ASX to drop, $A down – The Australian Monetary Assessment


But a growing chorus of equity strategists are warning investors to be careful what they wish for. Cantor Fitzgerald’s Peter Cecchini says a cut would “bode ill” for the US economy. The strategist points out that late cycle Fed cuts most often precede recessions.

History shows post-cut rallies have been short-lived. UBS strategist Francois Trahan says that following a cut, short-term optimism tends to fade quickly and stocks then come under pressure again. “We may see a pop in the market for a short time,” but stocks could still see continued pressure through the rest of the year, he wrote in a recent note. Though the average return in the 12 months following a cut is 5.4 per cent, “very few end close to that mark,” he said.

Today’s agenda

Local data: RBA head of financial stability Jonathan Kearns speech; ABS dwelling prices Q1; RBA board meeting minutes June.

Overseas data: US Federal Reserve FOMC meeting; Euro zone trade balance April; EU ZEW expectations June; Germany ZEW expectations June; US housing starts May; US building permits May.

Market highlights

SPI futures down 2 points or 0.03 per cent to 6539 at 5.50am AEST

  • AUD -0.3% to 68.51 US cents at 4.16am
  • On Wall St at 2.24pm: Dow  +0.2% S&P 500  +0.3%  Nasdaq  +0.8%
  • In New York, BHP -0.1% Rio -0.1% Atlassian +0.8%
  • In Europe: Stoxx 50 +0.1% FTSE +0.2% DAX -0.1% CAC +0.4%
  • Spot gold -0.1% to $US1339.75 an ounce
  • Brent crude -1%  to $US61.38 a barrel
  • US oil -0.5% to $US52.24 a barrel
  • Iron ore -1.9% to $US108.21 a tonne
  • Dalian iron ore -1.3% to 760 yuan
  • LME aluminium -0.3% to $US1758.50 a tonne
  • LME copper +0.5% to $US5848 a tonne
  • 2-year yield: US 1.86% Australia 1.03%
  • 5-year yield: US 1.84% Australia 1.07%
  • 10-year yield: US 2.09% Australia 1.38% Germany -0.25%
  • 10-year US/Australia yield gap: 69 basis points

From today’s Financial Review

Tax cuts are no handout to the rich: Unless the full tax cut package is passed, high income earners risk losing out to the “silent thief” of tax bracket creep, according to new analysis.

‘They’ve declared war on us’: Woolworths staff unhappy at job changes: Woolworths veterans say they’re being asked to reapply for essentially the same jobs for less money under a new operating structure.

What KPMG really said about Paladin’s $423m contract:  A confidential report into Paladin reveals the firm posed a financial risk and didn’t have sufficient cash reserves for the size of the contract.

United States

Wall Street’s main indexes rose, with the tech-heavy Nasdaq leading the pack.  Markets expect a cut in interest rates as early as July, and the S&P 500 index has risen 5 per cent so far in June on the hope, but the rally lost steam in the past week.

Banking stocks, which tend to benefit from a rising interest rate environment, dipped 0.2 per cent, while the broader S&P 500 financial sector edged down 0.3 per cent.

The Nasdaq Composite index rose, as shares of marquee companies such Facebook, Apple, Amazon.com, Microsoft  and Alphabet gained between 0.5 per cent and 3 per cent. Array Biopharma surged about 57 per cent after Pfizer Inc agreed to buy the drugmaker for $US10.64 billion to beef up its cancer portfolio. Pfizer edged 0.3 per cent lower.

Europe

European stock markets closed marginally lower with a profit warning from Germany’s Lufthansa hitting airline stocks, while markets globally awaited clues from the US Federal Reserve.

The pan-European STOXX 600 index finished 0.1 per cent lower. France’s CAC 40 was led higher by luxury stocks, while IT company Indra Sistemas’ 7.1 per cent slip took Spain’s IBEX 35 0.7 per cent lower. It fell after a media report said is to buy up to 75 per cent of ITP Aero from Rolls Royce for about €1 billion.

