Thursday: 12th July 2018

OPENING CALL: The Australian market looks to open lower with SPI Futures down 8 points.

Australian shares look set to open lower on the back of a fall on Wall Street overnight as Washington’s threat to increase tariffs fanned trade war fears.
U.S. stocks slumped as concerns over escalating trade tensions and falling oil prices outweighed optimism about the upcoming earnings season.

Overnight Summary

Market Quotes by TradingView

Each Market In Focus

Australian Market

Australian stocks didn’t escape the selling seen across the region as trade tensions between the world’s two biggest economies continue to escalate. The S&P/ASX 200 fell 0.7% at 6215.6, led by a 3.8% slump in utilities after a consumer watchdog recommended a sweeping overhaul of the electricity market. That’s the biggest decline in 3 years. Mining and energy each fell 1%. Meanwhile, Australia’s 4-biggest banks recovered from their worst levels of the day after a fairly upbeat speech from the prudential regulator, but were still down 0.5-0.8%. Only consumer stocks managed to finish in the green.

US Markets

U.S. stocks slumped as concerns over escalating trade tensions and falling oil prices outweighed optimism about the upcoming earnings season. The Dow Jones Industrial Average lost 0.7% in the last half hour of trading, while the S&P 500 declined 0.6% and the technology heavy Nasdaq Composite dropped 0.4%. The indexes are on track to break a four-session winning streak and remain modestly higher for the week. The Trump administration said late Tuesday that it would assess 10% tariffs on an additional $200 billion in Chinese goods. The tariffs, which wouldn’t come into effect for at least two months, cover a variety of Chinese products including consumer goods. China called the move “totally unacceptable” in a statement attributed to an unnamed ministry spokesman and vowed to roll out unspecified countermeasures. Despite the sharp declines, many investors remain bullish on the energy sector, which has seen the largest increase in earnings estimates for the second quarter, according to Factset. U.S. stocks have generally been more resilient to the trade tensions than their Chinese peers. In the past, they have rebounded relatively quickly from trade-related pullbacks, partly because the fallout on corporate earnings is expected to be fairly limited. The Shanghai Composite, meanwhile, has declined 16% this year, versus a 4.5% gain for the S&P 500, and the Chinese benchmark slumped 1.8% on Wednesday. Some investors, though, are worried that product-specific tariffs could lead to price increases for U.S. consumers and put pressure on the Federal Reserve to raise interest rates. And the latest round of economic data showed firming inflation, as a gauge of U.S. business prices rose in June. The producer-price index, a measure of the prices businesses receive for their goods and services, rose 3.4% from the year before, the largest annual increase since November 2011, the Labor Department said Wednesday.


Copper tumbled as much as 4% to its lowest level in nearly a year, before closing down 3.4%. Futures prices for the red metal have tumbled 17% from a four-year high in June, bringing it close to a bear market. The trade tensions pounded other materials: zinc, tin and lead plunged at least 2%. The slump extended to almost all corners of the commodity market, with materials from oil to cotton also getting hit. China is the world’s biggest commodity consumer and accounts for roughly half the demand of many metals like copper, so concerns over its economy can swing materials’ prices. Investors fear that a far reaching trade fight could slow commerce, which would weaken more economies that consume large amounts of materials. Other assets closely tied to growth like emerging markets have also struggled. It is a sharp reversal from 2017, when synchronized global growth propelled prices of raw materials and emerging markets higher. Because they get used in everything from construction to smartphones, prices of commodities are often used by money managers as a bellwether for global growth. While robust U.S. economic and earnings expansion have kept stocks from tumbling, some analysts have become uneasy that the volatility in commodities is signaling future turbulence in other markets. In other commodity news, grain futures fell to new lows for the season after the Trump administration said it was planning further tariffs against Chinese goods. July wheat fell 4% to $4.69 3/4 a bushel.

IRON ORE: $63.25s + 0.19 (August contract)

Oil Futures

U.S. crude had its worst day in a year despite a larger-than-expected weekly drop in inventories after Libya indicated it would resume export activities at its eastern ports, potentially easing fears of a global supply shortage. Light, sweet crude crude for August delivery fell $3.73, or 5%, to $70.38 a barrel on the New York Mercantile Exchange-its largest one-day percentage drop since June 2017 after it rose in eight of the 10 sessions entering Wednesday. Brent crude, the global benchmark, dropped $5.46, or 6.9%, to $73.40, its worst day since February 2016.


The U.S. dollar rose against most major currencies as investors remained concerned about the impact of rising trade tensions. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, rose 0.8%. The U.S. dollar maintained its strength after the Trump administration said it plans to impose 10% tariffs on an additional $200 billion in Chinese goods-from tech gear like routers to furniture and handbags. Investors have tended to buy the U.S. currency as tensions have increased between the country and its major trading partners, betting it will be less hurt by any potential slowdown in global growth caused by a breakdown in the cross-border flow of goods and services. Because China doesn’t import enough goods to retaliate in kind, it could hold up licenses for U.S. firms, delay approval of mergers and acquisitions involving U.S. companies and ramp up inspections of American products at borders, Chinese officials said. A Commerce Ministry statement on Wednesday described Beijing as “shocked” by the U.S. action and said China “has no choice but to take necessary countermeasures.” It didn’t elaborate. The U.S. dollar rose against the currencies of countries whose economies are dependent on exporting raw goods, such as milk, metals and oil, including the New Zealand dollar, the Australian dollar and the Canadian dollar. The U.S. dollar fell briefly against the Canadian currency after the Bank of Canada raised interest rates Wednesday, its second increase this year.

European Markets

Europe shares stayed in the red in afternoon trading as trade fears and tensions between the U.S. and Germany at the NATO summit weighed on the region’s main indices. The Stoxx Europe 600 fell more than 1%, or 4.57 points to 381.68 while the DAX and CAC-40 also dropped more than 1%.

Asian Markets

Stocks and commodity prices fell sharply as concerns over escalating trade tensions threatened to erase the week’s gains. Hong Kong’s Hang Seng dropped 1.3% amid losses in tech companies and China’s Shanghai Composite Index fell 1.8%, snapping a three-day winning streak. Japan’s Nikkei fell 1.2% and South Korea’s Kospi was down 0.6%.

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