election to send the ASX pushing strongly higher on Wednesday. 

In broad-based gains, the benchmark S&P/ASX 200 closed up 0.7 per cent, to 5912.0, having traded as high as 59239 shortly after the open, while the broader All Ordinaries index rose 0.6 per cent to 5936.8.

The market is eying the 6000 level on the benchmark index. Tonight US President Donald Trump is expected to outline his tax plans, which could give Australian equities another boost. 

Katana Asset Management portfolio manager Romano Sala Tenna said the market was one solid day's trading away from the level. But it would take a robust plan to get there.

"There's a level of optimism built into the indices," he said. "Now things need to go right to maintain these levels. We need to see some follow-through on the Trump tax trade.

"Our view is there's a higher probability of it succeeding than otherwise, but there's no guarantee."

Financial stocks were responsible for most of Wednesday's solid showing. the big four banks rose between 0.5 per cent and 1.3 per cent. Macquarie Bank also saw some love, rising 2.6 per cent. 

Heavyweight mining stocks did their bit, with the exception of the gold miners who suffered as investors dumped safe havens for more cyclical asset classes.

Rio Tinto rose 1.1 per cent, Fortescue pushed up 1.3 per cent, while BHP Billiton added 0.6 per cent.

BHP's strong showing came despite it being cut to a sell at Goldman Sachs, and it lowering its production guidance across several commodities in its third-quarter update, said Mr Sala Tenna.

"The market was well-guided and well-versed in advance of the result, which is why they're up," he said. Meanwhile, another miner, Independence Group, was punished 3.4 per cent after a disappointing quarterly result. "They did miss where the market thought they'd be at," said Mr Sala Tenna.

Bluechips posted solid gains. CSL was up 1.2 per cent, Telstra rose 0.7 per cent, and Woolworths and Wesfarmers rose 1.2 per cent and 0.4 per cent respectively. 

Falling heavily were the gold miners, after the price of spot gold fell 1 per cent to $US1264.44 on Tuesday. Regis Resources, Newcrest Mining, Northern Star Resources were down 6.5 per cent, 4.9 per cent and 7.0 per cent respectively. 

A2 Milk Company rose 7.7 per cent to $3.20, an all-time high, after raising its full-year revenue guidance on strong sales.

Well here's an odd thing: copper is anti-bacterial. Yes, the metal.

Here are Bernstein metals and mining analysts Paul Gait & co:

Healthcare-associated infections kill more people in the US than diabetes and prostate cancer together. According to the UK government, superbugs could kill 10 million people across the world by 2050 (more than cancer), for an estimated cost of US$100 trillion.

What does it have to do with mining? It happens that copper has been identified as a serial bacteria killer. Evidence shows that copper is particularly efficient at killing six superbugs, including MRSA, E. coli and VRE, and is even being investigated in the prevention of the Ebola virus! Studies and trials have shown that bacteria die on copper surfaces in less than two hours, while they thrive for days (even weeks!) on stainless steel.

There has therefore been an increasing awareness of the role that copper could play in preventing infections, and a handful number of hospitals (for now) have been replacing plastic and stainless steel infrastructure with copper-coated equipment. There is obviously a higher associated cost of using copper, but it is more than offset by the cost savings from the prevented infections. The payback period is generally a matter of weeks.

In this note, we dimension the impact that this source of demand could have on the copper market. While the overall magnitude of the copper demand involved here (from hospitals only) is not huge, this highlights, once again, the importance of ever-wider sources of incremental demand, for a metal whose unique set of physical and chemical properties have long underpinned its use.

While the direct use in hospitals may be modest, the bigger issue would be the adoption of antimicrobial copper in other public spaces (schools, public transportation, gyms, etc.) and eventually in the domestic use.

While everything looks tickety-boo on the Wall St, those killjoys at Societe Generale are pointing out that US corporate debt is very high.

