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Global Market Report - 1 August

Lex Hall  |  01 Aug 2019Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to follow US shares down after the Federal Reserve cut interest rates for the first time since the GFC.

The SPI200 futures contract was down 29 points, or 0.43 per cent, at 6,723.0 at 7am Sydney time, suggesting a fall for the benchmark S&P/ASX200 on Thursday.

The Australian share market pulled back from its record highs yesterday despite gains for the energy sector.

The benchmark S&P/ASX200 index finished down 32.5 points, or 0.47 per cent, to 6,812.6 points on Wednesday, while the broader All Ordinaries closed down 31.6 points, or 0.46 per cent, to 6,896.7.

The US Federal Reserve cut interest rates by 25 basis points - its first reduction in the funds rate since the 2008 global financial crisis.

On Wall Street, the Dow Jones Industrial Average finished down 1.23 per cent, the S&P 500 was down 1.09 per cent and the tech-heavy Nasdaq Composite was down 1.19 per cent.

The Aussie dollar is buying 68.45 US cents from 68.93 US cents on Wednesday.

Asia

In China, the Shanghai Composite Index closed down 0.7 per cent to 2,932.51.

The CSI 300 benchmark of large caps trading in Shanghai and Shenzhen closed down 0.9 per cent at 3,835.36.

The Shanghai benchmark posted its second biggest monthly loss of the year, at 1.6 per cent for all of July. However, that was an improvement on the 5.8 per cent monthly drop in May when the trade war escalated.

In Hong Kong, the Hang Seng ended the shortened Wednesday trading session down 1.3 per cent, at 27,777.75 points. It was the first time the benchmark had fallen below the 28,000 level since 18 June.

Japanese shares slid, hurt by US President Donald Trump warning China against dragging out trade talks while disappointing earnings hit Nintendo and banks.

The Nikkei share average fell 0.92 per cent to 21,510.40 while the broader Topix lost 0.71 per cent to 1,564.40.

Europe

European shares steadied on Wednesday, as strong results from lenders BNP Paribas and Credit Suisse countered a poor report from British bank Lloyds in a market marking time ahead of a keenly-awaited US Federal Reserve decision on interest rates.

European markets racked up their worst day in nearly three months on Tuesday, as stocks globally took a beating from a toughening of President Donald Trump’s trade rhetoric against China and Brexit worries hit Irish and UK companies.

After inching lower in early trade, the pan-European STOXX 600 was flat on the day by 0813 GMT.

In a month dominated by corporate earnings and expectations of monetary easing by both the Federal Reserve and the European Central Bank to help the economy, the STOXX is now only marginally higher for the month.

France’s largest bank by assets, BNP Paribas rose 3.3 per cent after a strong performance by its corporate and investment banking division buoyed quarterly profits, while Credit Suisse reported its highest quarterly earnings in four years, sending shares 4 per cent higher.

Europe’s banking index rose 0.4 per cent

Lloyds Banking Group, Britain's biggest mortgage lender, dropped 3.9 per cent after posting weaker-than-expected pretax profits, taking London's FTSE 100 down 0.3 per cent, in an otherwise quiet market.

The Fed’s decision is expected after European market hours at 1800 GMT, with Chair Jerome Powell scheduled to hold a press conference soon after.

A quarter-point cut by the US central bank has been fully priced in by money markets, but investors will be looking at the comments with the decision for signs of how far it could go with further easing this year.

The latest data from Germany offered a rare beam of hope on consumer sentiment in Europe's largest economy. Frankfurt's main DAX index rose 0.2 per cent after data showed German retail sales rose more than expected in June.

Playing into that, sportswear group Puma gained 7 per cent as it raised its outlook for sales growth and operating profit for 2019. Rival Adidas advanced 1.2 per cent.

In Paris, the main stocks index was flat, caught between a 4 per cent drop in beauty products maker L'Oreal after disappointing quarterly sales growth, and rallies in BNP Paribas, construction group Vinci and eyewear maker EssilorLuxottica.

Vinci rose 3.2 per cent after good results, while EssilorLuxottica jumped 3.2 per cent after saying it would buy Dutch optical retailer GrandVision in a cash transaction that could amount to a total of 7.2 billion euros ($8 billion).

North America

The Dow and S&P 500 registered their biggest daily percentage drops in two months after US Federal Reserve Chair Jerome Powell dampened expectations for further cuts following the central bank's first interest rate cut in a decade.

All three major US stock indexes ended the session lower after Powell said today's move was not the beginning of a lengthy rate-cutting cycle.

Despite today's sell-off, all three indexes posted their second straight monthly gains in July, closing the book on a month in which the S&P 500 and the Nasdaq reached fresh record highs.

Investors were expecting the Fed's 25-basis point cut as insurance against signs of a looming economic slowdown amid the protracted US-China trade war.

The latest round of trade talks wrapped up in Shanghai, with US and Chinese negotiators leaving the table without a deal. Both sides called the talks "constructive."

The Dow Jones Industrial Average fell 333.75 points, or 1.23 per cent, to 26,864.27, the S&P 500 lost 32.8 points, or 1.09 per cent, to 2,980.38 and the Nasdaq Composite dropped 98.20 points, or 1.19 per cent, to 8,175.42.

All 11 major sectors in the S&P 500 closed in the red, with consumer staples, materials and technology suffering the largest percentage losses.

Of the 296 companies in the S&P 500 that have reported second-quarter earnings so far, 74.7 per cent have surprised Street estimates to the upside.

Analysts now see total growth of 1.3 per cent for the quarter, up from just 0.3 per cent seen at the beginning of the month.

Apple extended its gains, rising 2 per cent after an increase in services and wearables more than offset a drop in iPhone sales.

Humana advanced 4.3 per cent after the health insurer beat analysts' second-quarter earnings estimates and hiked its 2019 forecast.

Among losers, shares of General Electric dipped 0.7 per cent after the conglomerate posted a quarterly loss and announced the retirement of its chief financial officer Jamie Miller.

Chipmaker Advanced Micro Devices slumped 10.1 per cent after its disappointing third-quarter revenue forecast, dragging the Philadelphia Semiconductor index down 3.2 per cent.

is content editor for Morningstar Australia

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