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Global Market Report - 6 August

Lex Hall  |  06 Aug 2019Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to open sharply lower after big losses on Wall Street overnight amid an escalation in the trade war.

The SPI200 futures contract was down 110 points, or 1.67 per cent, at 6,460.0 at 8am Sydney time, suggesting an early slump for the benchmark S&P/ASX200 on Tuesday.

Wall Street's major indexes have posted their biggest percentage drop of the year as a fall in the yuan following US President Donald Trump's vow to impose additional tariffs on Chinese goods sparked fears of further escalation in the US-China trade war.

The three major indices on Wall Street had their steepest percentage drops of the year overnight, with the Dow Jones Industrial Average finishing down 2.9 per cent, the S&P 500 down 2.98 per cent and the tech-heavy Nasdaq Composite down 3.47 per cent.

The yuan’s move on Monday was viewed as a clear sign China would not back down in the face of President Trump’s threat of new tariffs on imports, meaning the trade conflict may get worse. Trump himself called the move “currency manipulation” and a “major violation”.

Trump’s threat last week to slap 10 per cent tariffs on another $300 billion in Chinese imports, plus disappointment about the US Federal Reserve’s rhetoric, have halted what had been a steady recovery for stock markets since a sell-off in May.

The Reserve Bank looks set to hold the cash rate at 1.0 per cent ahead of data out this week that could offer clues about whether the past two months' cuts are having an effect.

Economists expect the RBA to keep the rate unchanged at Tuesday's board meeting before cutting to a fresh record low before the end of 2019.

The Aussie dollar is buying 67.54 US cents from 67.71 US cents on Monday.

Asia

China let the yuan breach the key 7-per-dollar level on Monday for the first time in more than a decade, in a sign Beijing might be willing to tolerate more currency weakness that could further inflame a trade conflict with the US.

The benchmark Shanghai Composite Index lost 1.62 per cent for its weakest close since 22 February, and the blue-chip CSI300 index dropped 1.91 per cent.

Hong Kong’s Hang Seng index dived 2.9 per cent to close at its lowest level since January as the city faced major disruptions, with a general strike paralysing parts of the Asian financial centre.

Japanese shares tumbled on Monday, as investors grew nervous about a prolonged U.S.-China trade war, with a rapidly strengthening yen dragging down exporters like Panasonic and Daikin.

The Nikkei share average shed 1.7 per cent, extending Friday’s sizable loss of 2.1%, to 20,720.29 for its lowest finish since 5 June. Of Tokyo’s 33 subindexes, 32 industry groups were in the red.

Europe

European shares sank to a two-month low on Monday as a global sell-off spurred by trade tensions deepened, sending China’s yuan to its lowest in more than a decade and sinking trade-sensitive mining, luxury and technology stocks.

The pan-European STOXX 600 index fell 2.3 per cent, which, taking into account Friday’s losses, made for the biggest two-day drop in more than three years as traders dumped shares in favour of perceived safe-havens like government bonds.

Mining groups Rio Tinto and BHP fell more than 2 per cent, while steel producer ArcelorMittal lost more than 4 per cent as Beijing allowed the yuan to breach 7-per-dollar, making copper and iron more expensive in their biggest global market.

The commodities-linked stocks index fell 2.9 per cent to its lowest in seven months.

Luxury stocks such as Louis Vuitton owner LVMH and watchmakers Richemont and Swatch, which derive a large part of their revenue from China, gave up between 3.9 per cent and 6.8 per cent, pushing the personal and household goods index .SXQP down 3.5 per cent - the most among major sectors.

Software company SAP was among the biggest decliners on the STOXX 600, while chipmakers AMS, Infineon and STMicroelectronic also fell.

Asia-focused bank HSBC was also one of the biggest drags on the main index, down 3 per cent, after it announced the departure of chief executive officer John Flint, a shock move aimed at speeding up progress on priority areas such as the turnaround of its US business.

Gas producer Linde rose 2.5 per cent and was the biggest boost for the STOXX 600 after quarterly results topped forecasts and underpinned a second increase to full-year forecasts this year.

North America

While stocks pared losses in the last hour of trading on Monday to finish off their session lows, the benchmark S&P 500 fell about 3 per cent to notch its biggest one-day percentage decline since 4 December. The index has fallen for six straight sessions and is now about 6 per cent below its record closing high on 26 July.

A weaker yuan and a stronger US dollar pose challenges for US companies that do substantial business in China by effectively raising the cost of their goods for Chinese customers.

Adding to the tensions, China's commerce ministry said Chinese companies have stopped buying US agricultural products and that China will not rule out imposing import tariffs on US farm products that were bought after 3 August.

Shares of S&P 500 technology companies, which are heavily exposed to Chinese markets, dropped 4.1 per cent.

Apple shares slid 5.2 per cent as analysts warned that the newly proposed tariffs may hurt demand for the iPhone, while the Philadelphia semiconductor index dropped 4.4 per cent.

The Dow Jones Industrial Average on Monday fell 767.27 points, or 2.9 per cent, to 25,717.74; the S&P 500 lost 87.31 points, or 2.98 per cent, to 2,844.74; and the Nasdaq Composite dropped 278.03 points, or 3.47 per cent, to 7,726.04.

The Cboe Volatility Index, an options-based gauge of investor anxiety, rose 6.98 points to 24.59, its highest in about seven months.

Top US meat processor Tyson Foods was one bright spot. Its shares rose 5.1 per cent after the company beat quarterly profit estimates.

is content editor for Morningstar Australia

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