Tuesday 14th May 2019

OPENING CALL: The Australian market looks to open lower with SPI Futures down 54 points.

The escalating U.S.-China trade battle sent stocks and oil lower, while pushing Treasury prices, the dollar and gold higher.

Overnight Summary


Market Quotes by TradingView

Each Market In Focus

Australian Market
US Markets

Stocks posted their biggest drop in months, after officials in Beijing and the White House exchanged fresh threats in a trade fight that many fear could crimp growth. Major indexes have made a sharp retreat from records as trade tensions between the world’s two biggest economies have ratcheted higher. Chinese officials said Monday that they would raise tariffs on roughly $60 billion worth of U.S. imports, following through on threats last week to hit back at the U.S. after its own increase in tariffs went into effect. The Dow Jones Industrial Average fell 617.38 points, or 2.4%, to 25324.99 and the S&P
500 dropped 69.53 points, or 2.4%, to 2811.87, with both indexes posting their biggest one-day losses since Jan. 3. The Nasdaq Composite declined 269.92 points, or 3.4%, to 7647.02 in its worst showing since December. The moves showed investors that one of the biggest assumptions many had held this year could be in danger of falling apart. Many money managers had credited the stock market’s 2019 rally to a combination of easy monetary policy, steady growth in the U.S. and signs of progress in trade negotiations. There is still time for the U.S. and China to carve out a trade agreement, analysts said, noting the two countries’ increased tariffs won’t hit goods in transit immediately. And U.S. indexes are still up solidly for the year: The S&P 500 and Nasdaq are up double-digit percentages in 2019, rebounding from a fourth-quarter rout. Stocks pared some of Monday’s losses after President Trump said he would meet with Chinese President Xi Jinping at the upcoming G-20 summit. Still, investors and analysts say a breakdown of trade talks risks damaging business and consumer confidence, potentially crimping spending at a time when growth is already widely expected to moderate. UBS analysts estimate U.S. growth could drop by 0.75 to 1 percentage point and stocks could fall double-digit percentages if the U.S. hits all Chinese exports with 25% tariffs. Heavy machinery maker Caterpillar fell $6.04, or 4.6%, to $125.30, while Boeing lost $17.30, or 4.9%, to $337.37 and memory-chip maker Micron Technology shed $1.56, or 4%, to $37.38. The group has been sensitive to developments on trade, especially because many analysts believe its profits are closely tied to global growth and demand from China. iPhone maker Apple, which assembles almost all of its goods in China, slid $11.46, or 5.8%, to $185.72. The Russell 2000 index of small capitalization companies, which tends to be especially sensitive to U.S. growth prospects, lost 3.2%.

Commodities

Front-month copper for May delivery slid 2% to $2.7295 a pound on the Comex division of the New York Mercantile Exchange-its lowest close since Jan. 28. Prices have dropped in four of the past five sessions and trimmed much of their 2019 advance by declining 8.3% below their peaks hit in late April. Because China is the largest consumer of the industrial metal critical for construction and manufacturing, accounting for roughly half of global demand, copper prices are sensitive to perceptions about Chinese growth and have fallen following recent trade developments. After many analysts expected Chinese stimulus measures and a U.S.-China trade agreement to spur global economic activity, the latest breakdown in negotiations last week in Washington and higher tariffs have fueled declines across stocks and commodities in recent days. Elsewhere in base metals Monday, aluminum for delivery in three months closed up less than 0.1% to $1,809 a metric ton on the London Metal Exchange. Zinc shed 2.4% to $2,567, tin dropped 1.5% to $19,325, nickel declined 1.1% to $11,786 and lead closed down 2% at $1,785. Among precious metals, front-month gold for May delivery advanced 1.1% to $1,300.10 a troy ounce-its best day since Feb. 19. Prices climbed to their highest level in a month with some analysts seeking safer assets that hold their value more effectively during times of market turbulence. Most-active silver futures shed 0.1% to $14.777 a troy ounce. Platinum dropped 1.2% to $854.90, while palladium slipped 2.5% to $1,316.80.

Iron Ore: 92.00s – 0.52 (Contract)

Oil Futures

Oil prices fell to a six-week low on worries of a full-blown U.S.-China trade war that could hurt global demand for crude oil. West Texas Intermediate futures, the U.S. oil benchmark, ended 1% lower at $61.04 a barrel on the New York Mercantile Exchange, its lowest closing price since March 29. WTI prices have fallen 4.5% this month. Brent crude, the global oil gauge, ended down 0.6% at $70.23 a barrel on London’s Intercontinental Exchange. Oil prices had surged early in the session after two Saudi Arabian oil tankers were sabotaged in an attack over the weekend near the Strait of Hormuz amid tensions between Iran and the U.S. and its allies in the region. “Without further evidence or details [regarding the Saudi tankers], and no smoking gun, the narrative has returned to the U.S.-China trade standoff,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors. “Basically, what started as a geopolitical story for oil markets this morning has now caught up with selling across markets.” The Dow Jones Industrial Average was recently 621 points lower. Beijing said Monday that it would raise tariffs on certain U.S. imports, after President Trump last week accused China of reneging on previously agreed to concessions and raised tariffs on Chinese goods. “With renewed global trade conflict between the U.S. and China, investors will be concerned over the subsequent impact trade conflict could have on the already-slowing global economy,” said Mihir Kapadia, chief executive of Sun Global Investments. “Traders will be following developments closely, to see if an escalating trade war would impact prices.”While the U.S.-China trade talks could be the key broader-market issue this week, analysts at Simmons Energy said monthly reports this week from the Organization of the Petroleum Exporting Countries and the International Energy Agency will be closely watched by the oil market. “It will be interesting to see if the IEA reduces their oil demand forecast to move in line with the IMF’s view of slower global economic growth,” the Simmons analysts said. Higher efficiency levels have lowered the break-even level for oil exploration and is fueling a revival in investment interest, according to a Wood Mackenzie survey of 258 senior energy executives. Some 22% of respondents said exploration can break even with Brent at $55-$60 a barrel while 18% are comfortable at $45-$50. That compares with $80 four years ago, prior to the market’s price plunge. Oil investors are paying too much attention to U.S. China trade tensions and too little to how the decrease in Russian crude cargoes due to contamination would add to lower supplies from Iran, Energy Aspects said. “We are expecting demand to outstrip supply by nearly 1 million barrels/day” this quarter. In April, high levels of organochloride were found in crude transported through the Druzhba pipeline and shipments were suspended. In other commodities markets, copper prices fell, dropping to their lowest levels since late January after China said it would raise tariffs on about $60 billion of U.S. imports and again raised the prospect of a drawn-out trade spat that could slow the global economy.

Forex

The Chinese yuan tumbled more than 1.1% versus the dollar, on track to log its biggest daily loss in nearly four years, after trade relations between the U.S. and China headed toward a new low. The offshore yuan hit a session low at 6.9184 versus the dollar, down 1.2%, which would mark its worst session since Aug. 11, 2015, according to Dow Jones Market Data. Furthermore, the yuan has fallen more than 1% daily just three times since 2010. The yuan was under pressure at the start of Asian trading hours on Monday, but losses accelerated when China announced it would place tariffs on $60 billion worth of U.S. goods. The announcement came after the U.S. increased tariffs on $200 billion of goods to 25% from 10% on Friday. The yuan is around 1.3% from hitting 7.00 versus the U.S. dollar. Meanwhile, the yuan collapsed nearly 2% against the Japanese yen, as investors sought out currencies perceived as havens, putting further pressure on the Japanese economy.

European Markets
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