Monday 11th February 2019

OPENING CALL: The Australian market looks to open flat.

Although Australia’s stock benchmark snapped a four-day winning streak, it fared better than most in Asia Pacific as the market weathered a hit from the previous day’s slide in oil prices.
The Dow Jones Industrial Average pared its losses heading into the closing bell to notch its seventh consecutive weekly gain, a sign of the stock market’s resilience even in the face of heightened uncertainty.

Overnight Summary


Market Quotes by TradingView

Each Market In Focus

Australian Market

Although Australia’s stock benchmark snapped a four-day winning streak, it fared better than most in Asia Pacific as the market weathered a hit from the previous day’s slide in oil prices. The S&P/ASX 200 fell 0.3% to 6071.5, with energy sliding 2.6% to erase most of this week’s gain. The index jumped 3.6% for the week, the most since President Trump’s election, thanks to financials’ 6.6% pop amid the royal commission’s report. That was the sector’s biggest gain since December 2011; it finished little changed today. Materials fell 1.25%, but REITs rose 0.9%, hitting fresh 2.5-year highs.

US Markets

The Dow Jones Industrial Average pared its losses heading into the closing bell to notch its seventh consecutive weekly gain, a sign of the stock market’s resilience even in the face of heightened uncertainty. A late-afternoon comeback left the blue-chip index down 63.20 points, after earlier falling more than 285 points. The index surged in the final 10 minutes of the session to secure a 0.2% gain for the week–its longest winning streak since November 2017 when the market rose for eight straight weeks. Stocks had been under pressure earlier in the day amid growing investor unease about shaky economic data from the eurozone, renewed trade uncertainty and concerns about weakening corporate earnings. Investors were jolted Thursday when the European Commission slashed its growth forecasts for Germany and Italy, and the Bank of England sounded a warning on a slowing global economy. Later that day, White House economic adviser Larry Kudlow said the U.S. and China were still “far away” from securing a trade deal. “I’m worried,” said Andrew Slimmon, senior portfolio manager with Morgan Stanley Investment Management. While global growth is an ever-present concern, he said he is focusing on recent signs of a slowdown in corporate earnings. For the first quarter, companies in the S&P 500 are now expected to post their first year-over-year profit decline in nearly three years. The swift drop in estimates over recent weeks has him worried about not just one, but two consecutive quarters of earnings contraction. Earnings reports swung individual stocks. Skechers USA soared $4.21, or 15%, to $31.91 after the shoe company offered a stronger-than expected first-quarter outlook. Mattel jumped 2.87, or 23%, to 15.23 after its results topped analysts’ estimates for earnings and revenue. Hasbro shares fell 86 cents, or 1%, to 89.39 after the toy company posted a drop in quarterly sales.

Commodities

Iron-ore futures reached fresh 4½-year highs, with ongoing tumult for miner Vale SA
extending the ferrous metal’s sharp recent gains. Benchmark iron ore with 62% iron content climbed 2.8% to $94.85 a metric ton, its highest since early August 2014, having risen more than 9% so far this week. Iron ore’s price surge continued Friday as Vale, the world’s largest iron-ore miner, said it was complying with orders from the Brazilian mining regulator and evacuating 500 residents from a rural town near a dam containing mining waste in Minas Gerais state. In the short-term, Citi said Thursday it was raising its price forecast within the next three months to $100 a ton, which would be the highest price since May 2014. While “the situation is extremely fluid… spare capacity in the iron ore market will be severely reduced for years to come, likely contributing to more frequent price spikes on supply disruptions…” said Tracy Xian Liao, commodities strategist at Citi, in a note. From a longer-term point of view, the market seems less united, with UBS analyst Myles Allsop noting his expectation for iron-ore prices to “moderate as supply normalizes over [the] next 12 months with demand lackluster.” In base metals, most-active Comex copper futures for March delivery edged down 0.6% to $2.8105 a pound. Aluminum for delivery in three months on the London Metal Exchange fell 0.7% to $1,881 a metric ton. Zinc fell 1% to $2,704, tin inched up 0.5% to $21,050, nickel dropped 3.2% to $12,570 and lead was unchanged at $2,080. Among precious metals, Comex gold futures for April delivery finished up 0.3% at $1,318.50 a troy ounce. Silver rose 0.6% to $15.809, platinum climbed 0.7% to $802.50 and palladium ended up 1% at $1,371.20.