Here's SG's Andrew Lapthorne:

Regular readers will know will have been flagging the US debt issue for a long-time, but for many it is the dog that refuses to bark.

But with the IMF in its latest Global Financial Stability report joining the ever increasing list of organisations to be very worried about US corporate leverage (see the US Office of Financial Stability reports for others), the US corporate debt bubble is likely to regain centre stage.

The problem the US now faces is it has to normalise interest rates, but with the smallest 50% of companies already spending 30% of profits (and at peak EBIT) on interest rate costs, any move upwards is likely to push up interest costs to dangerous levels.

If EBIT was also to fall as a consequence, a large number of US companies could quickly find themselves in trouble. But if you fail to normalise rates, what is going to stop US corporates taking on even more debt? 

Global accessories company Furla Group is eyeing OrotonGroup's leading share of the Australian handbag market after buying back distribution rights from the Luxury Retail Group.

After opening 15 Furla stores in three years and lifting sales in Australia and New Zealand by 95 per cent in 2016 to around $30 million, Furla and Luxury Retail Group plan to open another four or five stores in the next year.

Luxury Retail Group managing director Nelson Mair says Furla sees scope for about 25 stores and is aiming to more than double sales over the next few years, taking on Michael Kors, Coach and Oroton, whose sales have come under pressure in recent years.

"We do covet the position of being the leading premium brand in this space," Mr Mair said.

"We think we can beat Oroton in terms of revenues on 25 sites," said Mr Mair, saying Furla's sales per square metre were high by Australian and global standards and the brand was popular with cashed-up Asian tourists as well as Australian consumers. "We do see a lot of opportunities to broaden the customer base."

Furla Group said  in Milan overnight that it would buy back its Australian distribution network from the Luxury Retail Group, which also has the Australian distribution rights for Balenciaga, premium accessories and jewellery brand Folli Follie and operates footwear chain Sneakerboy.

​Under the terms of the deal, which were not disclosed, Luxury Retail Group will continue to support Furla under a service agreement for the next three years.

Mr Mair, founder of upmarket menswear brand Rhodes & Beckett, and LRG partner Theo Poulakis, a co-founder of Harrolds, will remain on Furla Australia's board and will continue to oversee expansion in Australia and New Zealand.

"The Australian market is very important for Furla and crucial in our expansion plan," said Furla Group chief executive Alberto Camerlengo.

​"Since 2013, Luxury Retail Group has been the best key partner to work with as it perfectly embodies the Furla vision, values and DNA. This is the reason why the two LRG directors will remain as board members of Furla Australia."

Here's an interesting piece from the AFR:

Australia should halve immigration and undertake a massive transport infrastructure program funded with money effectively "created" by the Reserve Bank of Australia, says former NSW Treasury secretary Percy Allan.

The radical version of quantitative easing, which would challenge long-standing Reserve Bank opposition against the use of what many have called "helicopter money", would fix housing affordability, improve productivity and ease inequality caused by years of ultra-low interest rates around the world, Professor Allan says.

Warning that Australia's economy is rapidly running out of growth engines as the housing construction boom matures, Professor Allan says a key benefit of adopting a local version of quantitative easing, or money printing, for public works would be to ensure the currency falls below US65¢.

That, in turn, would benefit the very sectors that are set to take up the slack from the waning property and resources booms – tourism, agriculture and education, all of which he argues are being hampered by the currency's current levels around US75¢.

The remarks are part of an ongoing debate among policy makers over how to maintain Australia's quarter century of economic growth at a time when negative forces such as the ageing population, digital disruption and a tsunami of public and private sector debt threaten to kill off future living standards.

In a letter to the editor and in an interview with The AFR, Professor Allan insists the only real policy options for Australia are to curb population growth and adopt a "cost-free" method of funding transport links within and between the big cities.

He proposes having the federal government immediately slash skilled immigration from around 190,000 a year to 90,000, cooling annual population growth to 1 per cent from 1.5 per cent.

