Intensifying US/China trade war renews bearish sentiment

Stock Markets

Australian shares are poised to fall on open today after stocks in the US ended sharply lower overnight as investors reacted to the intensifying trade war between the US and China. China's Ministry of Commerce spokesperson, Gao Feng, said Thursday that the talks between the US and China can only resume if the US adjusts "its wrong actions". US Treasury Secretary Steven Mnuchin added that there are no scheduled talks with high level officials in Beijing. The news renewed investor concerns about the derailment of the US/China trade talks amid escalating tensions between the two global powerhouse economies. The US Labor Department reported that initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 212,000 for the week ended 11 May which beat economists' forecast for a 3,000 increase. The US PMI was 50.6 in May which is the lowest level since September 2009. The US Census Bureau and The Department of Housing and Urban Development reported that sales of new single-family homes dropped 6.9% to 673,000 from March to April. European shares also sank overnight as pressure on British Prime Minister Theresa May to quit added Brexit concerns amid heightening US/China trade tensions. Theresa May is expected to announce in London on Friday that she'll be stepping down as prime minister within weeks.

Wall Street's major indexes closed in negative territory on Thursday, as escalating tensions between the US and China continued to weigh on stocks. The Dow Jones, S&P 500 and Nasdaq fell by 286.14 (-1.11%), 34.03 (-1.19%) and 112.72 (-1.52%) points respectively.

The benchmark S&P/ASX200 index closed 18.9 (-0.29%) points lower on Thursday. The index was dragged lower by the energy sector which succumbed to a sharp drop in oil prices after an unexpected rise in US crude inventories amid escalating US/China trade tensions. The energy sector was down 1.26%.

ASX 200 futures are currently down 29 points.

Today's data releases:  NZ trade balance April; Japan national CPI April; US durable goods orders April

Commodities & Currencies

Oil prices fell about 6% on Thursday, extending steep losses incurred in the previous sessions, as the market braced for a prolonged US/China trade war and digested weak US manufacturing data. WTI and Brent crude are currently sitting at US$58.00 (-5.37%) and US$67.87 (-4.41%) per barrel respectively.

Iron ore prices are currently down 1.9% at US$103.79 a tonne.

The spot price of gold is currently up 0.8% at US$1284.90 an ounce.

The AUD is currently up 0.2% at US68.96¢.

This article was written by Mithun Fernando – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via mithun.fernando@rivkin.com.au or by phoning +612 8302 3633.