ASX set to lift as hopes rise for partial US-China deal

Australian shares are set to lift as global markets rallied at glimmers of positivity from US-China trade talks and Brexit negotiations.

US stocks rose on hopes that top-level US-China trade talks would yield at least a partial deal, while a rise in Apple’s shares lifted the technology sector.

Treasury yields rose amid hopes for a resolution in trade talks between the United States and China, alleviating some worries over slowing economic growth, as the two countries began a new round of negotiations in Washington.

The British economy looks like it will avoid falling into recession in the run-up to the scheduled Brexit date after official figures showed that growth held up in the three months through August.

Though the Office for National Statistics found that the British economy contracted by a monthly 0.1 per cent during August, that was offset by an equivalent upward revision to July’s growth rate to 0.4 per cent.

That means that the economy would have to contract sharply in September for the third quarter as a whole to be negative. Few economists expect that to happen

The US core consumer price index, which excludes food and energy, increased 0.1 per cent from the prior month, a Labor Department report showed, below the median estimate of economists. The annual gain of 2.4 per cent matched projections as well as the August increase. The broader CPI was unchanged on the month and up 1.7 per cent annually, trailing projections.

The subdued monthly reading is likely to reinforce investor bets that the Fed will ease policy later in October as the global picture darkens and the trade war worsens. Officials favouring a reduction may see little risk that inflation will jump above the central bank’s price goal and a danger that trade tensions will potentially persist for some time.

Today’s agenda

Local: BusinessNZ manufacturing PMI September

Overseas data: German CPI September; US import price index September; UoM consumer sentiment October; Fed Reserve’s Robert Kaplan speech.

Market highlights

ASX futures up 24 points or 0.4% to 6553 near 4.30am AEDT

  • AUD +0.6% to 6765 US cents at 4.36am AEDT
  • On Wall St: Dow +0.8% S&P 500 +0.9% Nasdaq +0.9%
  • In New York: BHP +1.4% Rio +2.8% Atlassian +1%
  • In Europe: Stoxx 50 +1% FTSE +0.4% CAC +1.3% DAX +0.7%
  • Spot gold -0.5% to $US1497 an ounce at 1.34pm New York time
  • Brent crude +0.3% to $US58.66 a barrel
  • US oil +0.6% to $US53.17 a barrel
  • Iron ore +2.8% to $US96.30 a tonne
  • Dalian iron ore +1.3% to 654 yuan
  • LME aluminium +0.5% to $US1753 a tonne
  • LME copper +1.7% to $US5781 a tonne
  • 2-year yield: US 1.52% Australia 0.61%
  • 5-year yield: US 1.47% Australia 0.61%
  • 10-year yield: US 1.66% Australia 0.89% Germany -0.48%
  • 10-year US/Australia yield gap: 77 basis points

From today’s Financial Review

ACCC chief blows open rift with energy suppliers: Suggestions from Rod Sims that electricity suppliers are delaying investments to keep power prices high have been rejected by companies and investors.

We’re ready to boom, says Incitec Pivot’s Jeanne Johns: The CEO of the explosives and fertiliser company has had a turbulent first two years in the job. Now it’s time to deliver on her big strategic plan.

Perth Mint goes crypto: Perth Mint has teamed up with a team of scientists in Sydney to come up with the first digital gold token on a public blockchain backed by a government-guaranteed gold.

United States

US stocks rose  on hopes that top-level US-China trade talks would yield at least a partial deal, while a rise in Apple’s shares lifted the technology sector.

Wall Street’s main indexes moved higher after President Donald Trump tweeted he would meet Chinese Vice Premier Liu He on Friday for further trade talks.

Apple rose 1.2 per cent, lifting the technology sector by 0.6 per cent, after Longbow Research upgraded the company’s stock to “buy”, citing higher iPhone 11 demand. Cisco dropped 2 per cent, after a report that Goldman Sachs downgraded the network gear maker’s shares to “neutral”.

Apple suppliers Skyworks Solutions Inc and Qorvo Inc gained 4.3% and 4.4%, respectively,

However, the three main indexes were off their session highs, with some analysts pointing to a sense of caution among investors. Stock markets have been rankled by weak economic indicators showing a contraction in US manufacturing and a bleak reading on business activity, bolstering bets of another interest rate cut by the Federal Reserve to combat a slowdown.

