Australian shares are set to open lower as the Trump administration looks for ways to punish China – perhaps with tariffs – for the COVID-19 pandemic as the number of Americans killed by the virus nears 70,000.
ASX futures are pointing to a slightly lower open; they are down 7 points or 0.1 per cent to 5230. The S&P/ASX 200 shed 276.5 points or 5 per cent on Friday.
The prospect of a renewed trade war between the US and China knocked Wall Street sharply lower at week’s end, as it add ever more uncertainty to the outlook for US companies. The Dow shed 622 points.
“Veteran traders know that the traders’ almanac shows that markets tend to rise in November-April and give back in May-October,” Fundstrat Global’s Vito Racanelli said in a note.
In fact, in this past November to April period, Mr Racanelli said the S&P 500 was little changed, finishing at 2912 in April, or a few per cent down from 3037 at October’s end.
“Of course, despite that small change, the in-between turned out to be a war on investor nerves. Since that was a reversal of the traditional moves, perhaps this May-October will fare better.”
While the latest US economic data was expected. Mr Racanelli said it landed like “a punch in the gut”. This week ahead the focus is on the latest ISM services and US payrolls reports.
For local investors, there’s corporate results and tomorrow’s RBA policy meeting on the radar screen as well as the fortnightly update of weekly payrolls data. The RBA will release its latest Statement on Monetary Policy on Friday.
Here’s what TD Securities expects from the Reserve Bank: “It is highly unlikely that the RBA shifts its policy at this meeting. RBA is likely to be content with current settings while maintaining its tapering path amid an improvement in financial conditions.
“As revealed in the recent speech by Governor Lowe, which ran through the RBA’s central forecasts the RBA is unlikely to be inclined to raise rates for a prolonged period.”
Local: MI inflation April, ANZ job ads April, Building approvals March
Overseas data: Euro zone Markit manufacturing PMI April; US March factory orders and durable goods orders
ASX futures down 7 points or 0.1% to 5230
- AUD -1.4% to 64.18 US cents
- On Wall St: Dow -2.6% S&P 500 -2.8% Nasdaq -3.2%
- In New York: BHP % Rio % Atlassian %
- In Europe: FTSE -2.3%
- Most European markets were closed on May 1
- Spot gold +0.8% to $US1700.42 an ounce in New York
- Brent crude -0.2% to $US26.44 a barrel
- US oil +5% to $US19.78 a barrel
- LME aluminium -0.5% to $US1487 a tonne
- LME copper -1.6% to $US5108 a tonne
- 2-year yield: US 0.19% Australia 0.20%
- 5-year yield: US 0.35% Australia 0.40%
- 10-year yield: US 0.61% Australia 0.86% Germany -0.59%
There was no Friday iron ore price data given the May 1 holiday in Asia
From today’s Financial Review
Australia, EU bypass Trump on global trade: The two have teamed up along with China to back a new global trade dispute umpire.
Business must fight bigger, bolder government: Lynton Crosby: Conservative political strategist says executives will have to fight to have their voice heard in policy battles.
No recovery until there’s blood on the street: The sharemarket’s comeback will be tested again this week as investors are forced to reconcile the optimism that has driven stocks off their COVID-19 lows with the reality of terrible economic data that saw Wall Street follow the local market sharply lower on Friday.
Dow sheds 622 points as Trump ratchets China criticism: The Dow Jones lost 2.6 per cent, with 29 of its 30 components closing down, in a broad sell-off amid signs of a renewed US-China trade war.
The corporate reporting season has crossed the midpoint, with 275 of the companies in the S&P 500 having reported quarterly results. Of those, 68 per cent have beaten consensus estimates.
In aggregate, first-quarter S&P 500 earnings are seen having fallen 12.7 per cent from a year ago, a stark reversal from the 6.3 per cent annual growth forecast that stood on January 1.
FactSet’s review of earnings season so far: “To date, 55 per cent of the companies in the S&P 500 have reported actual results for Q1 2020.
“In terms of earnings, the percentage of companies reporting actual EPS above estimates (65%) is below the five-year average. In aggregate, companies are reporting earnings that are 2.5% above the estimates, which is also below the five-year average.
“In terms of sales, the percentage of companies (63%) reporting actual sales above estimates is above the five-year average. In aggregate, companies are reporting sales that are 1.2% above estimates, which is also above the five-year average.”
