Daily Report

A day where volatility kicked hard and we saw broad based selling across local and international markets – the catalyst / straw that broke the proverbial back was an escalation in trade tensions between China and the US – Bloomberg put it best by saying…after trying to placate Donald Trump for more than a year only to face tariffs on virtually all its shipments to the U.S., China is signalling it’s ready to play hardball!

The attack came on two fronts with Beijing allowing the yuan to fall to its weakest level in a decade against the dollar, which is supportive of Chinese exports + they also instructed their state owned companies to hold back on buying U.S. agricultural products – two things that look very much like a red flag to the proverbial Trump Bull – the obvious thought is around Trump retaliation tonight.

Looking at regional performances, Asian markets were down – Hong Kong the worst of them off by ~2.5% as political unrest bubbled again while Japan was down ~1.7%, China was okay down by ~1%. US Futures were flat around our open this morning however as the day progressed they tracked lower, Dow Futures down ~300pts at their worst settling down ~250pts / -1% at our close.

Australian stocks played catchup on the downside after outperforming last week, down ~2% with selling strong across the board. More in First Reactions below.

Overall, the ASX 200 lost -128pts today or -1.90% to 6640. Dow Futures are trading down -250pts /- 0.95%.

ASX 200 Chart – sustained selling throughout the session

ASX 200 Chart

CATCHING OUR EYE;

Reporting: No company reports out today given it was a bank holiday however we have 3 property stocks out tomorrow with BWP, SCP & CMA before it heats up on Wednesday and Thursday. Wednesday see’s CBA, SUN & TCL while on Thursday, AGL, AMP, IAG & MGR are all out with results.

Widespread risk off: Sustained and broad based selling across the board today – no sectors closing in the black – the high flying sectors of recent times hit the hardest and none more so than the IT stocks – down 5% at the index level however there was a number of stocks hit harder, Appen (APX) the worst of them down by 10.61%.

Appen (APX) Chart

Oil Search (OSH) +2.88%; On a more positive note, one of the better movers today was energy company Oil Search, leaving its peers behind. Oil Search had recently been dealing with some push back from the PNG government over the agreed upon tax and royalty schemes that were negotiated with the previous government. The newly elected group had seemed intent on including additional fiscal terms in the Oil Search agreement, raising questions over their LNG expansion in the area. Today the company announced the PNG cabinet had agreed in principle to stand by the current arrangement helping to lift some weight off the OSH share price. The project remains years away with full scale production not expected until 2026, however it does justify up to a third of Oil Search’s value.

Oil Search (OSH) Chart

Broker moves;

  • Australian Dairy Nutriti Rated New Buy at Blue Ocean; PT A$0.18
  • Western Areas Upgraded to Buy at Bell Potter; PT A$2.74
  • Sims Metal Downgraded to Neutral at Macquarie; PT A$11.60
  • Saracen Mineral Downgraded to Neutral at Hartleys Ltd; PT A$4.14
  • Independence Group Cut to Neutral at Hartleys Ltd; PT A$4

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Comments

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Harry

"after trying to placate Donald Trump for more than a year only to face tariffs on virtually all its shipments to the U.S., China is signalling it’s ready to play hardball!" Seriously?? China not buying US agriculture and devaluing their currency (in other words maninpulating as is normal in the Chinese market). After working in and dealing with China for over 30 years Ive been waiting for some country with a bit of nous to take China to task after years of corruptive practices world wide. What if the US starts devaluing . Its still the only country in the world that can self sustain without imports. The USA hasnt been serious about its position in trade for many years . Lets see what happens when they do get serious...if and when!

Harry

Also as a matter of interest the USA exports to China 5% of its Soya bean, 0% of its wheat,0 % of its corn, 24 % of its cotton. (I guess no more clothes for Adidas). The biggest markets by far for the US agricultural sector is the EU, Mexico and Japan.

Lewis Crane

Your figures are somewhat off there @Harry, it was basically 25% of Soybean production to China not 5% - and obviously they aren't big bread or corn syrup eaters either so not really a surprise that they are very low. Bigger areas are diary and meat/livestock.