Thursday: 11th October 2018

OPENING CALL: The Australian market looks to open lower with SPI futures down 109 points.

U.S. stocks plummetted on a continuing surge in Treasury yields. Oil fell as data showed a buildup in inventories. The dollar slipped, boosting gold higher.

Overnight Summary


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Australian Market
US Markets

The Dow Jones Industrial Average plunged more than 800 points, as a continuing surge in Treasury yields prompted the blue-chip index’s biggest pullback since February. Fast rising bond yields and signs of inflation have led investors to worry that profit margins could narrow, sparking one of the biggest downturns of the year among shares of fast growing companies that have benefited from a decade of near zero interest rates. All 11 S&P 500 sectors tumbled, as the broad index fell for a fifth straight session, its worst stretch of trading in nearly two years. Each of the 30 stocks that make up the Dow industrials also notched losses. A measure of stock-market volatility, the Cboe Volatility Index, surged to its highest level since February, causing several investors to compare the stock market’s latest turn to the selloff earlier this year that sent major indexes into correction territory. While the losses were broad, the selling undercut the strong gains that companies such as Amazon.com Inc., Netflix Inc. and Salesforce.com Inc. have contributed to the stock market this year and left some investors who hold those shares flat-footed. Technology stocks have been a major contributor to the 9½-year rally. Investors savored their massive profit margins and exponential sales growth, and many showed a willingness to test the upper limits of stock-market valuations. But the combination of rising interest rates and surging bond yields has upended the stock market’s status quo, several analysts said. With the Federal Reserve’s easy-money policies coming to an end, several analysts and investors are more willing to call for an investment shift that favors shares of more durable companies, such as health-care firms, over the highflying tech stocks that powered the long-running rally. The Dow Jones Industrial Average tumbled 831.83 points, or 3.1%, to 25598.74. The S&P 500 shed 94.66 points, or 3.3%, to 2785.68 to notch its longest losing streak since November 2016. The Nasdaq Composite, meanwhile, fell 315.97 points, or 4.1%, to 7422, its biggest one-day decline since June 2016. Tech stocks in the S&P 500 fell 4.8% to lead the broad index lower, the sector’s worst day of trading since 2011. The communications and consumer discretionary sectors, which include a handful of other tech stocks, also suffered steep declines, falling 3.9% and 3.7%, respectively.

Commodities

In other commodity news, copper prices fell, pressured by a weaker oil price and investor concerns over China, the world’s largest consumer of the metal. Copper for December delivery fell 0.9% to $2.7690 a pound on the Comex division of the New York Mercantile Exchange. Investors were also worried about whether Chinese authorities will be able to support the country’s slowing economy in the face of an intensifying trade battle with the U.S. China accounts for some 45% of global copper demand. Chinese factory output slowed in September amid a sharp drop in export orders, one gauge of the country’s manufacturing sector showed last month, offering more evidence that the trade showdown with the U.S. is bruising the world’s second-largest economy. Copper is a key component in manufacturing and construction, making it sensitive to economic fluctuations. In precious metals, gold for December delivery was up 0.2% at $1,189.30 a troy ounce.

IRON ORE: 69.79s + 0.34 (November contract)

Oil Futures

Oil prices fell sharply, in line with a big drop in stocks on Wall Street and as investors awaited a report expected to show a third-straight weekly rise in U.S. oil inventories. Light, sweet crude for November delivery ended 2.4% lower at $73.17 a barrel on the New York Mercantile Exchange, its lowest settle value in nearly two weeks. Brent crude, the global benchmark, was 2.2% lower at $83.09 a barrel. The Energy Information Administration is due to release its weekly report on U.S. oil inventories Thursday morning. Analysts surveyed by The Wall Street Journal expect, on average, a 1.5-million-barrel increase in crude-oil stockpiles for the week ended Oct. 5, which would follow increases each of the previous two weeks. The string of higher inventories reflects a seasonal drop in oil demand as refineries partially shut down for maintenance activities, and as drivers spend less time on the road than in summer. The American Petroleum Institute, an industry group, said late Wednesday that its own data for the week showed a massive, 9.7 million-barrel increase in crude supplies, a 3.4-million-barrel rise in gasoline stocks and a 3.5 million-barrel decrease in distillate inventories, according to a market participant. Rising U.S. oil inventories, combined with indications of increasing oil production in far-flung places such as Libya, suggests markets may have become too concerned about the impact on declining exports from Iran and crisis-racked Venezuela, according to some analysts. Those worries pushed oil prices to new four-year highs in recent weeks.

Forex

The U.S. dollar fell as investors turned their focus away from long-running thematic trades. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, slipped 0.1% to 90.05. The British pound gained against its major rivals as currency traders focused on progress in talks between the U.K. and the European Union, as Britain attempts to amicably exit from the trading bloc with a trade arrangement in tow. A report from Bloomberg News said EU officials are discussing “a compromise Brexit deal,” which would see the U.K. retain – at least temporarily – some of its pre-Brexit customs arrangement. The sticking point in hardscrabble negotiations between officials from the European trade bloc and the U.K. center on how to avoid erecting a physical border between Northern Ireland, part of the U.K. proper, and Ireland, an EU member. How the overall Brexit deal should be enforced also has been a hot-button issue. Indeed, the British pound rose above its 10-day high Wednesday to $1.3217, up 0.5% on the day, compared with $1.3142 late Tuesday in New York.

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