"To avoid any racist overtones the humanitarian component should be expanded," he says. "Significantly slowing Australia's population growth would reduce pressure on house prices, city congestion and stagnant wages".

Read more.

Asian stocks have extended a global rally after corporate results and hopes of US tax reform boosted optimism for global growth. Weakness in the yen have lifted Japanese equities for a fifth day.

The MSCI Asia Pacific index has climbed to its highest level since mid-2015. The yen has extended losses. The Canadian dollar maintained losses following Donald Trump's decision to slap a 24 per cent tariff on imported softwood lumber.

"Confidence has returned and the yen has fallen back in value," said Shane Oliver, head of investment strategy at AMP Capital Investors. "Markets seem a lot more relaxed. Globally, we're seeing a lot of risk-on."

Global equities jumped to an all-time high this month as European political risk abated and the US economy continues to show signs of improvement amid better-than-forecast earnings results. President Donald Trump is expected to unveil a tax plan tonight that would cut the upper corporate rate to 15 percent.

Risks remain as investors await central bank meetings this week in Japan and Europe. Tensions around North Korea continue to simmer. And in China, concerns of a crackdown from regulators has left the world's second-largest stock market trading near a four-month low.

Around the region:

• Japan's Topix index is up 0.9 per cent, climbing for a fifth straight day for the longest winning streak this year.
• Hong Kong's Hang Seng up 0.6 per cent
• New Zealand's S&P/NZX 50 Index increases 1.4 per cent, the most since November
• South Korea's Kospi index climbs 0.4 per cent
• The Shanghai Composite Index adds 0.2 per cent after climbing a similar amount on Tuesday.
• Futures on the S&P 500 Index are flat.

In commodities, gold is little changed at $US1264.44 an ounce, after dropping 1 per cent on Tuesday as investors turn attention to Trump's agenda to boost US growth.

Crude has resumed declines ahead of US oil inventories data tonight, losing 0.2 per cent to $US49.45 per barrel, after halting a six-day sell0off on Tuesday.

There are some more economist views trickling in around this morning's inflation number, and they aren't overly impressed.

While headline and core inflation is higher, JP Morgan's Ben Jarman sees evidence that Australia's weak inflation trajectory is further entrenched:

The details of today's report also were negative. There is no verve in bellwether measures of inflation that tend to drive the cycle, with most inflation accounted for by oil, seasonality, and administered prices. Indeed the ABS measure of 'market prices ex-volatile items' printed inflation of 0%q/q, and 1.0%oya. The bottom-up drivers of a sustainable core inflation recovery are not at evident at this point. Further, the few supportive elements active in recent prints, fuel in particular, and also home-building, should not be contributing much more from here. This suggests that medium-term headwinds to the RBA hitting the inflation target remain significant.

We see a genuine recovery in core inflation as a quite distant prospect, which biases the RBA to ease again. The timing on that will be dictated by how long it takes for distractions from the housing market to subside, and also the acuteness of the pressure from the labour market, which feeds into the RBA's mandate both directly ("welfare of the Australian people etc") and by dialing up the significance of today's inflation shortfall, from a capacity use and inflation expectations perspective.

Meanwhile, Citi's Tony Brennan says the low inflation number "would be a worry", were it not for the more pressing worry surrounding the housing market:

For the RBA its two main concerns are the subdued labour market and risks to financial stability. With these concerns pulling in different directions, we continue to expect no change in the cash rate this year. Any cash rate increase remains a distant possibility. We pencil in the first rate hike for Q4 2018 as the RBA seeks to move away from historically low interest rates only when there is a likelihood of trend growth that removes the negative output gap.

It's those other worries - such as an overcoooked property market - that will push rates higher this year, TD Securities' Annette Beacher says:

Mar quarter underlying inflation—the RBA's policy focus—rose from 1.5% to 1.8%/yr, but as some quarterly increases were less than expected there was an initial dovish market reaction.

