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Global Market Report - 26 August

Lex Hall  |  26 Aug 2019Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to open lower amid a new flare up of US-Chinese trade tensions.

The SPI200 futures contract was down 86 points, or 1.33 per cent, at 6,400.0 at 8am Sydney time, suggesting a steep fall for the benchmark S&P/ASX200 on Monday.

The Australian share market has surprised with a modest move higher despite a negative lead from Wall Street.

The benchmark S&P/ASX200 index closed Friday up 21.3 points, or 0.33 per cent, to 6,523.1 points, while the broader All Ordinaries finished up 21.3 points, or 0.32 per cent, to 6,614.3 points.

The Chinese government announced retaliatory tariffs on $US75 billion of US goods on Friday and US President Donald Trump countered by saying his country would raise its existing tariffs on $US250 billion worth of Chinese imports to 30 per cent from the current 25 per cent beginning on 1 October.

On Wall Street on Friday, the Dow Jones Industrial Average finished down 2.37 per cent, the S&P 500 was down 2.59 per cent and the tech-heavy Nasdaq Composite was down 3.00 per cent.

The Aussie dollar is buying 67.36 US cents from 67.53 US cents on Friday.

Asia

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China stocks closed higher on Friday and posted their best week in two months, as investors hoped for progress in Sino-US trade negotiations as the United States still plans in-person talks next month.

The blue-chip CSI300 index rose 0.7 per cent to 3,820.86, while the Shanghai Composite Index ended 0.5 per cent higher at 2,897.43.

The Hang Seng index added 0.5 per cent to 26,173.59, while the Hong Kong China Enterprises Index gained 0.6 per cent to 10,185.45.

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.32 per cent, while Japan’s Nikkei index closed up 0.4 per cent.

Europe

European shares fell on Friday after US President Donald Trump furiously reacted to China’s latest imposition of tariffs on certain US goods, while a lack of direction in the US central bank’s rate outlook somewhat frustrated investors.

In a surprise move Beijing imposed additional tariffs on thousands of US products effective 1 September, infuriating Trump who hit back asking US companies to start looking for alternatives to their China operations.

Markets reacted sharply to those developments, with Wall Street indexes shedding over 1 per cent and the pan-European STOXX 600 ending 0.7 per cent lower after a volatile session. Germany's trade-sensitive DAX fell 1.2 per cent.

Trade-sensitive autos, mining and tech stocks were the biggest losers across Europe, while defensive real estate stocks were the only ones in positive territory.

The benchmark index still managed to record its first weekly gain in four weeks.

European equities have seen wild swings in August amid fears that the economic effects of the US-China trade war could tip major economies into recession.

US Federal Reserve Chairman Jerome Powell’s latest comments also came under Trump’s attack as the President asked whether his appointee to the central bank was a greater “enemy” than China’s leader Xi Jinping to the country.

Powell, in a much anticipated speech at an economic symposium at Jackson Hole said the US central bank would “act as appropriate” to keep the current economic expansion on track, but did not offer a clear indication on future interest rate-cuts.

London's FTSE 100 had its fourth straight week of losses, the longest streak since February. Oil majors Shell and BP had the biggest negative impact on the day.

Among individual stocks, Kloeckner & Co shares jumped 7 per cent after a newspaper said Thyssenkrupp was in talks to buy the metals distributor.

Peppa Pig owner Entertainment One hit a life high after agreeing to be acquired by Hasbro.

North America

Wall Street has tumbled after the US-China trade war escalated in dramatic fashion, with President Donald Trump demanding American companies seek alternatives to doing business with China after Beijing announced its own slate of retaliatory measures.

All three major US stock indexes ended the session sharply lower, posting their fourth consecutive weekly declines.

The latest exchanges in the long-running tariff row triggered a broad-based sell-off that hit shares of companies with high exposure to China the hardest, such as chipmakers and other top technology names.

Dow Jones Industrials components Intel and Apple dropped 3.9 per cent and 4.6 per cent respectively on Friday.

The developments overshadowed a highly anticipated speech from US Federal Reserve Chair Jerome Powell, in which he reiterated a pledge the central bank would "act as appropriate" to support the economy.

Powell stopped short of committing to the series of rapid-fire rate cuts Trump has been demanding.

Trump's tweeted response to the speech labelled Powell an "enemy".

The escalating US-China trade dispute has emerged as a major tripping point for the market in recent weeks.

Friday marked the third decline of more than two per cent for the S&P 500 so far in August, and the benchmark index has now shed 5.8 per cent in the last four weeks.

Yields for two-year and 10-year US Treasuries entered inversion territory, a classic recessionary red flag. The curve has traded in and out of inversion for the past three days.

The Dow Jones Industrial Average fell 623.34 points, or 2.37 per cent, to 25,628.9, the S&P 500 lost 75.84 points, or 2.59 per cent, to 2847.11 and the Nasdaq Composite dropped 239.62 points, or three per cent, to 7751.77.

All 11 major sectors in the S&P 500 ended the session in negative territory. Energy and technology were the biggest percentage losers, both sliding more than three per cent.

Trade-sensitive chipmakers dropped on the bellicose trade rhetoric, with the Philadelphia SE Semiconductor index dipping 4.4 per cent.

Specialty retailer Foot Locker plummeted 18.9 per cent on the heels of disappointing second-quarter results.

Computer hardware company HP announced the departure of chief executive Dion Weisler and forecast lower-than-expected fourth quarter profit, sending its shares down 5.9 per cent.

is senior editor for Morningstar Australia

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