Tuesday: 17th July 2018

OPENING CALL: The Australian market looks to open lower with SPI Futures down 12 points.

Australian shares look set to open lower after a drop in oil prices hit energy shares on Wall Street overnight.
U.S. stocks waffled between small gains and losses Monday as shares of energy companies fell alongside a decline oil prices and as investors looked ahead to a busy week of corporate earnings results.

Overnight Summary


Market Quotes by TradingView

Each Market In Focus

Australian Market

Australian stocks faded as the day went on, finishing near session lows after having risen in five of the prior seven days. The S&P/ASX 200 eased 0.4% to 6241.5 as health care slid 1.9% following two days of strong gains that were led by CSL; it fell 2.9%. The market also saw a second day of declines in the heavily weighted big banks amid concerns about rising funding costs. Resources stocks were a decliner as well today, though consumer and telecom stocks rose.

US Markets

U.S. stocks waffled between small gains and losses Monday as shares of energy companies fell alongside a decline oil prices and as investors looked ahead to a busy week of corporate earnings results. The Dow Jones Industrial Average rose 30 points, or about 0.1%, to 25048. The S&P 500 fell less than 0.1% and the Nasdaq Composite dropped 0.2%. Investors appear so far to have largely shrugged off trade concerns, and U.S. stocks have been supported by strong U.S. economic data and positive earnings expectations. In the S&P 500, 60 companies are on tap to report this week, including Netflix after the closing bell. Before the market opened Monday, Bank of America-the second-largest U.S. bank by assets-reported second-quarter earnings that beat expectations, sending shares up 3.8%. The results helped buoy financial stocks, which were the best performers in the broad S&P 500 on Monday, up 1.6%. The KBW Bank index climbed 1.9%. BlackRock also reported higher-than expected earnings, but its shares fell 1.6% as the money manager pulled in significantly less investor cash than a year earlier. Goldman Sachs and Morgan Stanley are slated to report Tuesday and Wednesday mornings, respectively. Energy stocks, meanwhile, were by far the weakest of the S&P 500’s 11 sectors, falling 1.4%, on lower oil prices. U.S. crude dropped 4.1% amid concerns that Russia would increase output beyond what it agreed to last month. Still, expectations for strong earnings have helped overshadow trade tensions. The Dow industrials and S&P 500 have gone up all but one day since the U.S. and China began imposing tariffs on $34 billion of each other’s goods on July 6.

Commodities

Copper prices slid, with last week’s geopolitically driven losses deepening on the release of downbeat Chinese economic data. July-dated contracts fell 0.5% to $2.757 a pound at the Comex division of the New York Mercantile Exchange, the second lowest close this year. Prices have lost 16% from an early June peak amid the spiraling trade dispute between Washington and Beijing and the strengthening U.S. dollar.
Industrial metals faced renewed selling pressure at the start of the week, with economic numbers out of China, the world’s largest metals buyer, disappointing investors. While the world’s second-largest economy posted solid gross domestic product growth, fixed-asset investment fell to a historic year-over-year low in June, with industrial production and credit expansion also disappointing traders.
Fears over the future of global free trade have prompted traders to expand their net bets on falling copper prices to their highest since January 2016, according to commodities brokerage Marex Spectron. Elsewhere in the copper market, investors were awaiting the outcome of labor negotiations between BHP Billiton and miners at its Chilean Escondida operation, which is the world’s largest copper mine. Escondida unions last week rejected a contract offer that included inflation-linked salaries and a $23,000 bonus for each worker, increasing the threat of a repeat of last year’s 44-day strike that stymied production and supported copper prices. Investors were also eyeing reports of copper theft from trains in Chile’s Atacama Desert. Roughly 40 incidents have been reported in the first half of 2018, up from six in all of 2014, according to the Antofagasta prosecutor’s office, Bloomberg reported. Gold prices, which tend to move inversely to the dollar, steadied on Monday. August contracts were little changed at $1,241 a troy ounce. Gold prices were slightly lower, closing at the lowest point in almost a year. July contracts fell 0.1% to $1,238.10 a troy ounce.

