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Global Market Report - 2 August

Lex Hall  |  02 Aug 2019Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to open lower as the local currency falls against the US dollar and Donald Trump opens a new front in the trade war.

The SPI200 futures contract was down 15 points, or 0.22 per cent, at 6,712.0 at 8am Sydney time, suggesting an early dip for the benchmark S&P/ASX200 on Friday.

The benchmark S&P/ASX200 index, meanwhile, closed down 23.7 points, or 0.35 per cent, to 6,788.9. The broader All Ordinaries was down 24.8 points, or 0.36 per cent, to 6,871.9.

On Wall Street, the Dow Jones Industrial Average finished down 1.05 per cent, the S&P 500 was down 0.90 per cent and the tech-heavy Nasdaq Composite was down 0.79 per cent.

The Bank of England kept interest rates on hold overnight but lowered its growth forecasts while US President Donald Trump said Chinese imports would face an additional 10 per cent tariff from September despite calling recent trade talks in Shanghai "constructive".

The local currency fell sharply overnight to its lowest levels since 2009 against the US dollar.

The Aussie dollar was buying just 68.45 US cents, from 68.93 US cents on Wednesday, after the greenback rallied against other currencies.

The Aussie dollar is buying 67.98 US cents from 68.45 US cents on Thursday.

Asia

In China, the Shanghai Composite Index slid 0.8 per cent to 2908.77, weighed down by consumption and financial stocks. It was the benchmark’s second straight day of losses.

Hong Kong stocks fell to seven-week closing lows on Thursday, tracking broader Asia, after the  US Federal Reserve’s dovish comments dampened long-term outlook for a rate cut and the island’s economy grew less than expected in the second quarter.

The Hang Seng index fell 0.8 per cent, to 27,565.70, while the China Enterprises Index lost 0.5 per cent, to 10,621.57.

Japan’s Nikkei share average recouped early losses and ended marginally higher on Thursday, supported by a weaker yen which helped offset disappointment that the Fed is not embarking on a lengthy easing cycle.

The Nikkei ended the day up 0.09 per cent at 21,540.99 points.

Europe

European shares ended higher on Thursday as strong earnings from British American Tobacco and a multibillion dollar merger in the financial sector helped dispel early gloom after the  US Federal Reserve played down prospects for several rate cuts.

Providing the biggest boost to Europe’s main STOXX 600 , which closed up 0.5 per cent, was a 7 per cent jump in shares of British American Tobacco after it beat first-half sales forecasts and predicted a stronger second half.

London Stock Exchange Group rose 6.5 per cent to a record high after it formally announced its $27 billion merger with financial information firm Refinitiv, lifting Europe’s financial services index .SXFP 2.3 per cent and making it the top gainer.

The banking sector was boosted by results from European majors Barclays, Standard Chartered and Societe Generale.

Barclays climbed 1.2 per cent after it raised its interim dividend. Asia-focused Standard Chartered was up 3.3 per cent following strong first-half profits and France’s SocGen gained 5.8 per cent after it hit its solvency target a year early.

European markets opened in the red following overnight weakness on Wall Street and Asian markets after the Federal Reserve cut interest rates, as expected, but disappointed investors hoping for a clear sign of several more cuts to come to support growth and stock market valuations.

The dent to sentiment from the Fed hurt commodities markets, with a fall in iron ore, copper and oil prices pulling down shares of mining and energy majors.

The oil and gas sector slid 1.5 per cent, hit by a slump in shares of Royal Dutch Shell after its second-quarter profit dropped to a 30-month low on weaker gas prices and refining margins.

The materials index, down 3 per cent, recorded its biggest percentage fall since December 2018, with London-listed shares of Rio Tinto slipping despite the company reporting a 12 per cent jump in first-half profit and declaring a bumper dividend.

As a result, London's FTSE 100 lagged its European peers. Adding to the gloom there, the Bank of England lowered its growth forecasts for Britain in the face of growing Brexit worries and a slowing global economy. The UK-exposed midcap FTSE 250 was down 0.2 per cent.

North America

Wall Street has fallen again, abruptly reversing early gains after US President Donald Trump put concerns about the US-China trade war back in the spotlight, tweeting he would impose an additional 10 per cent tariff on $US300 billion ($437 billion) in Chinese imports.

Having spent most of Thursday's session on track for their best day since June, all three major US stock indices took sudden U-turns as investors quickly turned into sellers after the tweet.

The bond market rallied on Trump's comment, prompting US Treasury yields into their steepest drop in over a year. The benchmark 10-year yield fell to its lowest level since November 2016.

The CBOE Volatility Index, a gauge of investor anxiety, shot to its highest reading since 4 June.

The sell-off comes on the heels of the US Federal Reserve's first interest rate cut in a decade and remarks from Fed chief Jerome Powell that tempered expectations for further cuts this year, cuts Trump has been vocal about supporting.

Earlier in the session, Wall Street got a boost from a string of positive earnings from a wide range of companies, including General Motors, Kellogg, Verizon Communications and Yum Brands, among others.

In economic news, the US manufacturing sector expanded in July at its slowest pace in almost three years, according to the Institute for Supply Management's purchasing manager index (PMI).

Investors now look to Friday's release of the Labor Department's closely-watched jobs report.

The Dow Jones Industrial Average on Thursday fell 280.85 points, or 1.05 per cent, to 26,583.42; the S&P 500 lost 26.82 points, or 0.90 per cent, to 2,953.56; and the Nasdaq Composite dropped 64.30 points, or 0.79 per cent, to 8,111.12.

Of the 11 major sectors in the S&P 500, eight closed in negative territory, with financials, energy and trade-sensitive industrials seeing the biggest percentage losses.

Second-quarter earnings season continues at full throttle, with 355 of S&P 500 companies having reported. Of those, 74.4 per cent have bested Street estimates, according to Refinitiv data.

Analysts now see S&P 500 earnings growth of 2.5 per cent, up from just 0.3 per cent a month ago, per Refinitiv.

Pick-up trucks and SUVs drove General Motors' second-quarter profit but the car-maker's stock turned negative after the Trump tweet, ending the session down 0.5 per cent.

Kellogg surged 9.3 per cent as higher North American demand helped the packaged food company beat second-quarter estimates.

Shares of Yum Brands jumped 3.9 per cent after beating analyst profit and sales expectations on better-than-expected growth at all its restaurant chains, which include Taco Bell and Pizza Hut.

is content editor for Morningstar Australia

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