[email protected]: ASX set to follow Wall Street lower as US retail sales disappoint
The ASX is expected to open lower on Thursday as fears over a looming global trade war following Trump's controversial tariffs linger, and Wall Street fell after an unexpected fall in US retail sales.
Markets are palpably uneasy, with investors' trade war worries not assuaged by the appointment of Larry Kudlow – a CNBC personality and former Reagan administration official who favours free trade – to replace Gary Cohn as US President Trump's top economic advisor.
US Commerce Secretary Wilbur Ross said he would reveal rules for granting exemptions to last week's tariff increase "soon", but this too fell flat. Futures pricing hints the defensive investor off mood is set to continue as Asia Pacific markets come online.
The long and short of it
1. Wall Street unnerved by trade war fears: US shares turned lower on Wednesday, with investors seemingly spooked by trade war prospects once again. Reports making the rounds across the wires suggested President Donald Trump is preparing a broad package of trade restrictions aimed at China. Meanwhile, EU trade chief Cecilia Malmström said the bloc is "ready to act in a firm, resolute and proportionate way" in response to last week's increase in US tariffs on steel and aluminium.
2. US retail sales disappoint: February's US retail sales statistics fell short of market forecasts, showing a monthly drop of 0.1 per cent. Economists were expecting a 0.3 per cent increase. Sales fell in seven of the 13 spending categories tracked by the Department of Commerce, with a drop in vehicle-related spending the most potent headwind. Building materials purchases and non-store retailing – a category that includes ecommerce – were bright spots.
3. Euro drops on Draghi comments: European Central Bank President Mario Draghi sent the euro lower once again. Speaking at a conference in Frankfurt, he worried aloud about subdued underlying inflation, reiterating that the central bank needs to see a sustained adjustment in price growth trends to end QE asset purchases. He added that past euro strength could end up weighing on inflation.
4. ASX 200 vulnerable to deeper losses: All 11 sectors of the ASX 200 dropped on Wednesday, bringing the index down 0.66 per cent to close at 5935. And futures are indicating further pressure for today after sharemarket losses in Europe and the US on Wednesday. The sector hit the hardest was telecommunications.
5. Government bonds: Another way to see the capital flow into safe assets is to witness the fall across the curve in Australian sovereign rates, with the 2-year through the 30-year yields falling by roughly 2 per cent across the board. Risk sentiment appears soured after the ousting of US Secretary of State Rex Tillerson seems to increase the probability of a tough stance on trade that could crimp the flow of global commerce. That may negatively impact Australian exporters despite the country being exempted from explicit US tariffs on steel and aluminium.
6. Commodities: Thursday marks the end of China's winter curbs on metal production, meaning supply is likely to rise. Still, iron ore prices saw its first rise in eight days after plunging in the first half of March. As with energy, the large builds in supply are viewed first through the lens of demand. The strong start for China's economy will need to extend when looking at factory output and investment in fixed assets for the aggressive rise in supply to be absorbed. If not, further selling like that seen in the first half of March could continue.
7. Oil: Weekly crude oil inventory data provided by the US Energy Information Administration had something for everyone. Bears were likely delighted by the crude stockpile build, while bulls are focused on the large oil-product drawdown showing downstream demand remains strong. Another focal point for the bulls was the smaller than expected increase in US production of only 12,000 barrels per day. That may support new bets for rising oil prices.
8. US dollar amid global retaliation to Trump tariffs: Since rumours first surfaced about Trump's trade tariffs and before exemptions were known, one view has held that the dollar index was likely going to be collateral damage as capital flows into the US could slow down, and the greenback's value could fall. In a word, what would likely cause weakness of the US dollar weakness is retaliation.
There have been reports that the EU is looking to apply a 25 per cent duty on US-made products ranging from motorcycles to bourbon while Chinese officials are studying trade penalties on US agricultural imports, which could hurt Trump's support base of farmers. Cofco Corp, China's biggest food company has historically encouraged companies to buy US soybeans, with global trade around $14B, and they may look to use their steady purchasing as leverage in a war that likely has no clear winner. Another key leverage point that China has over the US is that it's the largest creditor to the US. A slowdown on Treasury purchases would almost certainly cause a shift in the American stance.
SPI futures down 39.4, or -0.66 per cent, at 5935.31.
Aussie dollar up 0.2% at 0.7875.
On WallStreet: Dow Jones -1.07%, S&P 500 -0.45%, Nasdaq -0.17%.
In New York: BHP up 1.07%, Rio up 0.48%.
In Europe: Stoxx 50 -0.19%, FTSE 100 -0.09%, CAC 40 -0.18%, DAX 30 0.14%.
Spot Gold fell 0.2% to US$1323.85 an ounce.
Brent Crude fell 0.26% to US$64.47 a barrel.
US Crude Oil fell 0.13% to US$60.63 a barrel.
Iron Ore rose 0.52% to CNY487.5 a tonne.
LME Aluminium fell -1.37% to US$2091 a tonne.
LME Copper fell -0.7% to US$6913 a tonne.
10-Year Bond Yield: US up 2.81%, Germany up 0.59%, Australia up 2.74%.
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