Australian market expected to open lower 01/08/19

Australian market expected to open lower 01/08/19

OPENING CALL: The Australian share market is expected to open lower. The SPI200 futures contract expected to open down 29 points.

 

The Federal Reserve cut interest rates by a quarter-percentage point-the first reduction since 2008-in a preemptive strike to cushion the economy from a global slowdown and escalating trade tensions.

 

Deutsche Bank AG shares slid a second day as investors and analysts questioned the German lender’s growth projections and management’s grip on restructuring.


 

Overnight Summary

 

 




 

 

 

EACH MARKET IN FOCUS

 

Despite closing out July on a weak note and pulling back from a fresh all-time high, Australia’s stock benchmark still managed a seventh straight monthly advance, the longest run for the index since 2009. The S&P/ASX 200 declined 0.5% to 6812.6, finishing at the session low. That left it up 2.9% for July.

Losses today were broad, led by a 1.1% drop by the utilities subindex and a 1.0% weakening by the consumer discretionary subindex. Heavily weighted Commonwealth Bank and Westpac each shed more than 1%, while U.K. lender CYBG sank 13% after the release of its 3Q update. Energy stocks bucked the trend.

Major U.S. stock indexes’ losses steepened after the Federal Reserve said it would cut interest rates for the first time in a decade, as hopes for further rate cuts were dampened.

Some investors are betting on more than one rate cut this year, and while the Fed’s policy statement left open the door for the central bank to cut rates again, Federal Reserve Chairman Jerome Powell suggested this cut wasn’t the beginning of a long easing cycle. He also reiterated the Fed would continue monitoring incoming economic data. Those
statements could pare investors’ outlook on further rate cuts.

The S&P 500 fell 1.1% in recent trading as Mr. Powell spoke. The Nasdaq Composite dropped 1.2%. The Dow Jones Industrial Average lost more than 300 points, or 1.2%. Major stock indexes have rallied this year, fueled by the prospect of the first rate cut. The end of the meeting marks a pivotal moment for stocks, bonds and currency markets because of potential clues about what comes next, especially with interest rates already historically low. This cut marks just the fifth time in the past 25 years that the Fed moved to trimming rates from increasing them.

The Fed’s policy statement showed that the global economy cast a shadow over the central bank’s outlook. Mr. Powell also cited trade tensions as having a significant effect on the economy in his press conference.

Gold futures finished lower, then extended their decline in to the electronic trading session after the Federal Reserve reduced its key interest rate by a quarter point, as expected.

The yellow metal sold off shortly after the Fed news, but Jeff Wright, executive vice president of GoldMining Inc., said he does not expect prices to dip below $1,400 as “the FOMC cuts 25 basis points and almost acts as [a] ‘cheerleader’ for the economy.”

The most-active December gold contract was trading at $1,439 an ounce in electronic trading about half an hour after the Fed announcement. It had settled down by $4, or 0.3%, at $1,437.80 before the news. For the month, the yellow metal gained about 1.7%, based on the most-active August contract finish of $1,413.70 on June 28. It notched a third consecutive monthly rise, according to FactSet data.

Oil futures finished higher, with U.S. prices up a fifth consecutive session as government data showed that domestic crude inventories dropped for a seventh week in a row, the longest stretch of declines in a year and a half.

Prices had also climbed in the wake of the Federal Reserve’s decision Wednesday afternoon to cut its key interest rate by a quarter percentage point.

West Texas Intermediate crude for September delivery on the New York Mercantile Exchange gained 53 cents, or 0.9%, to settle at $58.58 a barrel, for a fifth straight session rise. For the month, U.S. benchmark prices ended about 0.2% higher, according to Dow Jones Market Data. That was their sixth monthly rise of the year.

Meanwhile, global benchmark September Brent crude , which expired at the end of the session, added 45 cents, or 0.7%, to $65.17 a barrel on ICE Futures Europe–settling roughly 2.1% lower for the month. October Brent crude, which is now the front-month contract, tacked on 42 cents, or 0.7%, to $65.05 a barrel.

The Energy Information Administration on Wednesday reported that U.S. crude supplies declined by 8.5 million barrels for the week ended July 26. Analysts polled by S&P Global Platts, on average, expected a decline of 3.9 million barrels, while the American Petroleum Institute on Tuesday reported a 6 million-barrel drop.

The ICE Dollar Index rose to its highest level in more than two years, after the Federal Reserve accompanied its rate cut with a favourable description of the US economy.

While lower rates typically make the dollar less attractive to yield-seeking investors, the central bank’s optimistic tone may have undercut the case for those who believe the Fed is about to embark on a long cutting cycle.

The Fed’s statement noted that the job market remains strong and growth is continuing at a moderate pace while consumers continue to spend. The Index was recently up 0.6% at 98.68, its highest level since May 2017.

The Stoxx Europe 600 climbed about 0.2%. European bank stocks rose on Wednesday amid a set of strong earnings reports. Credit Suisse climbed 2.4% and BNP Paribas gained 1.6%.

Deutsche Bank’s stock rose 2.1%.

The European Sentiment Index, a barometer of optimism, dropped to a low not seen in more than three years within the euro area. Prolonged weakness in the manufacturing sector, particularly in the eurozone’s largest economy, Germany, weighed on confidence.

Asian stocks were rattled after tweets from President Trump dampened expectations for a breakthrough in U.S.-China trade talks. 
Hong Kong’s Hang Seng was down by 1.3% and the Shanghai Composite Index fell by 0.7%.

Shares of Chinese property developers fell after the country’s leadership vowed not to use the real-estate market as a tool to arrest an economic slowdown.


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