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Global Market Report - 13 August

Lex Hall  |  13 Aug 2019Text size  Decrease  Increase  |  
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Australia

The Australian share market is set to open lower today after a negative lead from Wall Street brought on by simmering geopolitical tensions and trade fears.

The SPI200 futures contract was down 52 points, or 0.80 per cent, at 6,480.0 at 8am Sydney time, suggesting an early fall for the benchmark S&P/ASX200 on Tuesday.

The Australian share market finished up slightly yesterday, with a lifting in healthcare and consumer discretionary shares outweighing losses for the mining sector.

The benchmark S&P/ASX200 index on Monday closed up 5.9 points, or 0.09 per cent, to 6,590.3 points, while the broader All Ordinaries closed up 6.7 points, or 0.1 per cent, to 6,670.1.

On Wall Street overnight, the Dow Jones Industrial Average finished down 1.49 per cent, the S&P 500 was down 1.23 per cent and the tech-heavy Nasdaq Composite was down 1.20 per cent.

The Aussie dollar is buying 67.53 US cents from 67.83 US cents on Monday.

Asia

China stocks rallied on Monday as Beijing showed support for its capital markets by relaxing margin financing, while demand for tech stocks also boosted the indexes.

The blue-chip CSI300 index rose 1.8 per cent, to 3,699.10, while the Shanghai Composite Index gained 1.5 per cent to 2,814.99.

In Hong Kong, the Hang Seng index ended down 0.4 per cent at 25,824.72, while the China Enterprises Index was unchanged at 9,997.94.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.29 per cent. The yuan was quoted at 7.0683 per US dollar at 0814 GMT, 0.1 per cent weaker than the previous close of 7.0615.

Europe

European shares fell on Monday, with banks leading the decline, as worries that the protracted US-China trade war could push the global economy into recession sent investors scurrying to safer assets.

Worsening protests in Hong Kong and a collapse in the Argentine peso added to the downbeat mood around the globe.

The pan-European STOXX 600 index pared early gains to close 0.3 per cent lower, extending last week’s 1.7 per cent loss when worries over an escalation in trade tensions and Italy’s political turmoil had weighed on sentiment.

A Goldman Sachs warning over the weekend that fears of the already prolonged trade war leading to recession are increasing and that a trade deal was unlikely before the 2020 US presidential election, saw investors move to safe havens such as the Japanese yen, gold and bonds.

Germany’s Ifo survey echoed the growth concerns with its measures for current conditions and economic expectations both having worsened in the third quarter.

Last week’s dire industrial output data from Germany and the UK economy’s first contraction since 2012 were the latest evidence of growth pangs in Europe, with German economy’s growth numbers due on Wednesday being the next gauge.

The dour sentiment recently has seen bond yields dive and banks take a beating. On Monday, Europe’s banking index lost 1.8 per cent to hit an over three-year low.

Spain's lender-heavy main index led losses in the region, down 0.9 per cent, with Credit Suisse saying Spanish banks' sensitivity to rates and lack of visibility call for adopting a more cautious stance, adding to the gloom.

Another catalyst for markets this week could be the US Federal Reserve’s annual symposium where investors hope to get some clarity on the future path of interest rates.

On the corporate front, the bidding war for Osram ramped up after Swiss-listed sensor specialist AMS said it was ready to pay 10 per cent more than Bain Capital and Carlyle.

Osram, which is grappling with weakness in the automotive industry and a broader economic slowdown, is seen as a potential supplier for connected and autonomous cars.

Osram shares were up 10.4 per cent, while AMS’s 11.8 per cent decline was the most on STOXX 600.

Britain’s Tullow Oil jumped as much as 20 per cent after it announced a major oil discovery in the Orinduik block in Guyana.

North America

US stocks have dropped in a broad sell-off as simmering geopolitical tensions spooked equity investors and drove a bond market rally, while the protracted US-China trade war stoked fears of an impending recession.

All three major US stock indexes closed sharply lower in light trading, with little to soothe market jitters over Hong Kong protests, Argentine President Mauricio Macri's primary election defeat, and the US-China tariff dispute that has rattled markets for months.

The flight from risk sent gold prices up one per cent on Monday, hovering at a more than six-year high.

The closely watched yield spread between US two-year and 10-year notes narrowed to its smallest difference since at least 2010, according to Refinitiv data.

Goldman Sachs Group said on Sunday its economists see recessionary risks increasing as the US-China trade war drags on.

Data on inflation, housing starts and retail sales are due later in the week and will be scrutinised for further signs of economic softening.

The Dow Jones Industrial Average fell 391 points, or 1.49 per cent, to 25,896.44, the S&P 500 lost 35.96 points, or 1.23 per cent, to 2882.69 and the Nasdaq Composite dropped 95.73 points, or 1.2 per cent, to 7863.41.

All 11 major sectors of the S&P 500 ended the session in negative territory, with financials, materials, energy and consumer discretionary suffering the largest percentage drops.

Second-quarter reporting season is approaching the finish line, with 452 of the companies in the S&P 500 having reported. Of those, 73.5 per cent have beaten consensus estimates.

Looking ahead to the third quarter, there have been 58 negative pre-announcements compared with 19 positive, resulting in a 3.1 negative-positive ratio, higher than the 2.7 average since 1997, according to Refinitiv.

Streaming platform Roku gained 7.2 per cent after a research note from Needham picked the stock over larger rival Netflix.

Shares of Amgen advanced 4.9 per cent following a court ruling that upheld two patents relating to its drug Enbrel.

Coach owner Tapestry and Versace owner Capri dropped 3.9 per cent and 4.4 per cent respectively, after Chinese social media criticised the companies for selling T-shirts that showed Chinese-controlled territories of Hong Kong and Macau as countries.

Media companies CBS and Viacom are in the final stages of negotiating an all-stock merger that values Viacom at a discount to its Friday closing price, sending Viacom shares down 4.9 per cent.

is content editor for Morningstar Australia

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