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Global Market Report - 2 October

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

The Australian share market is expected to open sharply lower after a negative lead from Wall Street overnight as poor factory data suggests the trade war is biting the US.

At 7am Sydney time the SPI200 futures contract was down 75 points, or 1.11 per cent, at 6,653.0, suggesting an early dive for the benchmark S&P/ASX200.

The Australian share market enjoyed its best day in nearly a month yesterday following the Reserve Bank's decision to cut the cash rate for a third time this year.

The benchmark S&P/ASX200 index on Tuesday finished up 54.5 points, or 0.81 per cent, to 6,742.8 points, while the broader All Ordinaries rose 52.4 points, or 0.77 per cent, to 6,853 points.

The S&P 500 and Dow suffered their worst tumbles in over a month on Tuesday after data showed US factory activity shrank in September to its weakest in over a decade, ratcheting up fears that the US-China trade war is hobbling the world’s largest economy.

On Wall Street overnight, the Dow Jones Industrial Average finished down 1.28 per cent, the S&P 500 was down 1.23 and the tech-heavy Nasdaq Composite was down 1.13 per cent.

The Aussie dollar is buying US67.04 cents from US67.02 cents on Tuesday.

Asia

Chinese markets yesterday began a week-long break to mark 70 years since the founding of the People’s Republic of China.

White House trade adviser Peter Navarro dismissed reports that the Trump administration was considering delisting Chinese companies from US stock exchanges as “fake news”, giving short-term players an excuse to buy back risk assets.

China and the US are due to resume high-level trade talks next week in Washington.

While the tussle over trade and technology between the world’s two largest economies has intensified, some investors are sticking to hopes of a compromise.

They say a tentative deal could be reached by the end of this year, given that President Donald Trump’s administration would strive to avoid the US economy falling into a recession in an election year.

Japanese stocks rose on Tuesday as deterioration in the Bank of Japan’s tankan survey was less than expected, and gains were led by blue-chip exporters and Apple-related shares.

The benchmark Nikkei average advanced 0.6 per cent to 21,885.24, while the broader Topix climbed 1.0 per cent to 1,603.00, with all but two of its 33 subindexes finishing higher.

Europe

European shares ended a three-day winning streak on Tuesday as investors were gripped by growth worries after poor US manufacturing data fanned fears of slowing growth in the world’s largest economy.

The pan-European STOXX 600 index touched session lows, and closed down 1.3 per cent after data showed US manufacturing contracted for the second month in September, knocking US stocks.

This followed on from euro zone data that showed manufacturing activity contracting at its steepest rate in almost seven years.

Given that economic indicators in the euro zone have been weak recently, the US data is a bigger disappointment for investors because growth in the US economy was expected to rebound, said Hubert de Barochez, a markets economist with Capital Economics.

All major sectors in Europe moved well into the red after the data. German and French stocks lost more than 1 per cent each.

Losses in London's FTSE 100 were limited by a drop in the pound ahead of UK Prime Minister Boris Johnson's presentation of proposals for an amended Brexit agreement. A weakness in the sterling tends to bode well for exporters in the index.

Adding to the gloomy mood, stocks with exposure to Hong Kong and Asia, such as Standard Chartered, HSBC, Louis Vuitton owner LVMH lost between 0.8 per cent and 2.5 per cent.

These stocks have been under pressure since early summer as pro-democracy protests have stretched into four months. But they lost ground on Tuesday after reports that a protestor in Hong Kong was hit by a police bullet.

Healthcare stocks also slid, with shares of AstraZeneca down 1.7 per cent after the US Food and Drug Administration denied approval to the smoker’s lung treatment developed by the drugmaker.

British baker Greggs slid 12.5 per cent to the bottom of the STOXX 600 after it reported slower quarterly sales growth and warned of rising cost pressures.

Airlines were bright a spot with Ryanair, International Consolidated Airlines and Air France-KLM rallying after Bank of America Merrill Lynch reinstated a “buy” rating on the stocks and gave a positive outlook for the sector.

These gains plus comments from US trade adviser Peter Navarro, who dismissed reports the White House could seek to force Chinese companies to delist from US exchanges, had helped the pan-region index touch a two-month high in early trade, before it turned to losses.

The STOXX 600 gained around 2 per cent in the third-quarter compared to 12 per cent in the first three months of this year, as the US-China trade war worsened economic prospects and slowed a global stocks rally that dates back almost a decade.

North America

Investors moved to the safety of US Treasuries after the ISM report showed its manufacturing activity index at 47.8, falling further from August’s sharp contraction and below economists’ expectations of 50.1. A reading below 50 indicates contraction.

With lingering trade tensions weighing on exports, the US data mirrored similar patterns in the euro zone, Japan, the UK and China.

The S&P industrials index dropped 2.4 per cent, the most among the 11 major S&P sectors. The materials and energy indexes both fell 2.3 per cent. All 11 sectors lost ground.

A jobs report on Friday is expected to shed further light on US economic strength.

Despite a prolonged US-China trade war that has hammered global growth, confidence in the domestic economy has helped the benchmark S&P 500 climb about 17 per cent this year.

Thomas Simons, a Jefferies economist, said the manufacturing contraction does not underpin a wider softening in the US economy, as it was the result of several factors, including Boeing Co’s production issues relating to its best-selling jets.

The Dow Jones Industrial Average fell 1.28 per cent to end at 26,573.04, while the S&P 500 lost 1.23 per cent to 2,940.25. Both indexes had their biggest one-day dip since 23 August, when US President Donald Trump demanded that American companies seek alternatives to doing business with China.

The Nasdaq Composite dropped 1.13 per cent to end at 7,908.69.

The Cboe Volatility Index, or VIX, an options-based gauge of investor anxiety, rose 2.3 points to 18.56, its highest close in about a month.

Shares of online brokerage E*Trade Financial tumbled 16.4 per cent, the most on the S&P 500, after rival Charles Schwab Corp said it would remove commissions for online trading of stocks, ETFs and options listed on US or Canadian exchanges. Charles Schwab’s shares slumped 9.7 per cent.

McDonald’s Corp dropped 2.7 per cent after JP Morgan said the fast food chain’s third-quarter same-store sales would be softer than analysts’ estimates.

Shares of chipmaker Xilinx Inc fell 4.1 per cent after KeyBanc lowered its rating to “sector weight.”

In one of the few bright spots, Ulta Beauty Inc advanced 6.1 per cent after an independent director bought shares.

Stitch Fix rose 1 per cent in extended trade after the apparel seller’s quarterly earnings per share beat analysts’ estimates.

As the final quarter of 2019 kicks off, investors will be focusing on a range of factors, beginning with the high-stakes Sino-US trade talks in early October, corporate earnings and the Fed’s next policy meeting.

is content editor for Morningstar Australia

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