7 Sep 2018
Equity markets down as Trump readies more tariffs
- Equity markets fell both locally and globally on concerns of escalating trade wars and strong profit taking from some investors.
- Australian company reporting season finished with reasonable results, but company guidance for the next 12 months was less than impressive. Plenty of concerns and impacts cited, with average forward earnings growth for the market revised lower.
- US tech stocks came under pressure after the US Justice Department said it was looking into concerns that social media platforms were “intentionally stifling the free exchange of ideas”. Expect greater regulatory risk for tech stocks ahead.
- In local stock news, the resources sector came under heavy selling pressure as concerns mounted regarding the health of China’s economy and escalating US-China trade tensions.
- Bank stocks also fell as some reports pointed to a greater slowdown in the residential housing market than previously expected. The majority of banks have now raised borrowing rates in the last week in order to maintain their margins in light of higher overseas funding costs.
- Transurban and their fellow consortium members agreed to pay the NSW government $9.3bn for a 51% stake in the WestConnex motorway. Transurban owns 50% of the consortium and will manage the motorway once constructed. The price paid appears very full.
- The Reserve Bank of Australia left rates on hold as widely expected. Little change in their statement, with some minor mentions of a falling Aussie dollar and higher mortgage rates. With the banks now raising rates out of cycle, RBA looks to be on hold indefinitely.
- Australian building approvals for July have come in softer than expected with total approvals falling 5.2%. The decline came on the back of June’s upwardly revised growth rate of 6.8%. Apartment approvals are highly volatile from month to month. House approvals are down 3.5% on a year earlier.
- Australian retail sales were flat in July, which was the weakest result since March. Clothing / footwear, department stores, and household goods retailing all led the decline whilst there were gains in food / cafes / restaurants.
- In other Australian economic news, job advertisements eased in August (not good for the unemployment rate), whilst home prices fell for the 11th straight month as banks tightened their lending standards. Lending rates are still lower than they were a year ago.
- US manufacturing activity accelerated to a more than 14 year high in August, boosted by a surge in new orders.
- Trade war news was mixed the US reaching a bilateral trade deal with Mexico, failing to renegotiate their existing trade agreement with Canada, and President Trump nearing approval of an additional US$200bn of tariffs on Chinese imports. Clear the markets focused on the latter.