IRON ORE: $63.42s -unchanged (August contract)

Oil Futures

Oil prices fell more than 3% for the second time in the last four sessions, with uneasy traders anticipating that increased supply could cool a monthslong rally that has pushed crude to its highest level since 2014. Light, sweet crude for August delivery declined $2.68, or 3.8%, to $68.32 a barrel on the New York Mercantile Exchange, just days after last Wednesday’s 5% drop that was its largest one-day fall in more than a year. Brent crude, the global benchmark, was down $3.19, or 4.2%, to $72.14 a barrel. After nearing fresh multiyear highs early last week, oil prices plunged Wednesday on jitters about increased Libyan output and signs that major producers might boost supply.Attacks on Libyan ports, U.S. sanctions against Iran and supply disruptions have underpinned the recent oil rally even as protectionist trade policies are raising fears of a global economic slowdown and lower consumption of materials. But analysts said higher output from Libya and the possibility that Russia could agree to further increase supply to fill possible production gaps were hurting prices Monday. U.S. President Donald Trump, who has been asking Saudi Arabia to increase output to lower prices, met with Russian President Vladimir Putin in Helsinki Monday. As was the case last week, traders said selling accelerated as the session went on and prices broke through their 50 day moving average-a key technical level. The Organization of the Petroleum Exporting Countries and oil producing allies like Russia, which have been holding back output since the start of last year, agreed in late June to begin increasing production by up to one million barrels a day amid global supply disruptions. Still, some market participants said the increase was lower than anticipated. Adding to uncertainty about supply were media reports Friday that the Trump administration is assessing whether to dip into the country’s emergency oil stocks. With so many conflicting supply signals in the market, traders are trying to weigh how much spare capacity can be brought on line while also looking at data showing falling inventories, analysts said. Investors were also reacting to the news that China’s economic expansion slowed a notch in the second quarter, weighed down by a top priority government debt cleanup even before growth takes an expected hit from the trade fight with the U.S. As China is the world’s largest commodity consumer, a long-expected economic slowdown could lower demand for oil and other materials.

Forex

The dollar edged lower, as investors awaited Federal Reserve Chairman Jerome Powell’s testimony to the Senate later in the week. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was down 0.17% at 88.25. Investors are looking for clues on how the economy’s recent performance, together with an intensifying global trade conflict, have colored the Fed’s view on monetary policy. Indications that the central bank may accelerate its pace of interest rate increases could boost the dollar, as higher rates make the currency more attractive to yield-seekng investors. Mr. Powell will deliver his semiannual monetary policy report before the Senate Banking Committee on Tuesday. Robust retail sales data reported Monday morning and rising inflation figures last week could give a hawkish tilt to the Fed’s policy bias, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, in a note to investors.

European Markets

The Stoxx Europe 600 index ended down 0.3% at 384.1, dragged down by falls in heavyweight oil and mining stocks. Oil prices fell sharply and data overnight showing a fall in Chinese GDP weighed on metals prices. The U.K.’s FTSE 100 index, where oil and mining stocks have a high weighting, underperformed sharply, closing down 0.8%. Germany’s DAX index outperformed, closing up 0.2%, as Deutsche Bank jumped 7.3% after the company said its profit would beat forecasts. France’s CAC 40 closed down 0.4%, Italy’s FTSE MIB down 0.3% and Spain’s Ibex 35 down 0.2%.

Asian Markets

Asian stocks have reacted negatively to trade disputes, with major indexes down so far this year. Shanghai stocks have shed nearly 15% since January, and economists estimate trade conflicts could cut 0.2 to 0.5 percentage point off China’s GDP in the coming year. The Shanghai Composite Index was down 0.6%, following its largest one-week percentage
gain since June 2016. Hong Kong’s Hang Seng was flat and South Korea’s Kospi was down 0.4%. The Tokyo market was closed for a public holiday.

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