Iron Ore: 90.99s + 0.68 (March Contract)

Oil Futures

Oil prices settled higher as supply risks outweighed concerns over a global economic
slowdown. Light, sweet crude for March delivery gained 0.15% to $52.72 a barrel on the New York Mercantile Exchange, reversing earlier losses. Brent, the global benchmark, settled up 0.8% at $62.10 a barrel. Prices were supported after clashes resumed near Libya’s biggest oil field, the Sharara, dashing expectations that production would resume soon there. On Wednesday, a Libyan general took control of the field, raising the likelihood the facility will restart production. It has a capacity of roughly 300,000 barrels a day. The facilities were shut down late in 2018 after a group of armed gunmen took control of the field demanding better living conditions in the region. “The disruptions will not be resolved soon…and keep giving some support to oil prices,” said Giovanni Staunovo, commodities strategist at UBS Wealth Management. Concerns about softer global economic growth and knock-on effects on world oil demand have kept a ceiling on prices in recent weeks. “Growing economic concerns, falling stock markets and emerging doubts that the trade conflict between the U.S. and China will be resolved are putting oil prices under pressure,” according to analysts at Commerzbank . “Following its steep rise at the beginning of the year, Brent has mostly been moving in a narrow range of between $60 and $63 per barrel since mid-January,” the analysts noted. “Fears about a global economic slowdown and the correction seen on stock markets in the last few days are pulling down the oil price,” said Carlo Alberto de Casa, chief analyst at ActivTrades. “The bullish momentum seen in early January has lost impulse and crude is now caged in a lateral phase,” he added. Brent and WTI have both risen roughly 20% since reaching annual lows in the last week of December. A bipartisan group of U.S. senators on Thursday unveiled a bill that would allow the Justice Department to sue members of the Organization of the Petroleum Exporting Countries for antitrust violations. The House Judiciary Committee Thursday advanced a parallel measure. “If the U.S. NOPEC legislation is voted through and becomes law it could definitely be bearish for oil prices right here and now given that OPEC+ is in the midst of tactical production cuts right this moment,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. The potential legislation comes as OPEC is looking to formalize closer ties with its partner allies outside the oil-cartel, led by Russia. OPEC, de facto led by Saudi Arabia, and its allies agreed late last year to hold back crude output by a collective 1.2 million barrels a day for the first half of this year. The latest production curb deal between the producers was meant to rein in a burgeoning supply glut and boost prices. The number of rigs drilling for oil in the U.S. rose by seven in the past week to 854, according to Baker Hughes data. The weekly data indicate that U.S. production is climbing, generally a bearish sign for oil prices. OPEC and the International Energy Agency release their monthly oil market reports on Tuesday and Wednesday, respectively.

Forex

The U.S. dollar was on track for its strongest weekly gain since August, while most major currency pairs traded in tight ranges. The ICE U.S. Dollar Index was up 1.1% for the week, its first such advance since the week ended Jan. 18, which would also mark the buck’s most assertive weekly percentage gain in six months, according to FactSet data. On the day, the gauge was up 0.1% at 96.630. With U.S.-China trade talks serving as a sword of Damocles hanging over the market, investors were attuned to fresh tariff developments, including President Donald Trump’s confirmation that he wouldn’t meet Chinese President Xi Jinping before a March 1 trade deadline. CNBC, however, reported that tariffs on Chinese goods were likely to stay at 10% after the deadline in the absence of an agreement rather than rise to 25%, as scheduled. “Against a backdrop of slowing growth and lower forecasts it’s certainly unwelcome that Presidents Trump and Xi won’t be meeting in the next couple of weeks, however it doesn’t mean that we won’t see another tariff suspension in order for talks to continue, and that might be something that investors might be able to hang their hats on when China returns from its Lunar New Year holiday,” said Michael Hewson, chief market analyst at CMC Markets UK, in a Friday research note. Canada’s jobs report showed 66,800 jobs were created in January, overshooting the FactSet consensus estimate of just 5,000 and leading the Canadian dollar to rally. Canadian unemployment, however, rose to 5.8%, compared with 5.7% expected. Before the data, the U.S. dollar was slightly stronger versus its Northern neighbor, before sliding to a session low of C$1.3233. The greenback last bought C$1.3270, compared with C$1.3309. In Europe, German trade data showed an increase in both imports and exports in December. The figures also beat consensus estimates. Germany’s imports rose 1.2%, while exports grew 1.5%. The trade surplus rose to EUR19.4 billion. The euro was slightly weaker at $1.1325, compared with $1.1341 late Thursday. Similarly, the British pound slipped to $1.2934, down 0.1%. Prime Minister Theresa May on Friday was traveling to Ireland in an effort to secure changes to her Brexit deal.

European Markets

The Stoxx Europe 600 fell 0.6%, or 2.01 points to 358.07 as trade and economic fears
hit market sentiment. “A varied set of indicators flashing signs of slowing global growth were enough to unnerve investors,” said Jasper Lawler at London Capital Group. “The huge reversal in industrial production during December in the Netherlands, a record loss from Tata Motors and a dividend cut from global construction giant Skanska were some signs of a weaker global environment that caught our eye.” Swedish air-conditioning and refrigeration supplier Dometic Group was the top riser, up nearly 16% after a 25% increase in fourth-quarter sales.

Asian Markets

Japanese and South Korean stocks were noted laggards today in Asia as they faced downbeat earnings and U.S.-led tech weakness, respectively. After declines of at least 1% in the U.S. and Europe on Thursday amid economic worries, Asian equities got off on the wrong foot. Japan’s Nikkei Stock Average slumped 2% to its lowest level in a month. Hong Kong’s Hang Seng, which reopened for trading following the Lunar New Year holiday, edged down 0.2%.

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