Tuesday 21st May 2019

OPENING CALL: The Australian market looks to open lower with SPI Futures down 41 points.

The Australian dollar rallied by as much as 1% after the incumbent Liberal-National government retained power in a surprise election result, defeating the favored Labor party.
Shares of technology companies skidded after some U.S. businesses moved to comply with restrictions against Huawei Technologies, setting up major stock indexes for another tough week amid the escalating trade spat.

Overnight Summary


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Each Market In Focus

Australian Market
US Markets

Shares of technology companies skidded after some U.S. businesses moved to comply with restrictions against Huawei Technologies, setting up major stock indexes for another tough week amid the escalating trade spat. Investors retreated from Google parent Alphabet, Qualcomm and other technology stocks following reports that those businesses were cutting Huawei’s accessto their technology after the Trump administration put Huawei on a trade blacklist. The moves prompted concerns that the latest actions could further inflame trade tensions between the world’s two largest economies. Most concerning is China’s potential to retaliate against U.S. tech companies that have significant exposure to the country, some investors said. The S&P 500 ended up falling 19.30 points, or 0.7%, to 2840.23 on Monday, potentially setting the broad index up for its third straight weekly loss. Chip makers and hardware manufacturers were among the hardest hit during Monday’s trading, with Apple, Alphabet and Qualcomm all logging significant losses. Both the Dow Jones Industrial Average and the Nasdaq Composite followed the S&P 500 lower Monday. The blue-chip index shed 84.10 points, or 0.3%, to 25679.90, while the tech heavy Nasdaq declined 113.91 points, or 1.5%, to 7702.38. Monday’s losses extended the recent pain tech stocks have experienced since trade tensions resurfaced earlier this month. Those stocks fell another 1.7% Monday, extending tech’s losses for May to 6.1%-the second biggest loss month-to-date out of the 11 major S&P 500 sectors behind shares of material companies. Those losses could worsen, analysts warn, as the trade dispute continues to roil the market. There’s the potential for a rebuttal from China against U.S. tech companies, many of which have a significant exposure to China, such as Apple. The latest round of tariffs are also expected to put additional pressure on profit margins. Besides that, tech stocks are the best-performing sector of the year, and some investors say they have been trimming those holdings to lock in gains in case market conditions deteriorate further. “The recent action against Huawei confirms our view that the relationship between Washington and Beijing will remain tense,” analysts at UBS Group AG’s global wealth-management arm wrote in a note to clients. “The growing rivalry between the world’s two largest economies will simmer in the background, with repercussions on business and investments.”

Commodities

Gold prices got a boost from a weaker U.S. dollar and anxiety over U.S.-China trade negotiations. Gold for June delivery rose 0.1% to $1,277.30 a troy ounce on the Comex division of the New York Mercantile Exchange, bouncing off a two week low. Geopolitical uncertainty also supported demand for the haven metal on Monday. Meanwhile, copper for July delivery fell 0.5% to $2.7260 a pound in New York on economic concerns following the prolonged trade disputes between the U.S. and China. “Following a weak end to the week amid renewed uncertainties in the trade dispute between the U.S. and China, metals prices are down for the most part as the new week of trading begins,” analysts at Commerzbank wrote Monday. Analysts noted that the U.S. lifted tariffs on aluminum and steel imports from Canada and Mexico, which could weigh on other metals prices.

Iron Ore: 97.31s – 0.73 (June Contract)

Oil Futures

U.S. oil prices rose to their highest in nearly three weeks on continued U.S.-Iran tensions and as major crude producers including Saudi Arabia signaled they may maintain production cuts until the end of this year. West Texas Intermediate futures, the U.S. oil benchmark, ended 0.5% higher at $63.10 a barrel on the New York Mercantile Exchange. It was the highest closing price since May 1, and the fourth increase over the past five sessions. Brent crude, the global oil benchmark, closed 0.3% lower at $71.97 a barrel on London’s Intercontinental Exchange. U.S. oil prices rose last week, snapping a streak of three consecutive weekly decreases, as heightened tensions between Iran and the U.S. and its allies sparked fears of supply disruptions in the oil-rich Middle East. On Monday, the market notched further gains after the Organization of the Petroleum Exporting Countries inched closer to extending crude-production cuts until the end of the year to limit supplies. OPEC members and some non-OPEC oil producers including Russia met over the weekend in Jeddah, Saudi Arabia as a precursor to next month’s summit in Vienna. The delegates suggested production quotas agreed to in December when U.S. oil prices were in the $40s per barrel may have to continue until the end of 2019 due to a continued fear of an oil glut. The group agreed last December to cut output by a collective 1.2 million barrels a day. Despite the mostly bullish sentiment emanating from OPEC, oil prices continued to be held back by worries that global demand for oil could take a hit if negotiations between the U.S. and China continue to drag on without a final trade deal, especially since each side continues to ratchet up tariffs.

Forex

The Australian dollar rallied by as much as 1% after the incumbent Liberal National government retained power in a surprise election result, defeating the favored Labor party. The Aussie traded to an intraday high at $0.6937, versus the greenback, up more than 1%, compared with late Friday. In more recent trade, the currency was at $0.6908. The Aussie has dragged the neighboring Kiwi dollar higher, which was most recently trading at $0.6531 versus the U.S. dollar. The ICE Dollar Index, which measures the buck’s strength against six trading rivals, was marginally lower at 97.927. The euro rose to $1.168, compared with $1.1159, while the British pound was a little higher at $1.2737. “This week, the biggest risk for sterling [is] the EU parliament elections on Thursday. Opinion polls suggest the Conservatives will get crushed, with many of their voters defecting to the new Brexit Party. Such a poor showing could add even more pressure on the Tories to rebrand their image by replacing May with a more ‘leave friendly’ leader, like Boris Johnson, consequently keeping the pound under pressure,” Hadjikyriacos added. Yen marginally higher as equities falter. The Japanese yen rose 0.2% to Yen109.94 as investors sought out assets deemed as havens in the wake of falling equity prices.

European Markets

The pan-European Stoxx 600 closed provisionally down around 1.2%, with technology stocks leading the losses with an almost 3% drop on the fallout from heightened American scrutiny of Huawei. President Donald Trump’s administration last week added Huawei to a trade blacklist that blocks it from buying U.S. technology without special approval. Meanwhile, a host of U.S. tech giants from Google to Intel are reported to have distanced themselves from the firm. Reports also emerged of Germany’s Infineon suspending shipments to Huawei, news that resulted in a selloff in major European chipmakers. AMS was the biggest loser among semiconductor stocks in Europe, as well as the worst performer in the Stoxx 600, dropping over 13%. Jitters around Huawei also spread into U.S. markets Monday, with the Dow Jones Industrial Average falling 90 points and the tech-heavy Nasdaq Composite index down more than 1%. The move to clamp down on Huawei comes amid a tense trade battle between Washington and Beijing. CNBC reported on Friday that U.S.-Sino trade negotiations had stalled as the U.S. government heightens scrutiny on Chinese telecom companies.

Asian Markets

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