News & Analysis

Stocks continue decline on trade worries; Oil reverses after strong start; Risk under pressure – USD stays in demand

Sep 5, 2018 | Market Updates

Upcoming high impact news:

11:30 AUD GDP
18:30 GBP Services PMI
22:30 CAD Trade Balance
00:00 CAD Overnight Rate EXP 1.50% – BOC Rate Statement

U.S equity markets kicked off September trade last night. Markets continue to focus on trade concerns as trade tensions between the U.S. and key partners increased to start off the one of the toughest parts of the year for equity investors. Trump added that Congress shouldn’t intervene in the talks, and claimed that if it did, he would “simply terminate NAFTA entirely.” Trade talks with Canada are however expected to reignite this week. a Bloomberg report last week suggested that the U.S. administration was on standby to inflict additional levies on $200 billion worth of Chinese goods as soon as this week. In an interview with the same media outlet, Trump warned that he would consider removing the U.S. from the World Trade Organization (WTO) if it doesn’t “shape up.”

“When you have that kind of rhetoric at the same time you have a murky month for the market, this is what happens,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

Investors also kept an eye on emerging markets as they get pressured by rising trade fears and a strong dollar. Looking at stocks Facebook lost 2.6% and Nike dropped 3.2%. In data, The ISM U.S. manufacturing PMI rose to 61.3 in August from 58.1 in July. Economists polled by Reuters expected the index to fall to 57.7. The overall PMI got a boost from a sharp jump in new orders. – CNBC

The Dow Jones closed 12.34 lower – The S&P500 lost 4.80 and the Nasdaq lost 18.29

In Europe shares tumbled as emerging markets knocked confidence. Basic resources were the biggest losers as fears lingered of a U.S.-China trade war. Traders also continued to watch the situations in Turkey and Argentina. Danske Bank led losses after a report about the lender’s investigation into a money laundering scandal in Estonia. – CNBC

The DAX fell by 136.20 – the FTSE fell by 46.74 and the Euro Stoxx 50 lost 35.89.

Oil spent most of the day higher, USOUSD rallying back above $71 adding over 111 cents at one stage. In the NY session, momentum shifted price dropped 155 cents to close at $69.15. Gold lost $10 breaking well below 1200 to close at 1191.36. The USD rise due to trade worries a main driver.

The USD rallied on Tuesday due to trade and emerging market concerns. The JPMorgan emerging market currency index fell to its lowest since May 2017. The Turkish lira and the Mexican peso fell against the dollar. “By the middle of last week we were looking at renewed trade tensions and we were looking at economic data supporting ideas of a Fed rate hike,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. “Where we are now is that the underlying dollar up-trend is resuming,” he said.

Chinese state-owned banks have swapped dollars for yuan in tenors ranging from a month to a year in the offshore forwards market in recent days, traders said on Tuesday, providing some support for the yuan as markets braced for a potential major escalation in the U.S.-China tariff war. – CNBC

Data wise the ISM manufacturing PMI beat expectations, the RBA held rates at record 1.50% lows. This gave the AUD a short-term boost but that was short lived as once London came online risk currencies were sold off. The AUDUSD lost all of its gains hitting a.7155 low. The EUR and GBP both fell to new week lows before trimming some losses late into the session. Risk also fell to the Yen but recovered late into the session. The EUR and GBP closed in the positive.

This morning risk has started stronger to the USD and JPY early in the Asian session. The ASX200 has a 1.90 pt loss after yesterday’s 17 pt loss. The Nikkei is 50 pts lower in early trade. At 11:30 am AUD traders will be looking to the Australian GDP data. The market is expecting 0.8%

Oils volatile day

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Sources; CNBC – All times are AEST

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