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Global Market Report - 23 August

Glenn Freeman  |  23 Aug 2018Text size  Decrease  Increase  |  
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Australia

The Australian dollar has found support from upbeat domestic economic news, and fared surprisingly well despite ongoing uncertainty around the political future of Prime Minister Malcolm Turnbull and the Liberal Party itself.

Investors are also weighing the potential impact – both in currency terms and on global markets – of the guilty plea by President Donald Trump's former personal lawyer Michael Cohen, and the conviction his former campaign chairman Paul Manafort.

Prime Minister Malcolm Turnbull faced another possible challenge to his leadership last night, and expectations of another spill motion this morning – just a day after narrowly winning a party vote of confidence.

So far, investors have looked past the uncertainty, in large part because there is no threat to the independence of the Reserve Bank of Australia or to the prospect of a return to budget surpluses.

The resilience of the economy was underlined on Wednesday by data showing spending on construction work jumped 1.6 per cent in the second quarter, double market forecasts.

Home building was particularly strong and promised to make a solid contribution to economic activity in the quarter.

"The construction sector is a growth engine. Importantly, the capital stock is expanding to meet the requirements of a fast-growing population and government spending is expanding at a well above trend pace," Westpac senior economist Andrew Hanlan told newswire AAP.

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That helped keep the Aussie hovering around 73.55 US cents, well above the recent 18-month trough of 72.03.

Australian government bonds held firm, with yields on 10-year debt near their lowest for the year so far at 2.54 per cent.

Three-year bond futures were steady at 97.960, while the 10-year contract eased half a tick to 97.4600.

Asia

Japan’s Nikkei closed higher yesterday, supported largely by tech shares. These tracked the gains of their US peers, although telcos were volatile, on government regulatory changes within the sector.

The Nikkei share average gained 0.64 percent to end the day at 22,362.55 after briefly dipping into negative territory early in the session.

Upcoming US-China trade talks, scheduled for later Wednesday Washington-time, has had a minimal impact on investor sentiment – particularly because they are lower-level, and as US President Trump cast doubt on the prospect of another meeting with China's President later in the year.

Tech shares outperformed, with Advantest Corp surging 1.6 percent and Tokyo Electron soaring 2.4 percent.

In China, both the Shanghai SE Composite and Shanghai SE A Share index were down 0.7 per cent, to 2,714.6 and 2,842.7 respectively.

The CSI 300 fell 0.5 per cent to 3,307, and the SSE 50 index was down just under 0.1 per cent.

Europe

European shares remained largely steady yesterday. The pan-European STOXX 600 was flat, closing up just 0.3 per cent at its close, while investors awaited the outcome of US-China talks.

Oil and gas stocks posted the best performance as oil prices hit a weekly high, on the back of anticipated supply restrictions and further price support from US sanctions on Iran.

While a rise in the oil price boosted oil stocks, and miners performed strongly, the automotive sector underperformed. It dropped more than 3 per cent, returning its biggest daily fall since the Brexit vote in June 2016. Automotive supplier Continental was one of the worst in the category, its share price down 14 per cent on the back of a profit warning.

In Belgium, biopharma Argenx rose 4.7 percent, and among smaller companies, Dutch payment processing company Adyen's share price jumped 4.3 per cent as it reported a 75 per cent boost in first half profits.

Italian infrastructure group Atlantia declined steadily, ending 4 per cent down, despite having risen earlier in the day. Industrial gas supplier Linde also dipped 0.6 percent after warning that divestments were needed.

North America

US stock performance was mixed at the market close. The Nasdaq gained on the strength of tech stocks, while the S&P 500 was little changed as it marked its longest bull market run.

The legal woes of two former advisers to US President Donald Trump contributed to investors' caution, while the release on Wednesday of the Federal Open Market Committee's minutes from its last policy meeting had only a fleeting impact on Wall Street's major indexes.

US central bankers discussed raising interest rates soon, to counter excessive economic strength but also examined how global trade disputes could batter businesses and households.

Energy stocks rose 1.2 per cent as oil prices jumped, while retailers gained after Target and Lowe's announced quarterly results. The biggest boost to the S&P 500 came from technology stocks, which advanced 0.5 per cent.

Former Trump campaign manager Paul Manafort was found guilty of tax and bank fraud charges on Tuesday evening, while Trump's former personal lawyer Michael Cohen pleaded guilty to a range of charges and said he acted at the direction of Trump. Investors are considering whether the twin setback will hurt the Republican Party's election prospects and widen a criminal probe that has overshadowed Trump's presidency.

US stocks fell slightly yesterday as the Fed released minutes from its 31 July / 1 August meeting. It has been raising rates gradually since 2015, and the meeting notes reiterate FOMC members' concerns that the economy is so strong, inflation could rise persistently above the 2 per cent target.

Rates were unchanged at their last meeting, but another rate hike soon is increasingly likely. The Fed has raised rates twice this year and is widely expected to tighten policy again in September.

The Dow Jones Industrial Average on Wednesday fell 88.69 points, or 0.34 per cent, to 25,733.6, the S&P 500 lost 1.14 points, or 0.04 per cent, to 2,861.82 and the Nasdaq Composite added 29.92 points, or 0.38 per cent, to 7,889.10.

On Tuesday, the S&P 500 reached an all-time intraday high but ended the session below that level.
The S&P's bull market run has now stretched for 3,453 days, the longest streak by commonly used definitions, and comes a day after it hit a record intraday high.

The share price of retailer Target touched an all-time high after it beat quarterly estimates and raised its full-year profit forecast. Target shares ended the session up 3.2 per cent.

Lowe's shares also hit a record high after the home improvement chain promised to cut back slow-moving products and unsuccessful business projects. They closed up 5.8 per cent.

The S&P 500 posted 21 new 52-week highs and no new lows; the Nasdaq Composite recorded 109 new highs and 22 new lows. Volume on US exchanges was 5.26 billion shares, compared to the 6.42 billion average over the last 20 trading days.

 

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Morningstar with AAP, Reuters and Bloomberg 

Glenn Freeman is senior editor, Morningstar Australia

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

 

is senior editor for Morningstar Australia

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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