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Market Opener – 13 Sep 2019

Local Markets Commentary
The Australian market opens Friday trade with new data from China late yesterday, further indications the US and China could be seeking to warm trade relations, and an overnight announcement of monetary policy easing for the euro zone.

Post-ASX trade yesterday, China reported 6.9% higher January – August foreign direct investment (FDI), compared with a year ago, and against 7.3% growth for January through July.

Locally today, stocks trading ex-dividend include ASB, DTL, SVW and VRL. Please see p3 for a detailed list.

In overnight commodities trade, oil continued to pull back.

US gold futures (December) extended Wednesday’s modest gain.

Iron ore (Nymex CFR China, 62% Fe) continued to rally.

LME copper and nickel swung higher. Aluminium fell.

The $A was pushed back to ~US68.65c after appreciating beyond US68.85c early yesterday evening.

China’s markets are closed today due to a public holiday.

Japan’s markets are scheduled to be closed Monday, also due to a public holiday.

Overseas Market Commentary
Volatility hit major European and US equities markets overnight, during second-half trade in Europe and the first couple of hours of trade in the US.

Yesterday, reports emerged Chinese companies had purchased a combined ~600,000t of US soybeans this week, the most since June.

US pork purchases by Chinese buyers for the week to 5 September were calculated at 10,878t, the most in a week since May.

The reports followed announcements, from China late-Tuesday and the US Wednesday, of pushing back of import taxes on certain of each other’s goods.

Further, a China commerce ministry spokesperson yesterday acknowledged the US move and expressed hopes for ‘favourable conditions for negotiations’.

All up, this buoyed hopes of progress in the China-US trade talks between high-level officials scheduled to resume next month, and highlighted concerted behind-the-scenes action between ‘foot’ negotiators.

Subsequently, a US administration official rejected a media report suggesting the US would accept an ‘interim’ agreement with China.

Meanwhile, the International Monetary Fund (IMF) proffered that the US-China trade dispute could shave 0.8% from 2020 global GDP. Earlier this year, the IMF had predicted a 0.5% adverse impact.

A European Central Bank (ECB) policy meeting delivered multiple easing measures, most notably a resumption of monthly bond purchases, with these to continue until just prior to any rate increase.

With a rate increase considered years away, onlookers consequently perceived the asset buying would continue indefinitely. This pushed regional bond prices higher and subsequently yields lower.

The ECB also reduced its deposit rate from -0.4% to -0.5%, introduced tiered longer-term funding rates and cut forecast euro zone growth for 2019 and 2020.

In addition, at his last post-policy meeting as ECB president, Mario Draghi repeated his call for governments to spend more in order to boost growth.

In the meantime, a final August CPI reading for Germany confirmed 0.2% deflation for the month, but 1.4% growth year-on-year.

The euro zone’s July industrial production fell 0.4% for the month, following a 1.4% June drop.

Output was 2% lower than for July 2018.

In the meantime in the UK, the Belfast High Court dismissed a challenge to the possibility of the UK separating from the European Union (EU) without agreed arrangements in place, suggesting it was a matter for politicians and not courts.

Across the Atlantic, US August CPI growth was estimated at 0.1% for the month, following a 0.3% July rise. Year-on-year, the US CPI had grown 1.7%.

The August national budget statement revealed a $US200B deficit against a $US120B July shortfall.

Weekly new unemployment claims tumbled by 15,000 to 204,000.

Tonight in the US, August retail sales, import and export prices, July business inventories and a University of Michigan consumer sentiment reading are due.

Elsewhere, July trade figures are due for the euro zone.
13/09/2019 8:00:00 AM

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