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Australian shares are expected to edge higher at the open after a choppy day in Wall Street. Oil bounced.
ASX futures were up 11 points near 8am AEDT. All three major US benchmarks were poised to close lower as a late bounce proved fleeting. The Australian dollar turned higher.
The US listed shares Rio Tinto were 2.1 per cent lower in late trade in New York, recouping some earlier losses, after Liberum downgraded the miner to “sell” from “hold”, saying iron ore indicators were looking shaky.
Shares on Wall Street were still lower as the final hour of trade was poised to begin as Apple extended its recent slide and bank shares slid too. Oil bounced, recouping a part of its dramatic drop the previous session as OPEC signalled it may seek to cut output after a meeting next month. Volatility continues to keep investors and traders on edge.
“Overall market sentiment continues to be extremely cautious,” Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, told Reuters. “It just became a self-fulfilling prophecy that the market was going to trend lower.”
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In London, the fate of Prime Minister Theresa May was being questioned, helping to pare the US dollar’s earlier losses against the euro, even though Mrs May won the backing of her senior ministers for a draft European Union divorce deal.
“A second referendum is becoming more and more likely,” said Naeem Aslam, badyst at ThinkMarkets, a multi-badet online brokerage.
Brexit supporters in Theresa May’s party will “likely” call for a vote of no confidence in her as their leader, BBC political editor Laura Kuenssberg says, citing a senior member of the Conservative Party.
Kuenssberg said Brexiteers were so angry about May’s draft deal to leave the European Union that they were on Thursday submitting letters to the head of a committee of Conservative lawmakers responsible for handling any leadership challenge.
“Senior Tory (Conservative) tells me Brexiteer anger so high that seems likely there will be a call for no-confidence vote tomorrow – letters going in,” she said on Twitter.
Locally the focus is on today’s Labour Force data.
“We expect employment grew by 25k in October – supported by NAB’s internal data indicator, leading indicators from SEEK job ads and the September NAB Survey (which suggested trend employment growth remaining at 22-23k per month),” NAB economist Kaixin Owyong said in a preview note on Friday. “Such a rise in employment growth tends to result in a modest tick up in the participation rate and we see the part. rate at 65.5% (+0.1ppt).
“This implies an unemployment rate in the 5 to 5.1% range. However, recall the ABS rotates an eighth of its sample every month. While it is difficult to read into rotation impacts, we note that the outgoing sample group in October has a very high unemployment rate of 5.6%, 0.7ppt higher than the rest of the sample (4.9%). As such, rotation is likely to put downward pressure on this month’s estimate of the unemployment rate and we therefore expect the unemployment rate to remain at 5%.”
Today’s Agenda
Local data: Consumer inflation expectations November, Labour force October – employment, unemployment rate, participation rate
Overseas data: Euro zone trade balance September; UK retail sales October; US NY Empire manufacturing November, Retail sales October, Philadelphia Fed index November, Import prices October, Business inventories September, Fed chair Jerome Powell speaks, Fed governor Randal Quarles speaks
Market Highlights
SPI futures up 11 points or 0.2% to 5751 near 8am AEDT
AUD +0.3% to 72.41 US cents
On Wall St near 4pm: Dow -0.8% S&P 500 -0.5% Nasdaq -0.9%
In New York, BHP -0.6% Rio -2.1% Atlbadian -0.3%
In Europe: Stoxx 50 -0.6% FTSE -0.3% CAC -0.7% DAX -0.5%
Spot gold +0.6% to $US1209.76 an ounce at 1.27pm New York time
Brent crude +1.7% to $US66.58 a barrel
US oil +1.6% to $US56.56 a barrel
Iron ore +0.2% to $US75.91 a tonne
Dalian iron ore n/a
LME aluminium +0.4% to $US1943 per tonne
LME copper +0.3% to $US6090 a tonne
2-year yield: US 2.86% Australia 2.05%
5-year yield: US 2.95% Australia 2.26%
10-year yield: US 3.12% Australia 2.70% Germany 0.40%
US-Australia 10-year yield gap as of 7.03am AEDT: 42 basis points
From Today’s Financial Review
Chanticleer: Trump smashes gaming stocks: Blame US President Donald Trump for the collapse in the share prices of Crown Resorts and Star Entertainment Group over the past three months.
Scott Morrison rejects Beijing’s Cold War claims: Scott Morrison has rejected suggestions by Beijing that Australia is adopting a Cold War mentality and is trying to block China from exerting influence in the South-West Pacific.
