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Morning Market Wrap: US Markets reset records as China says it will cut tariffs

7 Feb 2020
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US and global markets alike made substantial advances as China announced that it will cut over $75 billion in US import tariffs…

Stock Markets

Overnight US markets reset records and continued to add to the gains seen since the start of the week, albeit at a slower pace, as China indicated it would cut $75 billion worth of tariffs on US imports and as reporting season continued to provide positive results.

So far, more than 70% of the 305 S&P500 constituents that have reported have beaten expectations as indicated by Refinitiv data. Overnight, strong results were seen across many sectors with names, such as Twitter Inc (TWTR) and New York Times Co (NYT) beating estimates.

Additionally, The World Health Organization (WHO) tempered optimism that the coronavirus outbreak may have peaked with the organisations lead expert, Dr Mike Ryan, stating “there are cycles of transmission, and we may see those cases increase in the coming days. But at least for the moment, things are stable”.

With regards to President Trump’s impeachment proceedings, as expected, the Senate acquitted him of charges of abuse of power and obstruction of Congress. As all went to plan, markets focused on economic data over politics as preliminary figures for both non-farm productivity, labour costs provided rally-friendly results. A non-farm productively reading for the December quarter of 1.4% vs a 1.6% forecast and a unit labour cost reading of 1.4% indicated inflationary pressures are ever so slowly edging higher. With the official unemployment rate, non-farming employment change and average hourly earnings readings due tomorrow morning, we could very well see an upgrade on growth and inflation expectations in the US by markets as early as Monday.

 

The ASX200 climbed back above the 7,000 level to close 73 points higher at a two-week high of 7,049 as market heavyweights within the Financial and Healthcare sector led broad market gains. During the day 86% of the index’s market cap increased in value, volume spiked above its 30-day average and gainers significantly outpaced decliners 146 to 47.

All sectors, except Utilities, closed in the black with Energy climbing the most with a 1.60% gain on the back of improved oil prices. Financials contributed significantly to the increases seen, closing 1.41% higher as a result of the big-four banks all recording gains between 1.12 and 1.74 per cent. Following RBA governor Philip Lowe’s speech and the decision to keep rates on hold, banks are now favouring from an improved Net Interest Margin outlook, which resulted in all but one member of the Financial sector closing in the black. Additionally, JPMorgan analysts indicated that Macquarie Group Limited (MQG), which closed 1.42% higher, still holds an ‘overweight‘ recommendation and an upgrade could be possible considering the banks’ conservative guidance.

Materials also contributed to the rally with BHP Group Limited (BHP), Rio Tinto Limited (RIO) and Fortescue Metals Group (FMG) climbing 1.67, 0.72 and 0.09 per cent higher respectively. Materials appeared to advance as global copper prices continued to recover, following the end of a 10-day consecutive selloff.

The domestic trade balance recorded for December of $5.22 billion missed a $5.65 billion target and caused a marginal retracement by the Australian dollar against the USD, which currently sits at $US0.673.

Healthcare advanced 1.28% as CSL Limited (CSL) closed 1.58% higher at hit a fresh record high of $323.23 during the session, before closing marginally lower at $320.62. JPMorgan indicated it expects strong results from CSL during its half-year earnings report, due next Wednesday, and cited continued demand for the company’s key therapy, rising prices and a robust start to the flu season as the drivers. However, it indicated it expects earnings to be weighted in the second half of the year and cautioned the coronavirus could disrupt direct distribution of albumin in China.

Other significant contributors to the broad market advance, outside of CSL and BHP, included Commonwealth Bank of Australia (CBA), Westpac Banking Corp (WBC) and National Australia Bank Limited (NAB), which closed 1.14, 1.74 and 1.33 per cent higher respectively. In total, all five companies constitute 27.27% of the indexes total market cap.

*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.

Commodities and Currencies

Iron ore climbed 2.3% higher to close at $US83.17 a tonne and copper added to gains seen earlier in the week with a 0.2% gain and a closing price of $US5,734 a tonne. Similarly, Aluminium climbed 1.2% higher to $US1,737 a tonne and gold rose 0.56% higher to $US1,566.58 an ounce.

This article was written by Thomas Brunton – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3633.

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