Friday: 3rd August 2018

OPENING CALL: The Australian market looks to open higher with SPI Futures up 21 points.

U.S. stocks ended mixed, with the technology sector lifting the S&P 500. U.S. government bonds were higher. The dollar was stronger based on confidence in the economy. After an overnight decline, crude oil ended higher. And gold settled at a more-than-one-year low on trade tensions.

Overnight Summary


Market Quotes by TradingView

Each Market In Focus

Australian Market
US Markets

Shares of technology companies rallied to lift the S&P 500, even as investors grappled with the Trump administration’s threat to deepen its trade spat with China. Tech stocks continued to flex their muscles after several more companies, including car maker Tesla and software company Global Payments, reported upbeat results. The gains spilled over to the broader tech sector, while a post-earnings bounce helped to push Apple’s market value above $1 trillion in recent trading, making it the first U.S. company ever to surpass that mark. The strong earnings helped to reinvigorate a corner of the stock market that has been struggling in recent days. Weak earnings from popular stocks such as Facebook and Netflix caused the S&P 500’s tech sector to contract 2.2% over the past eight trading sessions through Wednesday. The sector’s 1.4% rise, the most of the S&P 500’s 11 sectors, was enough to swing tech stocks back into positive territory for the week. The upbeat results among tech companies, as well as some consumer-staple firms, helped offset the latest concerns of a protracted trade dispute between the two biggest economies in the world. Earlier in the day, stocks fell amid heightened concerns over the escalating trade dispute between the U.S. and China.

Commodities

Copper has long been viewed as a bellwether for sentiment about the health of the Chinese economy, with the country accounting for roughly half of global demand of the metal, which is integral to the nation’s industrial expansion. The metal is also increasingly being seen as a proxy for whether a trade dispute with the U.S. will stifle growth. Renewed fears about the state of the Chinese economy come during a week when statements from China’s Politburo meeting alluded to the economic threat posed by increasing friction. While policy has recently focused on debt control and reducing easily available credit, the Politburo’s statements suggest the new challenge would supersede previous policy. Chinese authorities have recently touted fiscal and monetary stimulus. BMO Capital Markets’ Colin Hamilton says China is effectively looking after its domestic economy in the face of a potential “trade war.” Meanwhile, gold futures fell, closing at a more-than-one-year low, as trade tensions between the U.S. and China resurfaced a day after the Federal Reserve affirmed its intention to lift rates further in 2018. Both factors have given the U.S. dollar more buoyancy in recent trade, weighing on commodities pegged to the currency. December gold fell by $7.50, or 0.6%, to settle at $1,220.10 an ounce. Gold gained in electronic trading in the immediate aftermath of the Fed decision, which came a half-hour after gold futures settled Wednesday, then retreated. Gold, which hasn’t ended a session at level this low since July 2017, has now posted loss in five out the past six sessions.

IRON ORE: 66.81 + 0.19 (September contract)

Oil Futures

Oil prices rose, reversing course after falling to the lowest point in six weeks overnight. West Texas Intermediate futures rose 1.9% to $68.96 a barrel at the New York Mercantile Exchange, while Brent crude, the global benchmark, rose 1.5% to $73.45 a barrel. Prices had tumbled after the U.S. Energy Information Administration said late Wednesday that U.S. crude-oil inventories rose unexpectedly. Stocks increased by 3.8 million barrels last week, to 409 million barrels. Traders and analysts surveyed by The Wall Street Journal had predicted an average weekly decline of 2.2 million barrels. Part of the recovery was driven by traders reacting to chart patterns, said Kyle Cooper, a consultant for ION Energy. U.S. futures fell to their 100-day moving average of around $67.90 a barrel, before rebounding.

Forex

The U.S. dollar climbed as investors continued to bet on the country’s strong economy after a positive assessment at the Federal Reserve’s meeting. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, rose for a third day, jumping 0.5% to 88.82. The index closed at its second-highest mark this year and the most since July 19. The dollar rose ahead of Labor Department data scheduled for release Friday, which is expected to show that job gains continued at a brisk pace in July. The Fed repeatedly emphasized the economy’s strength in a statement released after its two-day policy meeting Wednesday. The central bank offered nothing to dispel market expectations that it would deliver its third interest-rate increase of the year when it meets in late September. The Fed held interest rates steady in a range between 1.75% and 2%. It has raised them two times this year. Fed funds futures, which investors use to bet on the direction of central bank policy, early in the day suggested a 72% probability that the Fed will raise rates at least two more times this year, up from 46% a month ago. Higher interest rates typically attract investors to a currency.

European Markets

Demand for haven bonds, such as those issued by the U.S. and Germany, also got a boost from a decline in Italian government bonds amid renewed concerns among investors about the country’s political situation. The yield on the 10-year Italian government bond climbed to 2.914%, according to Tradeweb, from 2.784% Wednesday. Treasurys paired some gains in the morning as stocks stabilized and investors looked ahead to the U.S. employment report Friday and a round of U.S. debt auctions next week.

Asian Markets

In Asia, the Shanghai Composite Index dropped 2% and Hong Kong’s Hang Seng fell 2.3%. Japan’s Nikkei and South Korea’s Kospi were also down, by 1% and 1.6%, respectively. On Wednesday the Trump administration threatened to more than double proposed tariffs on $200 billion of Chinese goods to 25%, up from an original 10%. While the administration didn’t give specific reasons for the potential increase, industry officials who have discussed the move with the White House say one reason is to compensate for a declining yuan. The Chinese currency has dropped over 7% against the dollar in the last three months. Asian indexes widely fell more than 1% following heavy declines in China. Chinese indexes rebounded in the afternoon, yet only narrowed the day’s drop to 2%.

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