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Global Market Report - July 18, 2018

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

Local shares are set to open higher after Wall Street posted its fourth straight session of gains buoyed by the optimistic outlook of Federal Reserve chairman Jerome Powell. 

The Australian futures index was up 21 point or 0.34 per cent at 8.30am. The Australian dollar is buying 73.88 US cents, down from 74.31 US cents yesterday.

The benchmark S&P/ASX200 index fell 0.61 on Tuesday and 0.43 on Monday.

Wall Street stocks shook off a weak start and the Nasdaq pushed to a fresh record Tuesday as the Federal Reserve chief offered an upbeat appraisal of the US economy.

The Nasdaq Composite Index gained 0.6 per cent to 7,855.12, about 30 points above the record set July 13. The Dow Jones Industrial Average is up 55.53 points or 0.22 per cent at 25.119 points.

Asia

Japan's Nikkei share average rose to a one-month high on Tuesday as a weak yen lifted exporters, offsetting weakness in machinery stocks after data showed China’s growth momentum is cooling.

The weaker yen boosted carmaker shares. Toyota rose 1.3 percent and Nissan added 0.8 per cent.

Some defensive stocks such as railway shares and food companies also attracted buyers, with East Japan Railway Co rising 2.1 per cent and Ajinomoto Co rising 1.9 per cent.

Hong Kong stocks fell on Tuesday, dragged down by energy firms following a plunge in crude oil prices. The Hang Seng index fell 1.3 per cent, to 28,181.68 points, while the China Enterprises Index lost 1.1 per cent, to 10,591.72 points. Sectors fell across the board, led by energy which closed down 1.8 per cent.

The blue-chip CSI300 index closed 0.7 per cent down at 3449.38, while the Shanghai Composite Index ended 0.6 per cent lower at 2798.13 points.

Europe

The UK's FTSE 100 rose 0.34 per cent as encouraging results flowed in from companies including Royal Mail and TalkTalk, though uncertainty over Brexit capped gains.

Royal Mail Group rose 1.8 per cent, paring back some earlier gains, after its results showed better than expected parcel growth.

The stock is highly shorted and the volume of shares on loan has increased at pace since April, according to Astec Analytics data - meaning any good news tends to boost the share price disproportionately as short sellers unwind their trades.

Germany's DAX 30 gained 0.8 per cent overnight. The Stoxx and France's CAC 40 both gained 0.24 per cent.

North America

US Federal Reserve chairman Jerome Powell, discounting the risk that a trade war may throw a global recovery off track, says the economy is on the cusp of "several years" where the job market remains strong and inflation stays around the Fed's 2 per cent target.

In written testimony delivered to the Senate Banking Committee on Tuesday, the Fed chair signalled not just that he believes the economy is doing well, but that an era of stable growth may continue provided the Fed gets its policy decisions right.

The Fed "believes that - for now - the best way forward is to keep gradually raising the federal funds rate" in a way that keeps pace with a strengthening economy but does not raise rates so high or so fast that it weakens growth, Powell said.

Powell did not address his individual views on the appropriate pace of tightening or whether he thinks, as some of his colleagues have argued, that the Fed should pause its rate hike cycle sometime next year if inflation remains under control. But markets expect the central bank to raise rates two more times this year from the current target level of between 1.75 and 2 per cent.

Powell took questions from Senators after presenting his written statement to them, and will appear before a House committee on Wednesday.

Powell and other Fed officials have in recent remarks pointedly declined to declare "victory" in their effort to hit the 2 per cent inflation target, though most have acknowledged that, with joblessness at 4 per cent, their employment goal has been reached.

But the Fed's preferred measure of inflation hit 2.3 per cent in May, and was right at 2 per cent after excluding more volatile food and energy prices.

Inflation is "close" to the Fed's target and "the recent data are encouraging", Powell said as he laid out the reasons why he felt the US' near decade-long expansion was set to continue.

Still-low interest rates, a stable financial system, ongoing global growth and the boost from recent tax cuts and increased federal spending "continue to support the expansion", Powell said.

In equities news, Johnson & Johnson has posted a 3 per cent increase in second-quarter profit, driven by a 20 per cent jump in its prescription drugs business.

 

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Morningstar with AAP

Lex Hall is a Morningstar content editor, based in Sydney.

© 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 content editor for Morningstar Australia

© 2020 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. The article is current as at date of publication.

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