Monday 3rd June 2019

OPENING CALL: The Australian share market is expected to open lower. The SPI200 futures contract was down 24 points.

The steep declines came alongside a broad retreat in riskier assets after President Trump announced a plan to impose escalating tariffs on Mexican imports.

Oil prices extended declines on Friday after weekly data showed the number of active oil rigs in the U.S. rose by three to 800, an indication that domestic oil production could continue to ramp up over the coming months.

Overnight Summary


Market Quotes by TradingView

Each Market In Focus

Australian Market

Australian shares look set to begin the week in the red, unsettled by rising
trade tensions after President Trump threatened Mexico with across the board tariffs.
Major US stock indexes were rattled, capping a rough month and the longest losing streak
for the Dow industrials since 2011. Local futures hint at an opening loss of about 0.4%
after the S&P/ASX 200 settled at 6396.9, up less than 0.1% on Friday but down 0.9% over
the week. The index has fallen in five of the last seven sessions. Energy shares are
likely to come under pressure after oil futures fell sharply, though a surge in gold
prices could offer support for miners of the precious metal. In early headlines, ANZ has
completed the sale of its Australian life-insurance business.

US Markets

Rising trade tensions sent stocks and bond yields around the world skidding, capping a
brutal month for markets that caused the Dow industrials to notch their longest losing
streak since 2011.
Investors fled riskier assets after President Trump threatened to impose escalating
tariffs on Mexico, a move investors fear could hurt corporate earnings, increase prices
for U.S. consumers and crimp economic growth. The Mexican peso fell 2.4% against the
dollar, while government bonds, gold and the Japanese yen, all typically perceived as
havens, gained.
Major U.S. stock indexes lost more than 1% and closed the month of May down more than
6.5%, their worst monthly performance since December. The Dow Jones Industrial Average
declined 354.84 points, or 1.4%, to 24815.04 on Friday, capping its sixth consecutive
week of losses, the longest losing streak since 2011. The S&P 500 fell 36.80 points, or
1.3%, to 2752.06 while the Nasdaq Composite lost 114.57 points, or 1.5%, to 7453.15. All
three indexes remain up for the year, though gains have shrunk, with the Dow industrials
now only up 6.4% in 2019.
Investor unease also rippled across the bond market. The yield on 10-year U.S.
Treasurys declined to 2.139%, marking its largest one-month yield decline since 2015, and
leaving yields at their lowest level since September 2017. Gold, a haven investors tend
to put money in when they’re worried about the economy, rose to $1,305.80 a troy ounce,
up 1.8% in May, its biggest monthly gain since January. Yields on German 10-year bunds
fell to minus 0.201%, an all-time low.
At the heart of May’s stock and bond-yield drop: The fear that the U.S. economy’s
nearly decadelong expansion–which in July will become the longest on record–may be
nearing an end. While few analysts anticipate an imminent recession, many worry that
economic growth could stumble as companies rein in spending and higher tariffs around the
world hurt sales.
Mr. Trump said late Thursday that the U.S. would impose escalating tariffs on its
southern neighbor starting June 10, unless the country takes action to deter the flow of
Central American migrants passing through its borders. The levies could hit 25% by
October if Mexico fails to satisfy the White House’s demands. It’s the latest in mounting
trade tensions. Through Friday, the administration has imposed 25% tariffs on roughly
$250 billion of Chinese imports. It has threatened to add even more goods to its tariff
lists.

Commodities

Gold prices surged, advancing to their highest level since early April with fears about
a slowing economy pushing some investors toward safer assets and the dollar declining.
Gold for July delivery, the most-active futures contract, rose 1.4% to $1,311.10 a troy
ounce on the Comex division of the New York Mercantile Exchange. Despite recent
stock-market volatility, prices are only slightly higher for the month and year with many
analysts preferring the safety of U.S. Treasurys and the dollar.
However, the WSJ Dollar Index, which tracks the dollar against a basket of 16 other
currencies, dropped 0.4% Friday, making gold and other commodities denominated in dollars
cheaper for overseas buyers.
Recent drops in risky investments have made gold more attractive, analysts say, and
many say further declines in the dollar could give the haven metal a further boost. A
slide in Treasury yields could also make gold more attractive to yield-seeking investors.

Elsewhere in precious metals Friday, most-active silver futures added 0.5% to $14.567 a
troy ounce. Platinum closed up less than 0.1% at $794.20, while palladium slid 2.5% to
$1,331.50.
Among base metals, most-active copper futures slid 0.5% to $2.64 a pound, falling for
the eighth time in 10 sessions after data showed activity in Chinese factories slumped in
May. Tepid global manufacturing data around the world have recently hurt industrial
metals including copper.
On the London Metal Exchange, aluminum for delivery in three months added 0.7% to
$1,794.50 a metric ton. Zinc slid 1.4% to $2,524, tin dropped 0.3% to $18,715, nickel
declined 1.3% to $12,017 and lead advanced less than 0.1% to $1,805.

Oil Futures

Oil prices fell sharply to their lowest levels in more than three months, as concerns
about President Trump’s trade policy and the slowdown in the Chinese economy cast doubt
on the outlook for global demand.
Light, sweet crude for July delivery fell 5.5% to $53.50 a barrel on the New York
Mercantile Exchange, its lowest level since Feb. 12. U.S. prices have fallen about 16% in
May, the worst month since November when they fell 22%. Brent, the global benchmark,
declined 3.6% to $64.49.

Forex

Investors dumped the Mexican peso and piled into haven assets, as President Trump’s
threat to impose tariffs on Mexico rattled global markets.
The peso was recently down around 2.5% against the dollar after hitting its lowest
levels of the year earlier in the session. The dollar fell 1.3% against the Japanese yen,
while other popular destinations for nervous investors, such as gold and the Swiss franc,
also rose.
Mr. Trump said late Thursday that the U.S. would impose escalating tariffs on its
southern neighbor starting June 10, unless the country takes action to deter the flow of
Central American migrants passing through its borders. The levies could hit 25% by
October if Mexico fails to satisfy the White House’s demands.
Mexican President Andrés Manuel López Obrador responded with a letter addressed to Mr.
Trump in which he called for deeper dialogue on the migration issue. The measured
response lifted some investors’ hopes for a quick resolution that could buoy the peso
from its recent lows.
Investors have been quick to back away from Mexican assets during past bouts of tension
between the two countries. Mexico’s stocks and currency tumbled during the run-up to the
U.S. president’s 2017 inauguration as Mr. Trump pledged to renegotiate the North American
Free Trade Agreement, and asset prices have tended to waver when rhetoric has heated up.
The most recent announcement comes as investors are already grappling with an
escalating trade fight between the U.S. and China, the world’s second-largest economy.
Expectations of future flare-ups in trade tensions will likely keep investors in a
defensive posture in coming months, analysts said.

European Markets
Asian Markets

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