Thursday: 19th July 2018

OPENING CALL: The Australian market looks to open higher with SPI Futures up 9 points.

Australian shares look set to open higher on the back of a rise on Wall Street overnight on the back of reinforced expectations for a strong second-quarter reporting season.
U.S. stocks rose intraday amid signals from the Federal Reserve that the economy is accelerating and as investors parsed another wave of U.S. earnings reports.

Overnight Summary


Market Quotes by TradingView

Each Market In Focus

Australian Market

Australia’s stock benchmark bounced after four drops in the past six days, helped by one of the country’s biggest companies by market cap. The S&P/ASX 200 rose 0.7% to 6245.1 as BHP Billiton jumped 3.3% following an upbeat production update. Meanwhile, Macquarie saw its strongest rise in 3 weeks, picking up 2.3% to reverse this week’s decline and lead gains for Australia’s big banks. The energy sector was the only significant drag as oil prices have fallen anew in Asian trading.

US Markets

U.S. stocks rose intraday amid signals from the Federal Reserve that the economy is accelerating and as investors parsed another wave of U.S. earnings reports. The blue-chip index added 0.3% in recent trading. The S&P 500 edged up 0.2%, and the technology-heavy Nasdaq Composite was little changed. Companies in the S&P 500 have so far grown their earnings by 22% in the second quarter, surpassing analysts’ estimates of around 19%, according to FactSet. About 8% of firms in the index have reported so far. Morgan Stanley shares rose 2.4% after the bank said second-quarter earnings rose 39% from last year, beating analysts’ expectations. The announcement caps off second-quarter earnings season for the six largest U.S. banks. Gains in financial and industrial companies in the S&P 500 helped offset losses in the real-estate and utilities sectors, which are considered bondlike due to their hefty dividend payments. Higher interest rates boost lending profitability. The dispersion between shorter-term and longer-term rates, known as the yield curve, is a crucial indicator of sentiment about the prospects for economic growth. Investors monitor the curve closely because short-term rates have exceeded longer-term ones before each recession since at least 1975-a phenomenon known as an inverted yield curve. The yield on the 10-year U.S. Treasury note rose to 2.873% Wednesday, according to Tradeweb, after settling at 2.862% Tuesday. Yields move inversely to prices. The Fed chairman has mostly sidestepped recent questions on trade policy because he says it is outside the Fed’s responsibilities. But he cautioned Tuesday that open economies have fared better than closed ones. And the Fed’s Beige Book, a report published by the central bank on economic conditions in its 12 regional districts, showed that 11 of the districts were growing at a modest pace or faster, but that worker shortages and rising costs for raw materials were weighing on businesses. Manufacturers in many of the districts reported higher prices and supply chain disruptions in the wake of new trade policies.

Commodities

Copper prices erased their early losses and closed slightly higher, pausing a protracted slump as the dollar edged down from its intraday highs. Front-month copper for July delivery settled up 0.5% at $2.7520 a pound on the Comex division of the New York Mercantile Exchange. Even with Wednesday’s gains, prices have tumbled 16% since hitting a four year high in early June, hurt by worries that tariffs will slow the global economy and lower demand for materials used in construction and manufacturing. A stronger dollar has also hurt copper and other metals by making them more expensive for overseas buyers. Weak economic data from China, the world’s largest consumer of copper and other commodities, has also hurt sentiment in the copper market, analysts have said. Bets by hedge funds and other speculative investors on lower copper prices outnumbered bullish bets for the first time since 2016 during the week ended July 10, according to Commodity Futures Trading Commission data released last week. Analysts are monitoring wage negotiations at BHP Billiton ‘s Chilean Escondida mine, the world’s largest copper project, for signs of unrest that could disrupt output. Steady copper supply data this year has also hurt prices, after strikes at Escondida and other supply shocks boosted the red metal last year. Among precious metals, front-month gold for July delivery also erased early losses and closed up less than 0.1% at $1,226.30 a troy ounce. Prices Tuesday hit their lowest level in more than a year with the dollar surging and a rise in Treasury yields making gold less attractive to some investors. In other commodity news, September wheat settled 3 1/4 cents lower at $4.94 1/2 cents a bushel.