Taking a step back, however, core inflation of 1.8%/yr is off the floor and entirely consistent with RBA's February projection of 2%/yr by mid year. Our base case is for a rate hike by year end on urgent financial stability grounds and needing to attract offshore capital, not due to runaway inflation. However, seeing annual domestic inflation accelerate from 1.7% to mid-target 2.6%/yr over the past year gives us some comfort.

Gold miners are getting pasted today in the rush back to the reflation trade. As investors bet on higher growth, inflation and rates - and as geopolitical risks are put on the backburner, at least in their minds - they don't feel the need to put their money into the precious metal.

After a brief hiatus, the reflation trade is about to enter stage two, and Aussie investors should stay long this theme, Credit Suisse's Hasan Tevfik says.

The reflation trade is a bet that inflation is set to pickup and has seen portfolio managers rotate into cyclical stocks, expecting upside should the global economy continue growing. 

But in recent weeks US bond yields have slid 30 basis points since their March highs, iron ore has slumped 30 per cent and equity markets around the world have pulled back 2-5 per cent. 

"However, we forecast reflation to return," says Mr Tevik, Australian equity strategist at Credit Suisse.

"The global macro backdrop remains buoyant with solid growth in China and a continued recovery in the US. In Australia, we face the looming headwind of a housing downturn but do not think this will be as sharp a drag on corporate earnings as many fear."

Foreign demand for housing, a modestly improving labour market and the recent boost in Australia's terms of trade bode well for a continued expansion in earnings and Mr Tevfik points to value stocks as the best corner of the market to scoop up the benefits. 

These Australian fundamentals, combined with the promised tax-plan from the United States Trump administration, has given investors new hope that inflation will pick up and stimulate equities further still. 

In the coming quarter, Credit Suisse expects rising earnings-per-share, rising index prices and falling price-to-earnings ratios to drive the earnings expansion in local equities.

While there is some discussion surrounding the compression between "expensive" and "cheap" stocks, Mt Tevfik expects further to go.

When the earnings expansion cycle began last September, commodities dominated the low price to book sectors while health care, industrials and technology were amongst the "high" group.

"Our work suggests it is too early to take profits on the value-trade despite the considerable valuation compression over the last 6-9 months," says Mr Tevfik.

"We continue to remain constructive on Aussie equities and stick to our ASX 200 target of 6000 by year-end. We highlight upside risks to our forecast."

Read more.

And here are the economists weighing in on this morning's inflation data, with Capital Economics' Paul Dales abandoning his call for further rate cuts:

The rise in underlying inflation in the first quarter, coupled with the RBA's financial stability concerns, dramatically reduces the chances of any further interest rate cuts.

Our forecast that the RBA would cut interest rates from 1.5% to 1.0% this year was based on our view that underlying inflation would not rise as fast as the RBA expected. When taken together with the RBA's valid concerns that cutting interest rates further would threaten financial stability, today's data suggest that underlying inflation is now at a level that the RBA will be willing to tolerate

 As such, we are no longer expecting the RBA to cut interest rates further. That said, price pressures and economic growth are not strong enough to warrant interest rate hikes. Interest rates are unlikely to rise above 1.5% this year or next year.

AMP Capital's Shane Oliver remains of the view that a cut is more likely than a hike:

CBA economist Michael Blythe thinks the low point for inflation might be behind us:

The main message from the CPI is that inflation rates remain low ‑ but the low point is behind us.  And inflation rates will grind slowly higher from here.  The emphasis is on the "grind", however.  It is difficult to get concerned about inflation prospects when wages growth and labour costs remain very well contained. 

Nevertheless, the housing component of the CPI may only add to RBA concerns about the housing market more broadly.  New dwelling purchase costs, closely correlated with house prices, was highlighted by the ABS as one of the most significant price rises in Q1. 

