Today's Trade: ASX mirrors Wall St's plunge
- The ASX200 opened 1.6% lower on Wall St's lead
- The Dow fell more than 700 points or 2.9% overnight
- The US is planning to levy tariffs on $60 billion worth of imports from China
- Yields on benchmark US 10-year Treasury notes fell to 2.832% from 2.901%
By Saxo Capital Markets (Australia)
Fears of a possible trade war that have roiled the markets for two weeks intensified on Thursday, sending the Dow Jones Industrial Average tumbling more than 700 points and raising worries among investors of possible ripple effects.
Thursday’s selling, which sent shares of manufacturers, aluminium producers and banks sharply lower, marked the culmination of months of growing investor anxiety over the course of US trade policy. Trade tensions have ratcheted higher, as the Trump administration said it would impose tariffs on tens of billions of dollars of Chinese imports and tax steel and aluminium imports – provoking the ire of officials from China to Germany and Mexico.
Investors had widely brushed off the administration’s protectionist trade agenda last year, encouraged by reports showing the global economy growing at its fastest pace since the financial crisis and corporate earnings showing US firms on solid footing. Yet stocks have struggled for momentum in recent weeks, pressured by a spike in volatility and fresh questions over the path of interest rates.
While debate continues about the magnitude of the fallout from recent feuds over tariffs and trade, some analysts said signs in recent weeks have pointed to a widening of the White House’s protectionist bent.
The Dow industrials fell 724.42 points, or 2.9%, to 23,957.89, posting their biggest one-day percentage decline since February 8, when they fell into correction territory for the first time in more than two years. The S&P 500 fell 68.24 points, or 2.5%, to 2643.69, sliding back into negative territory for the year, while the Nasdaq Composite lost 178.61 points, or 2.4%, to 7166.68.
Caterpillar and Boeing fell sharply, alongside the stocks of steel and aluminium manufacturers, as investors worried that a trade conflict would eat into the profits of those companies and others that generate revenue overseas. Analysts have used Caterpillar and Boeing as bellwethers to gauge the market’s reaction to the protectionist trade policies unveiled by the Trump administration.
Shares of Boeing fell $17.49, or 5.2%, to $319.61, while Caterpillar shed $8.90, or 5.7%, to $146.90. Among steel and aluminium makers, shares of Century Aluminum dropped $3.64, or 18%, to $16.76, while US Steel slid $4.26, or 11%, to $34.50.
Shares of financial companies also fell, as banks were hurt by strengthening bond prices, which gained on the tariff news, and a narrowing gap between short and long-dated Treasury notes that tends to crimp lenders’ profits. Shares of JPMorgan Chase and Goldman Sachs Group, both of which are Dow components, fell 4.2% and 3.5%, respectively.
Investors sought safety and bought assets, such as bonds, utilities and gold, that tend to fare better during periods of heightened market volatility.
Yields on benchmark US 10-year Treasury notes fell to 2.832% from 2.901% Wednesday, notching their biggest one-day fall in more than six months. Bond prices rise as yields fall.
Utility stocks in the S&P 500, which tend to generate steady dividends, added 0.4%, the broad index’s only sector to finish the day higher, while gold for March delivery gained $5.90, or 0.4%, to $1,326.60/troy ounce.
While the industrial conglomerates and other so-called “old economy” stocks struggled, new-economy companies provided little relief, as shares of tech companies suffered another day of heavy selling.
Tech stocks, which were already reeling from reports of an unauthorised data transfer from Facebook to an analytics firm, fell 2.7% Thursday and more than 5% for the week. Tech had been a major contributor to indexes’ record-setting year last year, but investors worry that their stumble will exacerbate further gyrations in the stock market.
Facebook shares declined $4.50, or 2.7%, to $164.89 to extend their decline over the past four days to 11%, while shares of Google parent Alphabet fell $40.85, or 3.7%, to $1,053.15.
The tech sector’s valuation relative to the broader market has climbed to its highest since late 2009, according to Bank of America Merrill Lynch, which leaves it exposed to any slowdown in expected earnings or disappointing news.
Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
the ASX is following suit in early trade. Photo: Shutterstock
Local markets and commodities
- S&P/ASX 200 Index futures are down 1.5% to 5,829 as of 6:59 a.m. Futures relative to fair value suggest an early decline of 1.6%.
- Bank of New York Australia ADR Index is down 3.1% to 265.2, BHP Billiton ADRs are down 4.0% to A$28.55 equivalent, a 3.9% discount to last Sydney close, Rio Tinto ADRs are down 4.6% to A$65.89 equivalent, a 14.2% discount to last Sydney close
- Gold prices climbed for the second straight session Thursday, as the Federal Reserve’s sticking to its projections for three total interest-rate increases this year comforted some traders worried about higher rates.
- Front-month gold for March delivery climbed 0.4% to $1,326.60/troy ounce on the Comex division of the New York Mercantile Exchange. Prices have traded between about $1,305 and $1,360 this year, swinging within that range based on moves in the dollar and interest-rate expectations.
- Gold stocks could not avoid negative sentiment around stocks, closing down 1.8%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil prices had their worst day in two weeks, retreating from a seven-week high Thursday as the White House announced new tariffs aimed at China, raising fears that curtailed trade could crimp global economic growth.
- US crude futures fell 87 cents, or 1.33%, to $64.30 on the New York Mercantile Exchange. Brent, the global oil benchmark, fell 56 cents, or 0.81% to $68.91/barrel on ICE Futures Europe. Both benchmarks posted their biggest one-day decline since March 8. Oil has often come under the sway of broader financial markets in recent weeks, and escalating trade tensions with China weighed on stock and oil prices Thursday.
- President Donald Trump announced Thursday that the US is planning to levy tariffs on about $60 billion worth of imports from China and to impose restrictions on the country’s technology transfers and acquisitions. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- Iron ore prices found some support in futures markets in Asia. Iron ore climbed both on the Dalian and Singapore exchanges, as interest from the physical market was invigorated by the recent weakness. This was despite some softness in the Chinese steel market, with rebar and hot rolled coil prices still coming under pressure. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Base metals were weak as Trump announced 25% tariffs on $50 billion of Chinese goods, including items in aerospace, information technology and machinery. The likelihood of an ‘in kind’ response by China raised concerns that global economic growth would be impacted.
- Copper took the brunt of the hit, while most other metals also came under pressure severely from heavy selling. Aluminium prices suffered the least, after Trump announced that the EU will be exempt from the tariffs on aluminium and steel imports into the US. This follows exemptions on exports from other allies, including Canada, Mexico and Australia. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Ex-Dividend: Briscoe Group, AVJennings
- AusNet (AST AU): Tesla to Supply Batteries for Solar Project in Australian State
- BC Minerals (BCI AU): Cheaper Iron Ore Finding Plenty of Buyers in China, Miner Says
- Billabong (BBG AU): Oaktree Will Walk Away From Billabong If Takeover Offer Fails
- Commonwealth Bank (CBA AU): CBA, Austrac Agree to Mediation on Money Laundering Claims
- Perpetual (PPT AU): Considering If It Should Bring Research In-House: AFR
- Prairie Mining (PDZ AU): JSW Is Ready to Buy Prairie’s Debiensko Mine Project: Dziennik
- Qantas (QAN AU): Squeezes 12 Days Into 17 Hours as New Flight Spans Globe
- Rio Tinto (RIO LN): Rio Shuts Australian Port as Storm Nears Bauxite Mining Hub: GAC
Broker upgrades and downgrades
- Brickworks (BKW AU): Downgraded to Hold at Bell Potter; PT A$15.35
- Mesoblast (MSB AU): Downgraded to Underperform at Credit Suisse; PT A$1.54
- Mineral Resources (MIN AU): Downgraded to Neutral at JPMorgan; PT A$19.50
- Nine Entertainment (NEC AU): Upgraded to Hold at Morningstar
During the SYCOM session, AUS200 lost almost 100 points declining well below 5900 as both European and US major indices sold off overnight. The big mining stocks also plunged following the risk-off sentiments. Today AUS200 is expected to remain under selling pressure and the next support level 5,800 is likely to be tested.
Today's data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Gayle Bryant
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Follow the team on Twitter at: twitter.com/SaxoAustralia.