The European travel and leisure sector underperformed other major European sectors as Lufthansa plunged 11.6 per cent and kept Germany’s DAX pressured. The group lowered its profit outlook for the full year 2019, citing price competition from low cost rivals in Europe.

Asia

Hong Kong stocks advanced after the government suspended a controversial extradition bill that spurred some of the city’s biggest protests in decades.

The Hang Seng Index rose 0.4 per cent, paring an earlier rally of 1.4 per cent, with the finance sector leading gains. The index slumped 2.4 per cent in the previous three trading days, the worst performance among 94 global gauges, amid concern about the worsening political environment and tightening liquidity. A Hang Seng measure of Chinese companies rose 0.1 per cent Monday.

“The Hong Kong market is having a relief rally,” said Ben Kwong, executive director at KGI Asia. “People were worried that the protest would escalate. Now that the government has stepped back, at least the tensions should be easing.”

Mainland Chinese shares traded within a tight range, with benchmark Shanghai Composite up 0.2 per cent and the blue-chip CSI 300 rising 0.1 per cent.

Currencies

Fear of Boris Johnson drove the pound to a near six-month low against the dollar oas concerns grew that the arch-Brexiteer would replace Theresa May as British prime minister. The pound weakened a third of a per cent to $US1.2554 against the dollar, its lowest level since a January 3 flash crash. Against the euro, the pound weakened to a five-month low of 89.43 pence.

The US dollar was modestly lower  on weak economic data, but remained near the two-week high set earlier in the session.

Broader currency markets were quiet, as traders hesitated to put on large positions before the Fed meeting, a meeting of European Central Bank policymakers in Portugal and the Bank of England’s interest rate decision on Thursday.

“It wouldn’t surprise us to see a bit of volatility going into these meeting but ultimately you’re going to see people taking more of a wait-and see approach,” said Charles Tomes, portfolio manager at Manulife Asset Management.

Euro zone bond yields held near multi-year lows, as markets waited for monetary policy updates from the Federal Reserve and European Central Bank this week after inflation expectations in the euro zone plunged. Italy will also be a focus for investors this week. Italian government bond yields were flat to lower, with the 10-year yield down around one basis point at 2.32%.

The European Union looks increasingly likely to impose disciplinary procedures on Italy over the management of its huge public debt, after inconclusive meetings on Friday between the Italian finance minister and his EU partners.

Commodities

Oil slipped further into a bear market as American factories and homebuilders offered the latest warning signs of weakening demand.

Futures slid as much as 1.4 per cent in New York, but regained some ground as OPEC and its allies worked to schedule a meeting to extend supply cuts. In the US, the Federal Reserve found a record slowdown in June for New York State factories while sentiment among housing contractors unexpectedly dropped for the first time all year.

Copper prices recovered, boosted by a mine strike and weak Chinese output, but other industrial metals were pressured by nervousness about the damage from the US-China trade dispute.

Benchmark copper on the London Metal Exchange (LME) gained 0.5 per cent to $US5,848 a tonne in closing open outcry trading after earlier sinking to an intraday low of $US5,776. But LME three-month aluminium finished 0.3 per cent weaker at $US1,758.50 after touching $US1,745, the lowest since January 2017.

Gold prices slipped further after sliding from a 14-month high. “Safe-haven flows in gold continue to inflate the extreme overbought positioning in gold with more than $US4.4 billion entering the gold market over the week. Most of this flow is due to short covering,” Societe Generale said in a note.

Australian sharemarket

Australian shares were weighed down on Monday by losses in the miners, amid some lingering concerns about the health of China’s economy, while sharp losses for Vocus and Afterpay Touch also dented sentiment.

The S&P/ASX 200 index ended the day down 23 points, or 0.4 per cent, at 6530.90, after miners took 12.75 points off the benchmark.

Street Talk

Comments? Questions? Let us know what you think of Before the Bell: natasha.rudra@fairfaxmedia.com.au



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