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Global Market Report - 5 June

Lex Hall  |  05 Jun 2019Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to open higher after stocks rallied on Wall Street overnight as Fed chairman Jerome Powell hinted trade tensions may force a possible rate cut.

The SPI200 futures contract was up 53 points, or 0.84 per cent, at 6,388.0 at 7am Sydney time, suggesting an early bounce for the benchmark S&P/ASX200 on Wednesday.

The ASX ended in positive territory on Tuesday after the Reserve Bank of Australia announced a 25 basis points cut to interest rates to 1.25 per cent - a record low - in the central bank's first change to the cash rate in nearly three years.

The benchmark S&P/ASX200 index closed up 11.9 points, or 0.19 per cent, to 6,332.4 points on Tuesday, while the broader All Ordinaries finished up 5.9 point, or 0.09 per cent, to 6,416.7.

On Wall Street, the Dow Jones Industrial Average closed up 2.06 per cent, the S&P 500 was up 2.14 per cent and the tech-heavy Nasdaq Composite was up 2.65 per cent.

The Aussie dollar is buying 69.91 US cents from 69.79 US cents on Tuesday.

Out today: AiG performance of services for May; GDP for first quarter, RBA's Alexandra Heath speaks.

Asia

China stocks closed lower on Tuesday as Beijing and Washington exchanged criticism over technological transfer and trade, showing little signs of resolving the year-long tariff dispute.

At the close, the Shanghai Composite index was down 1 per cent  at 2,862.28 points, while the blue-chip CSI300 index ended 0.9 per cent lower.

In Hong Kong, the Hang Seng index was down 0.5 per cent at 26,761.52. The Hang Seng China Enterprises index fell 0.9 per cent.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.4 per cent, while Japan’s Nikkei index closed almost flat.

Europe

European shares rose on Tuesday to distance themselves further from a 3½-month low hit during the previous session, aided by auto stocks which gained on broker recommendations.

The region's exchanges shook off early weakness from the technology sector, which trimmed losses to end 0.2 per cent lower. Sources said the United States is gearing up to investigate whether giants including Facebook Inc and Amazon misused their market power.

The STOXX 600 rose 0.7 per cent, with Germany’s DAX adding 1.5 per cent, while the FTSE 100 gained 0.4 per cent.

Stocks of auto-makers and their suppliers saw their best day in more than two months, rising 3.2 per cent, with brokerage RBC starting coverage on a slew of names in the sector. Hella and Continental AG surged 5.4 per cent and 3.2 per cent, respectively.

Daimler gained 4.1 per cent, supported by RBC starting coverage with an “outperform” rating.

Volkswagen, which RBC also rated “outperform”, added 3.3 per cent. Sources told Reuters the firm is likely to launch the sale of transmissions maker Renk in the autumn, aiming to free up funds to invest more in electric vehicles.

Italy’s FTSE MIB and the country’s banks rose 1.8 per cent and 2.4 per cent, respectively. Yields on the sovereign’s bonds fell as traders cited comments by Prime Minister Giuseppe Conte, who said the government had to abide by EU budget rules until such time as they could be changed.

Lenders in Italy have been under pressure over the last month, hurt by the country’s differences with the European Union, a possible 3 billion euro ($3.37 billion) fine and concerns about its debt burden.

Europe’s banks rose 2.1 per cent. The sector’s juicy 5.9 per cent dividend yield, as per Refinitiv Eikon data, makes it a far riskier holding compared to safe-haven German bonds, whose yields are negative up to at least the 10-year maturity.

There is growing speculation the European Central Bank could shift to a more dovish footing at next week’s policy meeting, albeit leaving rates unchanged.

North America

Wall Street’s three major indexes rallied on Tuesday to clock their biggest one-day gains in five months after Federal Reserve Chair Jerome Powell left the door open for a possible rate cut.

Powell said the central bank would act “as appropriate” to address trade war risks a day after St.

The last time the benchmark S&P index showed a bigger daily percentage gain was on Jan. 4, when Powell turned more dovish after a late 2018 sell-off, with a promise that the Fed would be patient and flexible in its interest rate path.

Investors have been betting the Fed would cut rates at least once by the end of 2019, according to CME Group’s Fedwatch, and Tuesday’s comments helped to back up these bets.

The Dow Jones Industrial Average rose 512.4 points, or 2.06 per cent, to 25,332.18, the S&P 500 gained 58.82 points, or 2.14 per cent, to 2,803.27 and the Nasdaq Composite added 194.10 points, or 2.65 per cent, to 7,527.12.

The S&P 500 shed more than 6 per cent in May as investors feared a global growth slowdown while trade tensions ramped up between the United States and China and the US and Mexico.

Nolte said investors also were encouraged after Mexican President Andres Manuel Lopez Obrador said he was optimistic that a deal could be reached even as US President Donald Trump said he was likely to go ahead with new tariffs on all Mexican goods.

A Washington Post report that Republican lawmakers were discussing whether they may have to vote to block President Trump’s planned new tariffs on Mexico also helped sentiment.

Earlier in the day, China’s commerce ministry said the differences and frictions with Washington should be resolved through dialogue.

The tech-heavy Nasdaq’s rebound on Tuesday came after it confirmed a correction on Monday, having lost more than 10 per cent since its record closing high on 3 May.

The technology sector was the biggest boost to the S&P with a 3.3 per cent advance, led by gains in Apple Inc and Microsoft.

Rising US Treasury yields boosted the S&P 500 bank index, which jumped 3.65 per cent.

Only the dividend-paying real estate sector ended the day in the red with a 0.6 per cent drop as investors poured their money into riskier bets.

But utilities, typically seen as one of the most defensive bets, edged slightly higher with a 0.04 per cent gain.

is content editor for Morningstar Australia

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