Thursday: 9th August 2018

OPENING CALL: The Australian market looks to remain unchanged.

U.S. stocks were mixed Wedneday as utilities and energy companies slipped as oil prices tumbled. The dollar edged higher amid trade concerns. Treasurys rose after an auction of 10-year notes drew strong demand. Gold was little changed.

Overnight Summary


Market Quotes by TradingView

Each Market In Focus

Australian Market
US Markets

U.S. stocks waffled between small gains and losses Wednesday as shares of utilities and energy companies slumped and the S&P 500 hovered just below its all-time high. The broad stock-market index fell less than 0.1% after closing at its second-highest level ever Tuesday. It remains about 0.5% away from its January high. The Dow Jones Industrial Average dropped 45 points, or 0.2%, to 25584, while the Nasdaq Composite rose less than 0.1%. Investors continue to parse corporate-earnings results, with the bulk of companies done reporting numbers for the most recent quarter. The long-running uncertainty over trade also pressed on as the Trump administration completed plans Tuesday to impose tariffs on an additional $16 billion of Chinese imports. The penalties, which were widely expected and would take effect Aug. 23, bring the total amount of Chinese goods covered by tariffs to $50 billion. Still, U.S. economic data have pointed to a strong economy, and investors have remained guardedly optimistic as companies this year have reported positive earnings growth, pushing the S&P 500 up 3.6% in the past month. Unfilled jobs are growing in nearly every industry amid an expanding economy and a historically low unemployment rate, which was 3.9% last month. The problem is most acute in a few fields, led by transportation. Shares of energy companies were among the worst performers in the S&P 500, with the sector losing 0.8% as oil prices tumbled. U.S. crude for September delivery settled down 3.2% at $66.94 a barrel after data showed total U.S. stockpiles of oil and fuel hit a seven-month high, suggesting supply was outpacing demand. Declines in the consumer-staples sector, down 0.8%, also dragged on the broad index, while financials and technology edged higher.

Commodities

Gold prices drifted between small gains and losses, anchored by the U.S. dollar. Contracts for August delivery were little changed at the Comex division of the New York Mercantile Exchange, rising 0.3% to $1,212.60 a troy ounce. More-active October futures rose 0.2%. Prices for industrial metals were mixed. Aluminum at the London Metal Exchange rose 3.3% to $2,106 a metric ton, the highest price in almost a month, while Comex copper contracts for August ended almost unchanged at $2.7405 a pound. Those markets largely withstood sharpening trade tensions between the U.S. and China.

IRON ORE: 69.48s – 0.43 (September contract)

Oil Futures

Oil prices slid to their lowest level in more than six weeks as total U.S. stockpiles of oil and fuel hit a seven-month high and U.S.-China trade tensions escalated. Light, sweet crude for September delivery slid 3.2% to $66.94 a barrel on the New York Mercantile Exchange. That was its lowest closing level since June 21. Brent crude, the global benchmark, fell 3.2% to $72.28 a barrel. The U.S. Energy Information Administration on Wednesday reported that crude-oil inventories alone declined slightly last week versus the previous week. But investors focused more on the broader gauge of total combined stockpiles of crude oil and fuels such as gasoline, which rose by 3.3 million barrels, to 1.2 billion barrels, the highest since early January. That is bearish for prices, because it suggests demand isn’t keeping up with supplies. The EIA report also indicated another weekly decline in U.S. oil production, to 10.8 million barrels a day compared with 10.9 million a week earlier. This suggests that logistical problems in Texas, including a lack of sufficient pipelines, is forcing oil producers to tap the brakes on output until they can improve infrastructure. An intensifying trade fight between the U.S. and China over tariffs is also pressured oil prices lower. On Wednesday, China’s commerce ministry said in a retaliatory move it will impose 25% tariffs on a further $16 billion in U.S. imports, matching U.S. tariffs on China goods dollar-for-dollar. The tariffs will go into effect on Aug. 23, the same date as the U.S. ones. These trade tensions can push oil prices lower in two ways. First, investors worry that a potential global trade war could ensue, leading to softer economic growth throughout the world, which could reduce demand for oil. Second, the ratcheting-up of tensions has been sending investors into safe-haven bets such as the U.S. dollar, and since oil is bought and sold in greenbacks, a stronger dollar tends to weaken oil prices.

Forex

The U.S. dollar edged higher as investors worried about trade tensions and examined the Bank of Japan’s recent shift in interest-rate policy. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, rose less than 0.1% to 88.78. The currency edged lower Tuesday, a day after reaching its highest level since May 2017. The dollar declined 0.4% against the yen. The dollar rose modestly as investors remained uncertain whether the Bank of Japan intended to send a message that it plans to implement tighter monetary policy after years of pumping money into Japan’s economy. The BOJ last week raised its yield cap on the 10-year Japanese government bond to 0.2% from 0.1% in order to help the country’s banking industry, which has had difficulty making lending profits with interest rates so low.

European Markets

As Turkey’s currency plummets, investors are concerned that one much-used crash mat may not be there to break its fall: An IMF bailout. This is adding to the pressure on one of the world’s largest emerging markets. Ultralow Rates Hit Italians’ Incomes More Than Germans, Says ECB Italian households suffered a much larger loss of income than their German counterparts due to the European Central Bank’s ultralow interest rates, according to an ECB report that appears to dispel some German concerns over the bank’s easy-money policies.

Asian Markets

South Korea’s temporary electric-bill reduction this summer for households to fight the heat wave will slow headline inflation this month but not impact monetary policy, said Nomura. It notes hawkish policy board members seem to focus more on underlying inflation, which strips out volatile energy prices. Seoul yesterday announced a temporary 20% cut in utility prices for last month and this one. Nomura said that will cut inflation to 1% from an estimated 1.3% this month. Inflation was 1.5% in July, below the central bank’s 2% target.

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