Tuesday: 7th August 2018

OPENING CALL: The Australian market looks to open higher with SPI Futures up 3 points.

U.S. stocks climbed for the second straight session, lifted by the latest flurry of corporate earnings. Robust second-quarter earnings growth has pushed the S&P 500 to its highest level since January despite escalating tariff threats from the U.S. and China. After China said Friday that it planned to impose tariffs on a majority of its U.S. imports, President Trump tweeted over the weekend that “tariffs are working big time.” Mr. Trump has threatened to apply tariffs to all $505 billion of Chinese imports to the U.S.

Overnight Summary


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Each Market In Focus

Australian Market
US Markets

U.S. stocks climbed for the second straight session, lifted by the latest flurry of corporate earnings. Robust second-quarter earnings growth has pushed the S&P 500 to its highest level since January despite escalating tariff threats from the U.S. and China. After China said Friday that it planned to impose tariffs on a majority of its U.S. imports, President Trump tweeted over the weekend that “tariffs are working big time.” Mr. Trump has threatened to apply tariffs to all $505 billion of Chinese imports to the U.S. Secretary of State Mike Pompeo faced criticism over the weekend from China and skepticism from Southeast Asian powers over U.S. trade policies. Some analysts fear a trade war between the world’s two largest economies could slow the global economy. Those worries have roiled assets ranging from Chinese stocks to commodities, which some investors say would be more directly affected by a Chinese economic slowdown. But so far, large U.S. companies have largely shaken off the impact of tariffs, reporting quarterly profit growth of more than 20% for the most recent period. The S&P 500 rose 10.05 points, or 0.4%, to 2850.40 Monday, bringing it 0.8% below its January record. The Dow Jones Industrial Average added 39.60 points, or 0.2%, to 25502.18. The Nasdaq Composite rose 47.66 points, or 0.6%, to 7859.68. Over the weekend, Warren Buffett’s Berkshire Hathaway said second-quarter net earnings surged, boosted by insurance underwriting and a change to accounting rules. Its shares rose $5.82, or 2.9%, to $206.06. Tyson Foods was also among the S&P 500’s biggest gainers, climbing 1.89, or 3.3%, to 59.64 after reporting higher quarterly profit, despite challenges related to oversupply and pricing due to tariffs. Facebook shares climbed 7.91, or 4.4%, to 185.69 after The Wall Street Journal reported that the social-media firm has asked large U.S. banks to share detailed financial information about their customers, including card transactions and checking-account balances, as part of an effort to offer new services to users. Among decliners, consumer-products maker Newell Brands lowered its earnings guidance for the year after reporting falling quarterly sales. Its shares fell 3.81, or 14%, to 22.76. More than 80% of S&P 500 firms have already reported earnings, so traders are looking for fresh factors that swing stocks, analysts said. Investors are looking ahead to inflation data later this week, after some said Friday’s jobs report showed few signs of a pickup that would accelerate the Federal Reserve’s pace of interest-rate increases.

Commodities

Front-month gold for August delivery fell 0.5% to $1,208.60 a troy ounce a year-to-date low. Gold is at its lowest level since July 2017, with investors favoring the dollar for safety as the trade spat between the U.S. and China continues. A stronger dollar makes gold more expensive for overseas buyers, and higher Treasury yields have also made gold less attractive to some investors, analysts say.

IRON ORE: 69.64 + 0.48 (September contract)

Oil Futures

Oil prices rose after reports of a decline in Saudi Arabian crude oil production, and as the U.S. government began reimposing sanctions on Iran. Light, sweet crude for September delivery ended 52 cents, or 0.8%, higher at $69.01 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, rose 0.7% to $73.75 a barrel. Reports on Friday that Saudi crude production dropped to around 10.3 million barrels a day in July, down from 10.49 million barrels a day in June, according to OPEC delegates, have “lent support” to prices, according to analysts at Commerzbank. The potential output drop belied expectations that Saudi production would have risen in July. Russia and the Organization of the Petroleum Exporting Countries, of which Saudi Arabia is the de facto head, agreed in late June to begin ramping up crude output in July after more than a year of holding back production. However, analysts at ING Bank noted that the potential drop in Saudi output is “different to a number of other estimates out there, with some estimating that Saudi oil production increased to as much as 10.8 million barrels a day over the month.” OPEC is slated to release its official monthly oil market report for July on Aug. 13. Saudi and Russian plans to raise output have helped put a cap on prices over the past month, with Brent falling more than 8% from 3 1/2 -year highs in the spring. Oil prices also got a boost during the New York session when the administration of President Donald Trump announced it was starting to reimpose sanctions on Iran by choking off its access to dollars and other measures. The move follows President Trump’s announcement in May that the U.S. was pulling out of the 2015 Iran nuclear accord. Iran oil exports won’t actually be cut off as part of the sanctions until November. But analysts said Monday’s announcement confirmed that the U.S. government is serious about following its sanctions schedule, and said investors will soon notices buyers of Iran oil making a steady move toward the exits.

Forex

The U.S. dollar rose as investors bet renewed trade tensions and last week’s round of solid economic data would continue to boost the currency. The WSJ Dollar Index, which measures the U.S. currency against 16 others, settled up 0.3% at 89.00, its highest close since May 18, 2017. Trade tensions between the U.S. and China were reignited Sunday after the Chinese government said it’s prepared for a “protracted war” and is willing to endure short-term economic losses, according to an editorial published in the Global Times on Sunday. The U.S. dollar, viewed widely as a safe-haven currency, often benefits from rising trade friction. The Turkish lira reached a fresh low against the U.S. dollar Monday after the country’s central bank attempted to stem the currency’s decline by reducing the amount of foreign currency it holds in reserve while also lowering the reserve requirement for banks.

European Markets

The lira settled down 4.7% against the U.S. currency, with the dollar buying about 5.331 lira. The British pound neared a one-year low against the dollar Monday, falling 0.5% to $1.2942, amid concerns the U.K. might fail to reach a Brexit agreement with the European Union. This week brings relatively little economic data, but investors will tune in Friday when July’s consumer price index is reported. A pickup in inflation could temper the dollar’s rally, some analysts said.

Asian Markets

China’s Softer Stance on Defaults Spurs Asian Bond Market. Beijing’s easing policy for deleveraging and defaults has helped fuel a mini revival across Asia’s credit markets, pushing up bond prices recently and sparking debt issuance.

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