A slump in energy company stocks led the UK’s FTSE 100 index lower on Friday.
Oil major Royal Dutch Shell shed another 7.0 per cent on a ratings downgrade a day after it slashed dividend for the first time since World War Two. Rival BP was also down.
The blue-chip FTSE 100 fell 2.3 per cent, also hit by miners and travel stocks.
The two-day slide for the index marks an abrupt about-turn in sentiment, with investors turning cautious about a revival in business activity.
Most of European markets closed for May 1 holiday.
Ryanair is laying off 15 per cent of its staff in a cost-cutting drive as coronavirus restrictions prevent a return to normal service until 2021 and rivals receive billions in state aid to get back in the air, its chief executive said on Friday.
Irish airline Aer Lingus has told unions it is seeking staff cuts of around 20 per cent due to the coronavirus pandemic, a source close to the talks told Reuters.
Australia’s perilous new normal with China: Government insiders point to a subtle but important change as they try to reshape ties with China.
The AFR View: China’s threats point to the strategic risks ahead for Australia: Australia should be prepared for a much more hostile international outlook in the region, but it also should continue to build alliances around its values of open and rules-based globalisation.
Japanese shares retreated from a near eight-week peak on Friday, led by declines in chipmaking firms and as investors chose to re-shuffle the deck following a streak of earnings reports.
The benchmark Nikkei average fell 2.8 per cent to 19,619.35 points, erasing Thursday’s 2.6 per cent gain.
The Nikkei, however, was up 1.9 per cent for the week. The index climbed 6.7 per cent in April, marking it best month since October 2017.
The broader Topix shed 2.2 per cent to 1431.26, also off an eight-week high marked on Thursday, with all of the 33 sector sub-indexes on the Tokyo exchange finishing lower.
Highly cyclical sea transport, iron and steel and insurance were the worst three performing sectors on the main bourse.
The safe haven Japanese yen gained on Friday and riskier currencies, including the Australian dollar, dropped as risk sentiment soured after President Donald Trump threatened to impose new tariffs on China.
The Chinese yuan also weakened in the offshore market to 7.1378 yuan, the most per dollar since April 2.
“Given the scale of the COVID-19 impact, there is certainly a high risk of geopolitical tensions escalating considerably as lockdowns reverse,” said Derek Halpenny, head of research at MUFG.
“This would clearly be another hit to global trade that would add a layer of dollar support going forward,” Halpenny said. The euro continued to gain against the greenback, having also rallied on Thursday on month-end repositioning.
Tiff Macklem tapped to lead Bank of Canada: The appointment is redemption of sorts for the 58-year-old economist and former Bank of Canada official, who lost his first bid for the top job in 2013.
Exxon Mobil and Chevron are slamming the brakes on oil output, as the top two US producers plan for combined global shut-ins of 800,000 barrels per day in response to plunging crude prices and fuel demand.
Both companies on Friday outlined deep cuts in investments in the Permian shale basin, the top US oilfield where growth in recent years made America the world’s top oil producer and a net exporter for the first time in decades. They each announced global shut-ins of up to 400,000 barrels per day (bpd) this quarter due to lockdowns to fight the coronavirus pandemic.
Exxon and Chevron have been sidelining Permian drilling equipment since the market started crashing in March. US crude prices have plunged nearly 70 per cent this year to under $US20 a barrel, and traded in negative territory on April 20 for the first time ever.
Pittsburgh-based US Steel said it sent out notices of plans for layoffs to 6500 employees, but that it expects the actual number affected to be about 2700. As of December 31, the company had 27,500 people on the rolls.
“It’s all about minimising or preserving cash in a difficult environment,” said Phil Gibbs, an analyst at KeyBanc Capital Markets. “They’re a heavy fixed-cost business, and volume right now is reasonably limited and they have to take actions.”
Brutal end to the week slices ASX weekly gains to 0.1pc: The ASX slumped on Friday but managed to eke out out a tiny gain for the week, as the volatility that dogged markets through March made a startling comeback.
The S&P/ASX 200 index dropped 5 per cent, or 276 points, to 5245.90 on Friday, with the move curbing weekly gains to just 0.1 per cent.
Fear takes hold of markets again, undermining April’s incredible rally: Just as shares ruled off their best month since 1988, the arrival of May put a bullet through the bull market narrative.