ASX futures flat, China data awaited
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Australian shares are poised for a weak open, as equities sold off in and on Wall Street as the coronavirus outbreak in renewed concerns about the outlook for global growth.

ASX futures were down 1 point  to 6938 near 6am AEDT. The local currency shed 0.7%.

China is scheduled to release PMIs for manufaturing and services at midday AEDT.

“The PMIs could offer an early indication of the impact that the coronavirus outbreak is having on confidence,” Capital Economics’ Sheana Yue said in a note.

“We suspect that the non-manufacturing index declined in January. In principle, the outbreak should have hit the service sector harder: transport, retail and dining are all vulnerable if people want to avoid crowds.

“Meanwhile, the official manufacturing index probably remained relatively weak, with the new orders component particularly susceptible to the ongoing epidemic.”


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Europe’s three main equity benchmarks each finished 1.4 per cent lower; shares were lower on Wall Street even as Microsoft and Tesla surged to record highs on their respective quarterly results.

“We are still in the fear phase. There is not enough information to know how bad the virus is going to get,” said Ed Keon, chief investment strategist at QMA, a multi-asset manager in Newark, New Jersey.

Brent oil fell more than 3% – to below $US58 a barrel – on concern that Chinese demand will falter. Saudi Arabia reportedly may seek an OPEC meeting next month to further pare output to put a floor on prices.

The yield on the US 10-year note slid 5 basis points to 1.54%.

The latest WHO situation report put globally confirmed cases of the coronavirus at 7818 with 98.95% of them within China. The death toll is now 170. Beyond China, there are now 82 cases in 18 countries.

At least one Chinese city and several provinces have extended the Lunar New Year holiday beyond February 2 in an effort to control the spread of the virus.

Shanghai, the autonomous region of Inner Mongolia and provinces of Guangdong, Zhejiang, Jiangsu have said businesses need not start operations until at least February 10. Hubei province, where Wuhan is located, has said the holiday will last until at least February 14.

China had already extended the holiday nationwide on Monday. It was originally due to end on January 30, but was stretched to February 2.

In a comment, “Going Nowhere Fast”, TD Securities reset its outlook for global rate cuts: “Fed cuts delayed to Dec20/Mar21. RBA: 25bps cuts in Apr & Nov and QE in Dec. RBNZ: Nov 25bps cut. BoE cut in May only after no cut in Jan. Removed ECB rate cuts, now on hold through forecast horizon.”

“Those looking forward to a return to fundamentals after a year of trade wars have been sorely disappointed,” TD’s global strategy team said. “January has seen us quickly shift from an abrupt risk of a shooting war to fear of a global pandemic.

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“Equities seem to be trying to hold in after pricing in some near-term risk, but are not yet showing any signs of wanting to price in a material change in trend. Without a bigger correction in risk, it is hard to get that concerned about a significant deterioration in global growth fundamentals, nor that optimistic of any sizeable fiscal or monetary stimulus about to be unleashed on a hopeful market.”

Today’s agenda

Local: Producer price index fourth quarter, Private sector credit December; New Zealand ANZ consuer confidence January

Overseas data: China January composite, manufacturing and services PMIs; Japan December jobless rate, , industrial production and housing starts; UK GfK consumer confidence January; US PCE core deflator December, Employment cost index fourth quarter, Personal income and spending for December, Chicago PMI January

Market highlights

ASX futures were down 1 point to 6938 near 6am AEDT

  • AUD -0.7% to 67.08 US cents (Overnight low 67.00)
  • On Wall St near 2pm: Dow -0.5% S&P 500 -0.7% Nasdaq -0.7%
  • In New York: BHP -1% Rio -1.2% Atlassian -0.8%
  • In Europe: Stoxx 50 -1.2% FTSE -1.4% CAC -1.4% DAX -1.4%
  • Nikkei 225 futures -0.4%
  • Spot gold +0.5% to $US1585.02 /oz at 1.06pm New York
  • Brent crude -3.2% to $US57.89 a barrel
  • US oil -2.8% to $US51.85 a barrel
  • LME aluminium -0.3% to $US1731 a tonne
  • LME copper -1% to $US5587.5 a tonne
  • 2-year yield: US 1.37% 0.65%
  • 5-year yield: US 1.36% Australia 0.67%
  • 10-year yield: US 1.54% Australia 0.96% -0.41%
  • 10-year US/Australia yield gap near 5am AEDT: 58 basis points

From today’s Financial Review

‘Betrayed’: Hayne casualties in limbo a year later: A year after the sensational inquiry carved through the executive ranks of the biggest financial services companies, many of those tarnished by the inquiry remain in limbo.

Scott Morrison strikes $2b gas deal with NSW: NSW will deliver more gas to the east coast market, probably through the Narrabri project, in return for $960 million in federal funding for energy projects.

Renewables investment crashes on regulatory risk, policy uncertainty: Investment in renewable energy projects collapsed by more than 50 per cent last year, according to fresh data that counters Scott Morrison’s claim of “record” spending in the area.

United States

US economy misses Trump’s growth target: The US economy expanded at a 2.3 per cent pace last year, its slowest since 2016 and lower than the 2.9 per cent reached in 2018.