The gap between headline and underlying inflation largely reflects high petrol prices.  Rising petrol prices (up 12.9% over the past two quarters) are now having a negative impact on consumer spending power.  In fact spending on areas that are largely outside consumer discretion (such as fuel, health, insurance, utilities etc) is on the rise (up 1.6% in QI and 4.2% over the past year).  Trends in this "pain spend" influence household's perceptions of financial pressures, with a flow‑on to sentiment and spending appetite.

Barclays's Rahul Bajoria reckons rates wil be higher in a little over a year's time:

We think the RBA is likely to wait for CPI inflation to be consistently above 2% in the next 6-12 months before signalling a shift in its stance. We also believe that a stronger nominal and real GDP growth path should result in employment continuing to improve, working hours being extended and aggregate wage bills rising.

We forecast the hiking cycle to begin with a 25bp rate increase at the May 2018 MPC meeting, followed by two more hikes, of 25bp each, at the August and November 2018 meetings

"We recommend investors sell into the bid..."

They're the fateful words from Macquarie research analysts this morning, who reckon Spotless shareholders should take the $1.15 a share on offer from Downer EDI. 

"SPO's main defence is now around base business performance and to this end it will provide FY17 and FY18 guidance as part of Target statement to be released on 27 April," the analysts said.

"We are at lower end of SPO's $80-90m FY guidance (reported basis) and forecast 13% eps growth in FY18." 

It comes after Spotless revealed a global facilities services company had spent three weeks inside the cleaning and catering company, however failed to come up with a binding bid.

So with the rival bidder gone, Macquarie said Spotless had one less form of defence. 

It means all eyes are now on Spotless' target statement, due on Thursday, and acceptances into Downer's offer which is scheduled to close on May 15.

"From a DOW [Downer] perspective, the risk is now that the SPO offer becomes protracted and that it doesn't gain full control given a lack of SPO board support," the analysts said. 

"At the same time, we see it as unlikely that DOW raises its bid given an absence of another acquirer, 59% initial bid premium and underwhelming reaction to its SPO offer." 

Cricket Australia is facing a major revenue crisis after global investment bank UBS urged broadcast partner Nine to axe cricket coverage because the network is losing up to $40 million every year televising the sport.

Nine has broadcast cricket every summer since Kerry Packer famously bid for the sport in the late 1970s, and is renegotiating for 2018-2023 broadcast rights.

UBS media analyst Eric Choi believes Nine Entertainment Co should walk away from negotiations if Cricket Australia's price is too high.

"The existing cricket deal costs Nine circa $100 million per annum," he wrote in a note to clients. "We estimate the existing deal likely only generates gross revenues of $60-$70 million."

"We think it would seem logical for Nine to enter negotiations with the following mindset: i) More cricket content at no additional cost, or ii) to step away from the cricket contract."

A lack of a competitive bidding process for the TV rights would be a disaster for Cricket Australia, and comes as the sport attempts to re-sign all its major sponsorship contracts over the next 24 months. CA has already lost Victoria Bitter, and Commonwealth Bank is believed to have drastically cut its sponsorship from about $13 million to just $4 million. And KFC, which has been a major partner since 2003, will be renegotiating its sponsorship deal at the end of next year.

In addition, CA is in tough pay negotiations with cricketers, with an existing pay deal expiring on June 30.

Ben Amarfio, CA's executive general manager for broadcasting, digital media and commercial, said "very positive discussions" with Nine about the next cycle of media rights had begun.

"We hope to begin formal discussions shortly," he said. "We are not concerned that there will be a lack of interest for our media rights. Live sport, and cricket in particular, continues to be a premium asset."

Read more.

AFR companies editor James Thomson thinks BHP doth protest too much:

This does not feel like your ordinary, run-of-the mill quarterly production report from BHP Billiton.

