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Global Market Report - 22 July

Lex Hall  |  22 Jul 2019Text size  Decrease  Increase  |  
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Australia

Australian shares are tipped to start the week lower following escalating tensions between the US and Iran and talk of a more modest rate cut by the Fed.

The SPI200 futures contract was down 26 points, or 0.39 per cent, at 6,616.0 at 8am Sydney time on Monday, suggesting an early decline for the benchmark S&P/ASX200.

Growing concerns over the relationship between the US and Iran weighed on Wall Street at the close of the week with the Dow Jones, NASDAQ and S&P 500 all in the red.

Growing concerns over the relationship between the US and Iran saw the Dow Jones Industrial Average closed down 69 points on Friday night, with that drop expected to be reflected in the local market today.

The fall also coincided with a report in the Wall Street Journal that the Federal Reserve is targeting a 25 basis point cut in interest rates, rather than the larger 50-point cut that some investors have been expecting.

The Dow Jones Industrial Average fell 68.77 points, or 0.25 per cent, to 27,154.2; the S&P 500 lost 18.5 points, or 0.62 per cent, to 2,976.61; and the Nasdaq Composite dropped 60.75 points, or 0.74 per cent, to 8,146.49.

The losses closed out a poor week for the US sharemarket, following the first group of major earnings reports with two more big weeks to come.

Companies have generally exceeded modest expectations but some have expressed caution due to doubts about growth and US trade conflicts.

The Aussie dollar is buying 70.45 US cents from 70.68 US cents on Thursday.

Asia

China and Hong Kong stocks ended the week on an upbeat note, after a comment from top Federal Reserve official raised hopes of a US interest rate cut later this month, fuelling risk appetite.

The blue-chip CSI300 index rose 1.1 per cent, to 3,807.96, while the Shanghai Composite Index gained 0.8 per cent to 2,924.20. For the week though, CSI300 and SSEC were roughly flat.

New York Fed President John Williams said on Thursday that policymakers could not wait for an economic disaster to hit before adding stimulus, in a speech read as a strong argument in favour of quick monetary action.

In Japan, the benchmark Nikkei share average rallied 2.0 per cent to 21,466.99, following a 2.0 per cent slump on Thursday.

Europe

European shares ended only marginally higher on Friday as worries about the stability of Italy’s government dented optimism from renewed signals the Fed will cut interest rates soon.

The pan-European STOXX 600 closed up 0.12 per cent after rising as much as 0.7 per cent in morning trade, with Italy's blue-chip stocks falling 2 per cent to two-week lows.

Milan-listed banks were the hardest hit on worries the year-old coalition government might collapse after sparring between the two main political parties and that a new election could take place too late for a new administration to approve a 2020 budget.

Government ministers are due to meet later on Friday.

Aiding a strong start for Europe were comments overnight from New York Fed President John Williams who said policymakers could not wait for economic disaster to hit before adding stimulus, reviving expectations of a deeper-than-expected rate cut in July and sparking a rally in shares worldwide.

Markets have fully priced in a 25 basis point cut by the Fed at a policy meeting next week and expect the European Central Bank to hint at a similar move amid signs global growth is slowing.

Banks, which tend to underperform in a falling interest rate environment, fell about 0.8 per cent, the worst performing sector on the STOXX 600.

Poor earnings over the last two sessions had threatened to take the index lower on the week, but Friday’s gains helped the STOXX end the week higher for the sixth time in seven weeks.

Trade-sensitive stocks of technology companies and automakers got a lift after US Treasury Secretary Steven Mnuchin suggested in-person talks between US and Chinese officials could follow after telephone conversations on Thursday.

Industrial stocks were the top gainers as shares in German payments company Wirecard jumped 5.5 per cent after it signed an agreement with supermarket chains ALDI Nord and ALDI Sued to process card payments.

Sweden’s Volvo rose 5.5 per cent, recovering from a slide on Thursday after the auto and truck maker announced cost cutting measures to counter the impact of tariffs.

Belgium-based Budweiser owner Anheuser-Busch InBev also jumped 5.5 per cent, keeping the euro zone’s blue-chip index STOXX50E afloat, after the debt-heavy brewer said it would sell its Australian operations to Japan’s Asahi and was still interested in reviving the stalled flotation of its Asian business.

Media shares were a weak spot, sliding half a percent on Publicis’ 6 per cent drop after the advertising group cut its 2019 revenue growth guidance.

North America

Wall Street's main indexes have fallen following a report the Federal Reserve plans to cut interest rates by only a quarter percentage point at the end of the month.

The benchmark S&P 500 on Friday erased earlier marginal gains after a Wall Street Journal report on the Fed's plans.

According to the report, while the US central bank is not prepared to make a bigger 50-basis-point cut, it may make further rate cuts in the future given concerns about a decline in global economic growth and uncertainty about trade.

On Thursday, stocks had risen as comments from New York Fed president John Williams increased hopes of a bigger rate cut. Later that day, however, a New York Fed representative said Williams' comments were not intended to telegraph any hints about upcoming Fed policy actions.

Futures market odds of a 50-basis-point cut at the Fed's July meeting soared to 71 per cent late on Thursday immediately after Williams' speech but fell to 22.5 per cent on Friday, according to CME Group's Fedwatch tool.

The Dow Jones Industrial Average fell 68.77 points, or 0.25 per cent, to 27,154.2; the S&P 500 lost 18.5 points, or 0.62 per cent, to 2,976.61; and the Nasdaq Composite dropped 60.75 points, or 0.74 per cent, to 8,146.49.

For the week, the Dow lost 0.64 per cent, the S&P fell 1.23 per cent and the Nasdaq shed 1.19 per cent.

Earlier on Friday, US stocks had edged higher as strong results from Microsoft momentarily buoyed technology stocks. Microsoft shares ended marginally higher, up 0.1 per cent, but the S&P 500 technology index fell 0.55 per cent.

Second-quarter profits at S&P 500 companies are now estimated to rise 1 per cent, according to Refinitiv IBES data, in a reversal from earlier expectations of a small drop.

Boeing shares gained 4.5 per cent despite the plane-maker's disclosure that it would take a $US4.9 billion ($7 billion) after-tax hit from the grounding of its 737 MAX, indicating that investors had expected more severe repercussions.

Kansas City Southern shares rose 4.6 per cent after the railway operator posted a better-than-expected quarterly profit. Its shares helped the Dow Jones Transport index gain 0.6 per cent.

Shares of American Express slipped 2.8 per cent after the credit card issuer warned of higher operating costs this year as it spends heavily on rewards programs to attract customers.

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