McWilliam’s $200m property success: Bruce McWilliam, one of the country’s top media executives, has quietly built a portfolio of eastern suburbs properties worth an estimated $200 million. He doesn’t like negative gearing.
United States
‘Selfish’ to ignore potential Trump danger, says Stiglitz: Nobel Prize-winning economist Joseph Stiglitz says there is a greater than 50 per cent chance that the US enters into a trade war with China, and he is certain US workers will lose.
US stocks fell on Wednesday, with the S&P 500 dropping for the fifth session in a row, as Apple continued to lead a retreat in technology stocks and financials were hit by fears that sector-wide regulations would no longer be eased. The Nasdaq recorded 12 new highs and 149 new lows.
Mounting concerns that iPhone sales have hit a wall pushed Apple shares lower for the fifth day in a row. At their session low, shares were down more than 20 per cent from its record high.
“Apple really has people questioning technology and the FAANGs. A lot of investors have their hopes pinned on Apple going up and that’s not happening,” said Kim Forrest, senior equity research badyst at Fort Pitt Capital Group in Pittsburgh.
Apple’s 2.7 per cent drop led the heavyweight technology index down 1.3 per cent. Those losses were only outdone by a 1.9 per cent-drop in financial stocks.
Banks fell after Democrat Maxine Waters, poised to become chair of the US House banking committee, said regulations would not be eased any further on her watch, according to a CNBC report.
“When Waters came up that had a profound impact on the markets and right about the time the S&P went negative,” said Forrest.
Capital Economics on the latest CPI data: “
Core CPI inflation ticked down in October, supporting our view that it may already have peaked and will remain close to target in the near term. An increase in energy prices helped to push headline CPI inflation up, although this should be reversed by year-end as oil prices have since fallen.”
Europe
European shares hit their lowest in two weeks on Wednesday in a broadbased sell-off across oil, mining, technology and banking stocks amid renewed worries about a global economic slowdown and Italy’s budget crisis deepens.
The pan-European STOXX 600 lost 0.6 per cent after a choppy session as commodities sectors weighed and Italian stocks sold off.
The STOXX and leading euro zone stock indexes hit their lowest since October 31 in early deals, recovering some ground later and ending the day near those levels as Wall Street turned lower as Apple led another decline in technology stocks.
European tech stocks were down 0.6 per cent with chipmaker AMS sinking another 10 per cent to the bottom of the STOXX 600.
Italy’s FTSE MIB ended down 0.8 per cent as bank stocks fell 1.4 per cent.
“Continued pressure on Italian government bonds could spark a major debt crisis, which could easily spread across the region,” said David Madden, market badyst at CMC Markets UK.
Overall European earnings have been underwhelming this season, revealing growing margin pressure and concerns about growth and a slowdown in China.
“For 2019, we forecast low-single-digit and below-consensus EPS growth in Europe,” wrote Barclays badysts.
They see earnings per share growing at 4 per cent in the euro zone and 2 per cent in the UK next year – significantly lower than the aggregate IBES Refinitiv estimates for around 10 and 8 per cent respectively.
Capital Economics on latest European growth stats: “GDP data showed that Germany’s economy contracted by 0.2% in Q3, while growth slowed in the Netherlands and Portugal. The slowdown partly reflects temporary factors, namely a hit to industrial production from new car emissions standards. Euro-zone industrial production data showed that output broadly stagnated in Q3. We remain optimistic that the economy will perform better in the coming quarters as these impacts wind down.:
Asia
Tencent beat third-quarter profit forecasts on Wednesday but gave no update on a regulatory block in China, the world’s largest gaming market, that has damaged its core business.
Profit in the July-September quarter rose by 30 per cent to 23.3 billion yuan, beating an average badyst estimate of 19.32 billion yuan, thanks largely to investment gains. Although Tencent’s revenue rose by 24 per cent to 80.6 billion yuan, this represented its slowest quarterly growth in more than three years.
Tencent shares, which more than doubled in 2017, have dropped by about a third so far this year, wiping about $US165 billion off its market value.
Hong Kong equities inched lower on Wednesday as data out of China painted a lacklustre picture of its economy.
The Hang Seng index was down 0.5 per cent at 25,792.87, while the Hang Seng China Enterprises index fell 0.7 per cent to 10,478.71.