IRON ORE: $63.94s – +0.28 (August contract)

Oil Futures

Oil prices ended higher for a second straight session despite data that showed U.S. inventories of crude oil increased sharply last week. Light, sweet crude for August delivery ended 1% higher at $68.76 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, also closed 1% higher at $72.90 a barrel. The U.S. Energy Information Administration said in its weekly report that crude-oil stockpiles unexpectedly jumped by 5.8 million barrels to 411 million barrels. Analysts surveyed by The Wall Street Journal had forecast crude supplies would fall by 3.3 million barrels from the previous week. The report also showed U.S. oil production surged to a record-high 11 million barrels a day. Oil prices retreated as expected immediately following the report’s release, falling toward a one-month intra-day low at $67.04 a barrel. But prices, which have fallen about 7% already this month after hitting a multiyear high above $74 a barrel in late June, turned positive into the afternoon and remained firm. The market’s bullish turn was driven partly by investors shifting attention away from rising crude oil inventories and toward an unexpectedly large, 3.2-million-barrel decline in U.S. gasoline stockpiles last week. The EIA report also showed a price-supportive,
433,000-barrel-a-day weekly increase in motor gasoline supplied to the U.S. market, to 9.7 million barrels a day. That number, used by investors as a proxy for demand, points to an active summer driving season. But while demand may be robust in the U.S., the International Energy Agency in its latest monthly report forecast global demand growth would slow to 1.3 million barrels a day in the second half of 2018, from 1.5 million days in the first half of the year. Slowing demand growth could partly come from China, whose economic expansion slowed slightly in the second quarter versus the first quarter of this year, the statistics bureau reported on Monday. The trade conflict between China and the U.S. could cause a further slowdown going forward, hitting oil demand, analysts said. Increasing expectations that Iranian oil would still find its way to the international market after U.S. sanctions are implemented in November was also bearish for prices early in the New York session. At the same time rising production from Russia, Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries has also weighed on prices in recent weeks.

Forex

The U.S. dollar rose intraday as Federal Reserve Chairman Jerome Powell signaled the central bank remains confident it can continue to gradually raise interest rates. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, rose 0.1% to 88.72 recently. The index closed Tuesday at its highest level since June 26, 2017 as investors have flocked to the safety of the dollar amid trade tensions. Mr. Powell testified Wednesday before the U.S. House of Representatives about the central bank’s plans to raise interest rates gradually even as President Donald Trump is using tariffs to ratchet up pressure on the nation’s largest trading partners. Lawmakers in the Senate expressed concerns Tuesday about Mr. Trump’s moves to raise levies on imports in order to wring trade concessions from countries such as China, Germany and Canada. Mr. Powell said it was too soon to say if trade disputes might interfere with the Fed’s plans to continue with gradual rate increases. Higher interest rates typically attract investors to a currency.

European Markets

The Stoxx Europe 600 index closed up 0.5% at 387.04, led by rises in technology stocks after better-than-expected second quarter results from Swedish telecom company Ericsson. Ericsson shares ended up 8.5%, while Swedish peer Tele2 ended up 13.4% and Dutch semiconductor company ASML closes 8.1% higher. A 4.2% rise in Lufthansa shares helped Germany’s DAX index rise 0.8%, after upgraded guidance from UK airline easyJet, whose shares rose 2.2%. The U.K.’s FTSE 100 ended up 0.7%, after below-forecast inflation data marginally reduced chances of a U.K. rate rise in August and pushed the sterling lower. France’s CAC 40 ended up 0.5%, Spain’s Ibex 35 was up 0.4% and Italy’s FTSE MIB ended flat.

Asian Markets

In Asia, Hong Kong’s Hang Seng was down 0.2% and the Shanghai Composite Index fell 0.4%. The two indexes are still reacting to uncertainty over U.S.-China trade relations, though not the direct impact of recent tariffs, according to research firm Morningstar. Japan’s export-heavy Nikkei, meanwhile, gained 0.4% on the back of a declining yen.

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