Particularly when the commentary from chief executive Andrew Mackenzie, which is usually quite restrained and limited, starts with this statement: "Everything we do at BHP Billiton is designed to create value for all of our shareholders, today and for the long term."

Mackenzie might not mention Elliott Management in his comments but the shadow of the US hedge fund that has so spectacularly demanded a series of governance and strategic changes of Mackenzie and the BHP board inevitably hangs over this report.

And the shadow makes Mackenzie's statement feel like something of a riposte to billionaire Paul Singer, the man behind Elliott. One reading might be: We know this company better than anyone and we're pulling every lever we can for shareholders.

The attention-grabber from the report is news that BHP will again try to sell its gas-rich Fayetteville shale operations in Arkansas, as well as acreage in the southern part of its Hawkville operations.

Elliott, notably, called for BHP to demerge its US petroleum assets as part of its manifesto. So there are two ways to read the new information BHP provided on Wednesday about the shale operations.

Firstly, Mackenzie is making it clear that he and his team are looking for every possible way to monetise a shale business that has been a $US20 billion sore point for BHP shareholders for some time.

But secondly, the shale news also suggests BHP is going to be even more forthright about sharing its thinking on the value that Mackenzie and his team are unlocking through the business – be that through growth options, productivity improvements or lower costs, which he says have now dropped 40 per cent.

In this vein, BHP has notably added a section titled "Progress on our roadmap to grow shareholder value and returns" to this quarter's report. It runs through a host of initiatives, including the approval of the Mad Dog 2 oil project and the new conveyor in its Queensland coking coal operations, and productivity improvements in truck utilisation in the New South Wales coal fields.

Here's what the Twitterati are saying. Not much excitement, it must be said:

Headline inflation is back within the RBA's target band for the first time in two years, at 2.1 per cent over the year to March, according to ABS data. That's up from 1.5 per cent in the December quarter numbers, but below the 2.3 per cent consensus forecast.

The consumer price index (CPI) added 0.5 per cent over the March quarter, below the 0.6 per cent expected by economists. Core inflation as measured by the trimmed mean, which strips out volatile items such as food and energy and which is the central bank's preferred measure of inflation, was 0.5 per cent over the quarter, in line with forecasts, while the annual reading moved to 1.9 per cent from 1.8 per cent prior.

Shares have got a little leg up on the data, while the Aussie dollar is off a touch. It was 75.45 US cents before the release, and is now around 75.2.

Ardent Leisure has replaced chief executive Deborah Thomas with former Nine Entertainment chief operating officer Simon Kelly a month after corporate raiders Gary Weiss and David Baffsky built up a stake in the troubled theme park and arcade operator.

Mr Kelly will become chief operating officer and managing director on July 1, Ardent said this morning. Ms Thomas will take the roles of chief customer officer for the group and chief operating officer for its Australasian business.

Under Ms Thomas's watch the company suffered a fatal accident at its Dreamworld, Queensland theme park in October and reported a weaker-than-expected performance at its US Main Event Entertainment business in February,

The transition was initiated by Ms Thomas, after the completion of a review of the group's global growth strategy and following the divestment of its non‐core health club and marina assets, the company said.

The company also said chief financial officer Richard Johnson had resigned to return to the UK and be with his family. Mr Johnson's resignation was "independent of the CEO transition," Ardent said.

The appointment of Mr Kelly, who has also held senior executive roles at Goodman Fielder, Aristocrat Leisure and Virgin Australia, comes after the purchase of a 5.7 per cent stake in the company by Ariadne, the vehicle of Mr Weiss and Mr Baffsky.

They bought into the company that shed more than one-fifth of its value on the day of its February interim results announcement and were thought to be pushing for management change.

"We are pleased to announce this significant boost to our management team," Ardent chairman George Venardos said.

"Simon, who will transition to the role over the next few months with the support of Deborah, brings to the group a wealth of experience in the management of multinational operations, financial control and the entertainment sector."