Official Chinese data showed weaker-than-expected retails sales growth, but saw industrial output and fixed-badet investment holding up. The data came after China reported a sharp slowdown in October credit growth on Tuesday, indicating economic weakness.
The mainland stock market, which closes an hour ahead of Hong Kong’s, foreshadowed the fall in the Hang Seng. The Shanghai Composite Index gave up 0.9 per cent, whereas the blue-chip CSI300 retreated 1 per cent.
Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.6 per cent, while Japan’s Nikkei index closed up 0.2 per cent.
Currencies
ECB’s bond buys weakened euro by 12pc: The European Central Bank’s €2.6 trillion bond purchase scheme may have weakened the euro by 12 per cent against the US dollar, according to a bank research report.
TD on oil and FX: “Fundamentals point higher for oil but sentiment and technicals will drive the next few sessions. We also note that global factors have shifted onto the radar screen of the major G10 currencies since the start of the trade war earlier this year. The consequence is to amplify the noise in global markets, though we see some disconnects in the price of some of the majors. European currencies are trading at a discount to global and cyclical drivers.
“Given the impact of politics and the recent technical breaks in the DXY, we still think crosses offer better ways to play this market. Notably, CADNOK and NZDNOK screen rich on short-term dynamics, leaving NOK as one of the cheapest currencies in the G10. The structural changes in the oil market argue the rules have changed for CAD, offering a less symmetrical response to swings in crude.”
Bitcoin fell to a more than one-year low, breaching a key support level of $US6000 and causing a wave of selling in the digital currency. Bitcoin fell to as low as $US5533.09 on the Bitstamp platform. It was down 9 per cent at $US5690.47. Bitcoin’s weakness spread to other cryptocurrencies, with ethereum, the second-largest, dropping to a two-month low. Ethereum was last down 10 per cent at $US182.41.
Commodities
Rio Tinto bids on Teck copper stake: Rio Tinto is among parties making a final offer for a minority stake in Teck Resources’s Quebrada Blanca copper mine expansion in northern Chile, sources said.
One of the main culprits for Tuesday’s oil price rout was a rush by Wall Street banks to cover their exposure to oil producers’ hedges, according to badysts at Goldman Sachs.
Goldman badysts blamed the rout on a combination of momentum trading strategies, and selling from financial institutions which had helped arrange hedges on behalf of oil producers. Goldman is itself one of Wall Street’s top commodity banks.
‘Increased selling of crude oil futures by swap dealers as they manage the risk incurred from existing producer hedging programs’ was a key contributor to the rout, badysts including Jeff Currie said in a note.
OPEC says output will be cut as needed
IEA welcomes return of oil surplus
Base metals held steady on Wednesday as weak retail sales data from top consumer China took the shine off upbeat industrial output and investment figures in the country. Benchmark copper on the London Metal Exchange (LME) ended 0.3 per cent higher at $US6090 a tonne.
China’s primary aluminium output fell for a third straight month in October, as low aluminium prices prompted smelters to cut production even before government-mandated winter restrictions kick in. LME aluminium ended up 0.4 per cent to $US1943 per tonne, after touching a 15-month low on Tuesday.
Steel output in China, the world’s top producer, hit record levels in October, rising for a third straight month as mills rushed to boost output ahead of winter production cuts.
The global lead market’s deficit ballooned to 21,400 tonnes in September while zinc narrowed its deficit to 54,700 tonnes.The premium for cash zinc over the three-month contract was at $US56.50 a tonne, close to a one-year high of $US66.50 touched on Monday as concerns lingered over tight supplies on the LME.
Zinc inched 0.5 per cent higher at $US2502 per tonne, lead edged up 0.1 per cent to $US1953, tin added 0.2 per cent to $US19,305 while nickel touched a fresh 11-month low, finished 0.3 per cent lower at $US11,315.
Australian Sharemarket
Australian shares extended their losses from the previous session on Wednesday, as the financial, material and energy stocks wiped $30.3 billion from the ASX board.
The S&P/ASX 200 Index closed 101.4 points, or 1.7 per cent, lower at 5732.8 while the broad All Ordinaries Index fell 100.3 points, or 1.7 per cent, to 5822.3.
Street Talk
CCA ready to spill the beans with SPC sale; flyer sent to tyrekickers
Victorian tile retailer in growth pitch to private equity, trade buyers
Seven Group Holdings creeps 3pc higher on Beach Energy; Deutsche handles trade
with Reuters, Bloomberg, AAP
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