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Global Market Report - 18 December

Lex Hall  |  18 Dec 2018Text size  Decrease  Increase  |  
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Australia

The Australian share market is set for an early plunge into the red as Wall Street falls more than 2 per cent, with oil and metals prices also down amid a wider global equities slump.

The SPI200 futures contract is down 85 points, or 1.5 per cent, to 5587.0, at 8am Sydney time on Tuesday, pointing to a sharp opening drop for the benchmark ASX/200.

The market had closed higher on Monday thanks to an afternoon rally led by the materials sector. The benchmark S&P/ASX200 index sat flat for much of Monday but a push in the final three hours of trade meant it closed 56.3 points, or 1 per cent, higher at 5658.3 points.

Healthcare and retail stocks rattled Wall Street overnight, while the US market is also bracing for a possible rate hike later this week.

Wall Street's three major indices have each slid more than 2 per cent, with the benchmark S&P 500 closing at its lowest level in 14 months, on concerns about slowing economic growth ahead of a highly anticipated decision from the Fed this week on the course of interest rate hikes.

The Dow Jones Industrial Average fell 507.73 points, or 2.11 per cent, to 23,592.78 on Monday, the S&P 500 lost 54.12 points, or 2.08 per cent, to 2545.83 and the Nasdaq Composite dropped 156.93 points, or 2.27 percent, to 6753.73.

Oil prices are down on signs of oversupply in the US, as well as concern over global economic growth and fuel demand.

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Industrial metals have also taken a hit, but gold is soaring amid wider uncertainty and a softer greenback.

The Aussie has edged higher, buying 71.76 US cents from 71.73 US cents on Monday.

Meanwhile, the Reserve Bank could provide insight to its thinking on interest rates and the economy when it releases minutes from its most recent board meeting today.

ASIA

Asian share markets have ticked up as investors cautiously looked to whether key policy events in the US and China could allay concerns about slowing global economic growth.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.25 per cent. The CSI 300 index of Shanghai and Shenzhen shares dipped 0.3 per cent but managed to stay above its November low.

Japan's Nikkei rose 0.6 per cent while US stock futures edged up 0.3 per cent.

MSCI's broadest gauge of the world's stocks covering 47 markets was up slightly after hitting the weakest close since July last year on Friday on mounting evidence of slowing growth in Europe and China.

China's economy has been losing momentum in recent quarters as a multi-year government campaign to curb shadow lending put increasing financial strains on companies in a blow to production and investment.

Investors are now looking to a major speech by President Xi Jinping on Tuesday to mark the 40th anniversary of China's reform and opening up.

China is also expected to hold its annual Central Economic Work Conference later this week, where key growth targets and policy goals for 2019 will be discussed.

The top decision-making body of the Communist Party, the politburo, said last week China will keep its economic growth within a reasonable range next year, striving to support jobs, trade and investment while pushing reforms and curbing risks.

EUROPE

The FTSE 100 closed 1.1 per cent lower and the domestically focused mid-cap index lost 1.4 per cent at the start of the final full week of trading for the year.

The FTSE, which is down nearly 12 per cent this year, is on track for its worst yearly drop since the GFC, even as investors brace for a Bank of England meeting later this week.

In France, the CAC was down 1.1 per cent, while Germany’s DAX fell 0.9 per cent.
The euro traded at $1.1307, having fallen to $1.1270 on Friday, its lowest level since 28 November.

IHS Markit's Flash Composite Purchasing Managers' Index slumped to 51.3, its weakest since November 2014, from a final November reading of 52.7. That was well below even the most pessimistic forecast in a Reuters poll where the median expectation was for a modest rise to 52.8.

The survey showed euro zone businesses ended the year in a gloomy mood, expanding their operations at the slowest pace in over four years as new orders growth all but dried up, hurt by trade tensions and violent protests in France.

Sterling hovered near its 20-month low touched last week, as concerns grew that Britain was headed for a chaotic exit from the European Union.

With just over 100 days until Britain leaves the bloc on 29 March, Brexit remains up in the air with growing calls for a no-deal exit, a potentially disorderly divorce that business fears would be highly damaging, or for a second referendum.

The pound traded at $1.2580, about a cent above Wednesday's low of $1.2477.

NORTH AMERICA

The S&P 500 Index finished Monday’s session at its lowest level since October 2017. The technology, healthcare and consumer sectors led the rout.

Insurance stocks suffered after a court ruling jeopardised Obamacare, while Johnson & Johnson lost ground amid a deepening asbestos scandal.

The Federal Reserve is seen as almost certain to raise interest rates at its two-day policy meeting starting on Tuesday, further enhancing the dollar's yield attraction.

At the same time, many market players also expect the Fed to lower its projections for future interest rate hikes given increasing headwinds to the economy.

On Wall Street on Friday, the S&P 500 lost 1.91 per cent to 2599.95, marking its lowest close since 2 April.

The benchmark has dropped 11.3 per cent from its 20 September record close - the worst performance since it fell more than 14 per cent between May 2015 and January 2016.

In the currency market, the dollar held firm after having touched a 19-month high against a basket of six other major rivals on Friday as the US economy appeared to be in better shape than others.

US retail sales excluding cars, petrol, building materials and food services rose 0.9 per cent last month after an upwardly revised 0.7 per cent increase in October.

Still, some analysts said the dollar could be held back by the probability of a partial US government shutdown as President Donald Trump and federal politicians disagree over funding for a border wall. The stopgap funding bill agreed earlier this month will expire on 21 December.

Oil prices licked wounds after Friday's falls on concerns about the global economy.
US West Texas Intermediate crude futures stood almost flat at $51.26 per barrel, after a loss of 2.7 per cent last week.

 

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is senior editor for Morningstar Australia

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