The Monday Report

Daily Market Reports | May 13 2019

By Greg Peel

Resilient

The Australian market was surprisingly positive on Friday, with all sectors closing in the green bar materials, which closed flat. Financials were little moved as well.

Trading was nonetheless thin and choppy, suggesting a nervous tone, but when the tariff deadline came and went with no deal between the US and China, and the Dow futures were down -88 points by the local close, the ASX200 actually rallied from its low of the session, down -12, to close up 15.

Is it because Australia stands to lose exports to China if part of a deal means China buying more US products? But then the futures closed up 29 points on Saturday morning after a Wall Street rebound based on talks being described as “constructive”. So it’s hard to tell.

There was the small matter of the release of the RBA’s quarterly Statement on Monetary Policy, in which the central bank slashed its GDP growth forecast for FY18 to 1.7% from a prior 2.5%, which was down from 3.25% in November. The RBA expects growth to recover to 2.6% by year-end, but expectations for a rate cut very soon have only strengthened.

Possibly the board held off in May because it needed to know the election outcome, which would make June a shoe-in as far as many are concerned.

The Aussie has fallen back under US70c in the wake of the SoMP.

There is nothing else remarkable to report about Friday’s trade other than utilities won the day with a standout 2.1% gain when most sector gains were modest.

There were no overly substantial moves among individual stocks either, although we note investors remain confident a merger can still proceed between TPG Telecom ((TPM)) and Vodafone, with TPG shares rallying 5%.

Blind Faith

When the US awoke to learn no deal had been announced between the US and China, hence the tariff increase had indeed come into effect, the response was to sell the Dow down -350 points.

When Washington finally piped up late morning, and Treasury Secretary Steve Mnuchin said that despite an agreement not being reached, talks were “constructive”, the Dow spun around and rallied to be up 150 points, before fading slightly to the close.

Mnuchin’s comments were followed by a tweet from the president:

Over the course of the past two days, the United States and China have held candid and constructive conversations on the status of the trade relationship between both countries. The relationship between President Xi and myself remains a very strong one”.

Trump went on to say that tariffs could still be withdrawn.

But on the other hand, the increase to 25% from 10% on US$200bn of goods is now in effect and ahead of the Friday deadline, Trump noted the administration was working on 25% tariffs on the remaining US$325bn of Chinese imports, which would mean a tariff on anything Chinese.


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