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Global Market Report - 15 October

Lex Hall  |  15 Oct 2019Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to open lower after Wall Street dipped as a rally sparked by optimism about US-Chinese trade prospects appeared to run out of steam.

At 7am the SPI200 futures contract was down 32 points, or 0.48 per cent, at 6,591.0, suggesting a fall for the benchmark S&P/ASX200 on Tuesday.

The Australian share market closed higher for a third day yesterday, playing catch-up after the US and China struck a truce on tariffs after Friday's close.

The benchmark S&P/ASX200 index rallied hard at the open but then gave up half of its gains later in the day to finish Monday up 35.8 points, or 0.54 per cent, to 6,642.6 points, while the broader All Ordinaries closed up 36 points, or 0.54 per cent, to 6,757.9 points.

On Wall Street overnight, the Dow Jones Industrial Average was down 0.10 per cent, the S&P 500 was down 0.05 per cent and the tech-heavy Nasdaq Composite was down 0.03 per cent.

The Aussie dollar is buying US67.74 cents from US67.76 cents on Monday.

Asia

Stock markets cheered news of a trade agreement. China's blue-chip CSI300 index gained 1.1 per cent while the Shanghai Composite Index rose 1.2 per cent.

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In Hong Kong, the Hang Seng index finished 0.76 per cent higher at 26,509. The index started a rebound from seven-week lows last Thursday boosted by positive trade talks news.

Markets in Tokyo were closed.

Europe

A three-day rally in European shares came to a halt on Monday as investors assessed the scale of progress from Friday’s US-China trade talks and worried that a Brexit withdrawal agreement was still some way off after earlier signs of a breakthrough.

The pan-European STOXX 600 index closed down 0.5 per cent, but erased nearly half of losses made earlier in the session as defensive sectors gained some favour and automakers rose.

Growing optimism around Sino-US trade talks and a Brexit agreement had helped the index log its best one-day percentage gain since early January, making the slight pullback natural.

However, a report on Monday that Beijing wanted more talks before signing Washington’s “phase one” deal added to doubts about a trade deal, with analysts warning that nerves over a slowdown in global growth and the Brexit process were still high.

Late on Friday, the US outlined the first phase of a trade deal and suspended this week’s scheduled US tariff hikes on Chinese goods, but existing tariffs remained in place and officials on both sides said much more work was needed before an accord could be agreed.

The 15-month trade war between the world’s top two economies has sapped business confidence and disrupted supply chains around the world. Latest data out of China showed a further contraction in exports and imports in September.

Mining stocks, among the chief barometers of concern over the Chinese economy, shed 2.5 per cent, leading declines among the European sub-sector trading in the red.

Meanwhile, a Brexit deal was hanging in the balance on Monday after diplomats indicated the European Union wanted more concessions from Prime Minister Boris Johnson and said a full agreement was unlikely this week.

Britain's domestically focused FTSE mid-caps gave up 0.56 per cent following Friday's 4 per cent surge, while London's blue-chip stocks closed down 0.46 per cent.

Bank stocks were the biggest drag on the benchmark STOXX 600 index, down 0.8 per cent, as euro zone bond yields fell due to investors pouring into the safety of fixed income.

Carmakers, edged 0.3 per cent higher, extending gains for a fourth session, while sectors considered stable during times of economic uncertainties such as real estate, utilities and food and beverage cut early losses.

Among individual movers, Swiss pharmaceutical companies Roche Holding and Novartis dropped 0.4 per cent and 0.8 per cent, respectively, after a report that the US was considering tariffs on Swiss pharmaceutical products.

Shares in Sophos Group Plc shot up 36 per cent as private equity firm Thoma Bravo said it would take the British cybersecurity company private in a deal valuing the company at about $3.8 billion.

Shares of Jupiter Fund Management Plc fell about 6 per cent with Barclays and BofA Merrill Lynch lowering their earnings forecast after the firm said on Friday it expected to see net outflows of 1.3 billion pounds in the third quarter.

North America

Wall Street edged lower on Monday as uncertainties following recent US-China trade negotiations clouded sentiment and investors turned their focus on the third-quarter earnings season, which begins in earnest on Tuesday.

All three major US stock averages closed in the red, snapping a three-day winning streak during which the benchmark S&P 500 gained 2.7 per cent.

Hopes dimmed that recent trade negotiations between the United States and China would bear fruit, as China indicated further talks were needed and US Treasury Secretary Steven Mnuchin said the next round of tariffs on Chinese imports are on track to go into effect on 15 December if a deal has not been reached by then.

And while US President Donald Trump hailed his phase 1 of the US-China trade deal as “by far, the biggest deal ever made,” no deal was committed to paper and most tariffs on Chinese imports remain in effect.

That said, an uneventful day in the markets was to be expected, given the Columbus Day holiday.

Third-quarter reporting season hits the ground running on Tuesday, with major US banks expected to report a 1.2 per cent decline in earnings, their first year-on-year drop in three years, due in part to low interest rates and trade tensions.

JPMorgan Chase & Co, Goldman Sachs Group Inc, Citigroup Inc and Wells Fargo and Co are scheduled to post third-quarter results.

Other big names reporting on Tuesday include Johnson & Johnson and UnitedHealth Group.

Analysts expect S&P 500 earnings to have contracted in the third quarter by 3.2 per cent, according to Refinitiv data, marking the first decrease since the earnings recession that ended in 2016.

That is down from the 12.1 per cent gain seen a year ago and the 0.8 per cent advance forecast last quarter.

The Dow Jones Industrial Average fell 29.23 points, or 0.11 per cent, to 26,787.36, the S&P 500 lost 4.09 points, or 0.14 per cent, to 2,966.18 and the Nasdaq Composite dropped 8.39 points, or 0.1 per cent, to 8,048.65.

Of the 11 major sectors in the S&P 500, all but real estate and financials lost ground.

Harley-Davidson Inc said it halted production of its electric bikes after discovering a glitch in final quality checks, and the motorcycle maker’s stock rose 0.3 per cent.

Fastenal Co slid 2.5 per cent after two brokerages downgraded the stock. The company had logged its best day in three decades on Friday after reporting strong results.

Nike advanced 1.1 per cent after Bank of America Merrill Lynch upgraded the sportswear maker’s stock to “neutral” from “underperform”.

Construction and engineering company AECOM gained 6.3 per cent after agreeing to sell its management services unit to private equity firms for about $2.4 billion.

is senior editor for Morningstar Australia

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