Europe

London stocks finished a roller coaster session with gains as domestic companies rose after Britain and Ireland said they saw a pathway to a Brexit deal. The FTSE 100 ended 0.3 per cent higher, after flipping back and forth during the day, while the midcap index that has a greater UK exposure also rose by the same level. But the FTSE 100 confirmed a “Death Cross” pattern as its 50-day moving average DMA crossed below the 200 DMA, which is seen a warning sign that more losses are likely in the near term. The pan-European STOXX 600 index rose 0.83 per cent.

Asia

Asian shares were mixed as investors pondered mixed reports on the likelihood of progress in resolving the trade war between the US and China.

Japan’s benchmark Nikkei 225 added 0.3 per cent to 21,509.54 in early trading, while South Korea’s Kospi lost 0.8 per cent to 2,029.23. India’s Sensex skidded 0.4 per cent to 38,050.81.

Hong Kong’s Hang Seng picked up 0.2 per cent to 25,726.60. The Shanghai Composite rose 0.2 per cent to 2,930.35. Shares fell in Singapore and Thailand bur rose in Jakarta.

“Updates on US-China trade keep their grip on markets as we await the commencement of trade talks going into Thursday,” says Jingyi Pan, market strategist at IG in Singapore.

A strong sales update from LVMH boosted stocks across the luxury goods sector, as months of unrest in Hong Kong proved less of a drag on the Louis Vuitton owner in the third quarter than expected.

Currencies

The euro shot above $US1.10 versus the dollar as the greenback turned weaker across the board – partly due to market chatter about a currency pact with China to stop devaluation. The dollar fell to two-week lows on with safe-haven demand for the currency waning. The yen also slid to a one-week trough against the dollar, weakening as well against riskier currencies but with higher yields such as the Australian dollar.

Euro zone government bond yields rose to three-week highs on optimism around trade US/China trade talks and after the British and Irish prime ministers said they still saw a path to a Brexit deal. Key benchmark German bond yields are 10 bps higher this week after three straight weeks of falls.

Ireland raised €2 billion from the sale of its 11-year green bond, dipping into an increasingly popular market for the second time at a yield well below its debut a year ago. Italy also plans to sell more debt denominated in foreign currencies next year after demand for its first US dollar bond in nearly a decade exceeded expectations, the head of debt management at the Rome Treasury said.

Commodities

Copper prices rose. Benchmark copper on the London Metal Exchange (LME) traded up 1.7 per cent at $US5781 a tonne in official rings. It touched its lowest level in more than two years on September 3 of $5518.

“There’s a lot of volatility in industrial metals markets linked to the tos and fros of the trade negotiations,” said WisdomTree analyst Nitesh Shah.

But he said a supply deficit that is likely to worsen in coming years will likely support prices even if demand growth for copper weakens.

Oil prices were buoyed by comments by the head of OPEC that the organisation could take action to balance oil markets and that it will decide in December on supply for next year.

Mohammad Barkindo, secretary-general of the Organization of the Petroleum Exporting Countries, did not specify if the move would mean extending a pact to rein in production to stabilise prices, but the comments appeared to nudge the market out of pessimism over US-China trade talks.

Federal Bank of Dallas President Robert Kaplan introduced some caution to investor enthusiasm that has sent gold holdings in exchange-traded funds to their longest steak of gains in a decade.

Kaplan said that the reduction in borrowing costs by the Fed shouldn’t be a “full-fledged cutting cycle,” tamping down expectations of a prolonged monetary easing that helped drive non-interest bearing gold to a six-year high last month.

Gold prices retreated from a one-week peak while palladium prices marked an all-time high. Palladium was 1.1 per cent higher at $US1700.19, having hit a record $1704.59.  LME lead closed 1.3 per cent higher at $US2158 and tin finished flat at $US16,450.

Australian sharemarket

The Australian sharemarket ended Thursday flat, after substantial gains for packaging companies could not cancel out a turgid performance by staple industries amid fresh trade concerns.

Despite the significant losses and negative international news, the packaging industry did its best to stem the blood flow. Bloomberg

The benchmark S&P/ASX 200 Index had gained 0.3 points, or 0.01 per cent, to 6547.1 points by the end of the seesaw session. The All Ordinaries Index fell 4.1 points, or 0.06 per cent, to 6662.9 points.

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    Natasha Rudra is an online editor at The Australian Financial Review based in London. She was previously life and entertainment editor at The Canberra Times. Connect with Natasha on Twitter. Email Natasha at natasha.rudra@afr.com.au

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    Benjamin Tucker

    I am Benjamin Tucker and I’m passionate about business and finance news with over 4 years in the industry starting as a writer working my way up into senior positions. I am the driving force behind Block Chains Job with a vision to broaden the company’s readership throughout 2016. I am an editor and reporter of “Services” category.

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