Ardent shares are up 0.8 per cent at $2.02.

A2 Milk Company has confirmed that a strong start to June half sales will mean revenue for the full year will be much better than first anticipated.

The upgrade means the company now expects sales for 2017 financial year will be $NZ525 million, well above the consensus of analysts on Bloomberg of sales of $NZ511 million.

The company had said in February that it expected sales in the second half would be lower than those of the first, due to the timing of major sales events such as Singles Day in China.

But in a statement this morning the company said "since the update provided on February 15, demand for a2 Platinum infant formula has exceeded a2's expectations.

"Demand has been particularly strong in Australia, but also through the cross border e-commerce channel into China. The company confirms that for the nine months ended March 31, 2017, group revenue was NZ$388.5 million."

A2 said it has been working closely with its infant formula manufacturer, Synlait Milk, to "uplift the production schedule for the remainder of FY17."

A2 stock is trading at an all-time high, and has risen over 80 per cent in the past 12 months. It's up another 6 per cent this morning at $3.15.

Shares have followed through on their solid offshore lead, with banks leading the broad gains as the benchmark index builds for another assault on the elusive 6000-point mark.

The ASX 200 is up 40 points, or 0.7 per cent, at 5914, as local investors take their cues to get back in. The Aussie is steady at 75.4 US cents ahead of inflation figures due in 45 minutes' time.

CBA and ANZ are up 1.3 per cent, Westpac 1.1 per cent and NAB 0.9 per cent. Macquarie has been getting more love as it adds 2.2 per cent.

Bluechips are flying in the broad uplift: CSL is up 1.1 per cent, Telstra 0.8 per cent and Woolies and Wesfarmers on either side of 0.5 per cent. Energy stocks are well supported, with Woodside ahead 1.2 per cent.

BHP reported its quarterly production numbers (see below) and the stock is 0.8 per cent up. Rio is up 1.6 per cent and Fortescue a more modest 0.4 per cent.

Gold miners are getting hammered amid a re-invigorated reflation trade, with the stocks filling the morning's worst performers. Best early is A2 Milk as it releases a trading update. We'll try to get something up on that soon.

Investors were breathing a sigh of relief that Donald Trump averted any immediate trade showdown with China, but disturbing signs are emerging of a new unlikely trade war between the United States and Canada.

Mr Trump's Commerce Secretary Wilbur Ross announced overnight the US will slap retroactive tariffs of up to 24 per cent on subsidised softwood lumber sold by its northern neighbour into the United States.

Mr Trump said the "very big tariff" was due to "Canada being very rough" on the US.

Canada immediately denounced the protectionist move as "unfair and punitive" and vowed to contest the decision.

The surprise shift by the Trump administration against a close foreign ally suggests that optimists who were breathing a sigh of relief about Mr Trump tamping down his economic nationalism may have been premature.

In the past week the Trump administration has also announced a sweeping investigation into whether the importation of foreign steel jeopardises US national security and would justify imposing tariffs against a broad range of countries.

The President also lashed Canada last week for its dairy exports hurting the US milk and cheese industry in the neighbouring US state of Wisconsin.

"It's a disgrace," Mr Trump said of Canadian Prime Minister Justin Trudeau's dairy policies.

The three separate trade fights over softwood lumber, steel and dairy underline the risks that Mr Trump still poses to international trade.

The billionaire President is also reportedly preparing to take an executive action against foreign aluminium.

Mr Ross declared it had been a "bad week for US-Canada trade relations".

Canada's dollar fell as much as 0.6 per cent to US73.6¢ on Wednesday.

American Enterprise Institute scholar Derek Scissors said it was too early to dismiss the prospect of Mr Trump engaging in a broader trade conflict and predicted harsher US actions awaited China and other trading partners.

"There is action coming and there is going to be changes such as tariffs and quotas," Mr Scissors said. "The US wants something of a correction but it does not want an outright trade conflict."