Anthony Scaramucci welcomes John Bolton to life under the bus: The way to create more power is by giving it away and empowering staff to achieve your goals. But Trump is incapable of this.

Facebook dropped 6.4% after the company warned of slowing growth as its business matured and reported a surge in quarterly expenses.

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The S&P communication services index fell 1.6%, the most among the 11 major S&P subsectors. Defensive sectors such as utilities and consumer staples, considered safer in times of economic uncertainties, posted slight gains.

The main US stock indexes are on course for their second weekly declines.

Europe

Britain skirts US ire as Pompeo softens on Huawei: The US Secretary of State says post-Brexit Britain will be ‘at the front of the line’ for an FTA, allaying London’s fears of retribution over Huawei.

European shares fell on Thursday. The pan-European STOXX 600 ended 1% lower to take losses so far this week to 2% – its worst weekly performance in nearly four months.

Deutsche Bank reports $8.7 billion loss for all of 2019: The Frankfurt-based bank, once Europe’s largest by assets, is in the midst of a desperate attempt to recover from years of scandal and mismanagement.

A day ahead of Britain’s exit from the European Union, the BoE left rates unchanged in governor Mark Carney’s final policy meeting, saying it saw signs of a post-election pick-up in growth. Market participants had been almost evenly split on what the BoE’s would do.

“We continue to expect the BoE to remain dovish – but on hold – in the near-term, before turning more hawkish in mid-2020 as economic activity and inflation rebounds,” said Kallum Pickering, a senior economist at Berenberg.

The pound rallied, while London’s blue chip index extended losses to close down 1.4% and mid-caps lost 0.8%.

London-listed shares of Royal Dutch Shell were the biggest drag on the benchmark index, shedding 4.4% after the company’s quarterly profit halved. The wider energy subsector fell 2.6%, also pressured by lower oil prices.

Shares of watchmaker Swatch Group slipped 3.9% as it reported a marked drop in annual sales and forecast continuing challenges in its key Hong Kong market this year.

Other luxury brands – LVMH, Hermes, Gucci owner Kering, Moncler, Burberry – also slipped between 0.4% and 2.1%.

Asia

China financier sends receivers to Sargon, Trimantium entities: Sargon Capital, whose board included big players such as ex-ALP Senator Stephen Conroy, struggled to raise funds in the past year and is now in receivership.

Concern that the virus outbreak will disrupt the global supply chain rippled through Taiwan’s stock market. Taiwan’s Taiex plunged more than 5%, the most since October 2018, as trading reopened following the Lunar New Year break.

Foxconn’s Hon Hai Precision Industry Co, which assembles the majority of the world’s iPhones from China and has minor operations in Wuhan, sank as much as 10%. Hon Hai said all of its facilities will resume full-scale production only from February 10, more than a week later than originally planned.

The outbreak threatens to disrupt Apple’s carefully orchestrated supply chain and damp sales within China, the company’s largest market after the US.

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Currencies

Bank of England keeps main interest rate steady: The decision, which comes a day before the UK leaves the European Union, sees interest rates left unchanged at 0.75 per cent.

TD Securities on the BoE decision: The Bank of England decision was “in line with consensus but in constrast to the 25bps rate cut that we had forecast. We had always seen the rate decision itself as a very close call, but what surprised us was that the vote was once again 7-2.

“So despite what seemed like a more dovish tone from BoE speakers since the start of the year, there wasn’t a single additional vote for a rate cut compared to November and December. The forward guidance from the MPC’s statement was also little changed from December, citing two-way risks for policy rates. So overall today’s decision was surprisingly hawkish.”

Commodities

Copper prices sank to five-month lows as funds sold on expectations of slowing demand in China.

Benchmark copper on the London Metal Exchange (LME) fell 1% to $US5587.5 a tonne.

Prices of the metal widely considered a gauge of economic health had dropped as low as $US5565.50, its weakest since early September and down 12% since January 16.

“Economic activity in China is suffering, though in terms of manufacturing and construction activity we are at a seasonally low point,” said Julius Baer Carsten Menke.

Menke said he still expects copper to average $US6150 in the third quarter.

“Typically, when we have this sort of short-term shock, there’s catch-up potential for economic activity once the situation normalises.”

Support for copper is seen at $US5518, the low on September 3. The first upside barrier is around $US5935, where the 200 and 100-day moving averages are converging

Aluminium was down 0.3% to $US1731, zinc lost 1% to $US2188, lead slipped 0.4% to $US1825, tin ceded 1.1% to $US16,025. Nickel gained 0.6% to $US12,620 a tonne.

Australian sharemarket

Australian shares ended a day of volatility lower, following confirmation the number of coronavirus cases had risen sharply, overtaking the total infections associated with the 2003 SARS (severe acute respiratory syndrome) outbreak.

The ended the second-to-last session for January down 23.1 points, or 0.33 per cent, to 7008.4 points.

Treasury Wine Estates faces looming shareholder class action: The winemaker is staring down a possible class action from angry shareholders after more than $3 billion was wiped from its share price.

Atlassian is more profitable than its accounts suggest: Atlassian issued an unusual debt security in 2018, which means its net income does not reflect the true profitability of the business.

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