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Global Market Report - 3 July

Glenn Freeman  |  03 Jul 2019Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to open lower amid investor concerns about slowing global growth, and investor enthusiasm on Wall Street faded yesterday.

The SPI200 futures contract was down 11 points, or 0.17 per cent, at 6,592 8am Sydney time, suggesting an early dip for the benchmark S&P/ASX200 on Wednesday.

Wall Street finished higher overnight, with the Dow Jones Industrial Average closing up 0.26 per cent, the S&P 500 up 0.29 per cent and the tech-heavy Nasdaq Composite up 0.22 per cent.

Australia shares closed slightly higher yesterday, as investors dumped the major banks over fears their margins would be crimped by the RBA's decision to cut interest rates to a record low of 1 per cent.

The S&P/ASX 200 Index rose 5.1 points, or 0.1 per cent, to 6653.2, while the broader All Ordinaries advanced 9.7 points, or 0.1 per cent, to 6741.1.

The Aussie dollar is buying 69.93 US cents from 69.80 US cents on Tuesday.

Ahead today: The Australian Bureau of Statistics is expected to release building approvals for May, as well as the country's trade balance figures, at 11:30am Sydney time. AiG performance of services for June are also due.

Asia

China stocks closed flat on Tuesday as investors exercised caution amid doubts over whether Beijing and Washington could strike a durable deal.

The blue-chip CSI300 index was unchanged at 3,937.17 points, while the Shanghai Composite Index was flat at 3,043.94 points.

In Hong Kong, shares were up slightly on Tuesday, as they played catch-up with the global rally seen a day earlier, when local markets were closed for a public holiday.

The Hang Seng index ended up 1.2 per cent at 28,875.56 points, while the China Enterprises Index closed 0.9 per cent firmer at 10,981.23 points.

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.31 per cent, while Japan’s Nikkei index closed up 0.11 per cent.

Japan's stocks rose only slightly on Tuesday, as investors remained cautious after the US-China trade talks.

The Nikkei share average edged up 0.11 per cent to 21,754.27 points, slightly lower than its daily peak of 21,784.22, its highest since 7 May.

Tech-related companies were the biggest gainers. Tokyo Electron was up 2.9 per cent, Mitsubishi Electric Corp added 0.85 per cent and Screen Holdings climbed 4.5 per cent.

Fujifilm Holdings Corp rose 1.45 per cent following news that it will team up with German drugmaker Bayer.

Workman was up 5.8 per cent after the maker and distributor of workwear reported that its existing store sales increased 35.8 per cent in June on a year-on-year basis.

Software company System Integrator Corp rallied 10.7 per cent after it revised up its operating profit forecast for the six months through August to 200 million yen (US$1.85 million) from 140 million yen.

Europe

Investors shrugged off US President Trump's potential new tariffs on an additional US$4 billion of EU goods, with European shares closing comfortably higher on Tuesday.

Utilities and consumer stocks led the way, as the pan-European STOXX 600 index rose 0.4 per cent in muted volumes, adding to its 0.8 per cent rise on Monday after the United States and China agreed to return to the negotiating table after a breakdown in trade talks in May.

Europe’s main indexes had a subdued start on Tuesday as investors turned sceptical about a US-China trade deal after Trump said any trade deal with China would need to be “somewhat tilted” in favour of the United States.

Trade-sensitive German shares underperformed, but investors largely seemed to have digested the news already, with the food and beverage index among the top gainers, up 1.2 per cent.

Planemaker Airbus, however, fell 0.3 per cent as further tariff threats become the latest salvo in a long-running dispute over aircraft subsidies.

But stocks recouped most of their losses since then on hopes that major central banks would be more accommodative to counter the impact of the dispute.

Utility stocks, which tend to fare better in a falling interest rate environment. rose 1.9 per cent on Tuesday, with Italian firms Italgas, Terna and Hera up between 2.2 per cent and 3.5 per cent as 10-year government bond yields fell below 2 per cent.

Milan's main index rose 0.7 per cent, with data showing that 2019 budget deficit was smaller than forecast.

North America

US stocks rose slightly after holding near the unchanged mark for much of the session, as enthusiasm over the US-China trade truce faded after the United States threatened tariffs on additional European goods.

Washington's proposed tariffs on $US4 billion ($A5.7 billion) worth of European Union goods in an extended dispute over aircraft subsidies came just as trade tensions with China seemed to be easing.

Still, stocks have rallied to push the S&P 500 to a record for a second straight session on Tuesday following the US trade truce with China. The benchmark index finished Monday's session well off its highs, however, as investors questioned the lack of details in the agreement.

The S&P 500 had rallied nearly 7 per cent in June on hopes the two largest economies in the world would find a way to end their trade war.

With US and global economic data showing signs of slowing, the focus for investors will now turn to monetary policy and the upcoming earnings season.

The Dow Jones Industrial Average on Tuesday rose 69.25 points, or 0.26 per cent, to 26,786.68; the S&P 500 gained 8.65 points, or 0.29 per cent, to 2,972.98; and the Nasdaq Composite added 17.93 points, or 0.22 per cent, to 8,109.09.

The softening data triggered a drop of about 3 per cent in crude oil prices despite an agreement among oil producers to extend supply cuts and pushed the energy sector down 1.74 per cent, the biggest drag on markets. The defensive real estate sector, up 1.82 per cent and utilities, up 1.24 per cent sectors were the best performers on the session.

Oil majors Exxon Mobil and Chevron declined more than 1 per cent each, while Apache slumped more than 6 per cent.

Cleveland Fed president Loretta Mester, a Federal Reserve policymaker, on Tuesday expressed scepticism that a US interest rate cut is the right move until there are more signs the economy is moving to a truly weaker path.

Market participants still expect the Fed to cut interest rates at its 30-31 July policy meeting, despite the latest developments in trade talks.

Automatic Data Processing lost 2.66 per cent, pressuring the tech-heavy Nasdaq, after market sources said brokerage Jefferies is re-offering 8 million of the company's shares at a discount.

L3Harris Technologies gained 4.28 per cent, making it the best performer on the S&P 500, after Jefferies added the defence contractor to its top picks for aerospace and defence electronics for the second half of 2019.

Investors are now awaiting the monthly jobs report on Friday, which is expected to show the private sector added 160,000 jobs in June, after May's sharp slowdown in jobs growth.

is senior editor for Morningstar Australia

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