ASX Closes Lower Last Week

The potential trade war truce and expectation of a decline in global and local interest rates pushed the Australian stock market higher last week. On Thursday, the market rallied even higher and recorded an eleven year high at 6687.40.

Last week’s S&P / ASX 200 index rose 96.8 points, which is a 1.5% increase to close at 6650.8, while the broader common stock index rose 100.7 points, or 1.5%, to close at 6734.3. AMP Capital head of investment strategy and chief economist, Shane Oliver claimed that the stock market had risen in the past week as the Fed and the European Central Bank strongly hinted at easing monetary policy, in conjunction with the news that President Trump and Xi Jinping will meet during the G20 Japan meeting.  

However, on Friday, the Australian stock market experienced a surprise decrease. The benchmark S&P/ASX 200 index fell 36.6 points, which is a 0.55% lower to 6,650.8 points on Friday, while the broader common stock index fell 33.6 points, or 0.5%, to 6,734.3.

Except for energy and mining stocks, all other sectors went into the red at the end of last week. Energy stocks have strengthened as a result of higher oil and iron ore prices. It is hoped that next week’s G20 will resolve the trade war and increase the demand outlook for crude oil, while the supply would be limited by the ongoing tension in the Middle East. The banks lead the losses on the index by nearly 15 points, and CSL’s share price dragged down the healthcare industry performance. Energy and raw materials stocks managed to bring the biggest gains to the ASX200 on Friday and added 10 points to the index.

The impact of Iran tension

The global stock market outlook deteriorated in New York on Friday, due to significant sell offs and accumulation of ‘safe-haven’ assets, after the US President Donald Trump approved a counterattack against Iran in retaliation for destroying the US drone, before cancelling the operation last minute. President Trump said on the weekend that military operations against Iran was still on the table, and Iran will suffer with unspecified new sanctions on Monday.

“The fact is we’re not going to have Iran have a nuclear weapon,” he said. “And when they agree to that, they are going to have a wealthy country, they’re going to be so happy and I’m going to be their best friend.”

The United States and Iran were in dispute after Iran announced its intention to destroy the uranium inventory restrictions established in 2015 to limit its nuclear program in exchange for reducing international sanctions. The United States later withdrew from the international agreements and resumed economic sanctions against Iran.

Although the stock market continued to be pessimistic at the end of this week, the friction between the United States and Iran caused US oil prices to soar to its biggest weekly increase since December 2016, with the contract closing at $57.61 per barrel.

With increased tension between the US and Iran, repercussions have been felt outside the middle-east and the United States, mainly through volatility in the financial markets. Aside from the wall street stocks closing lower on Friday, the European and Asian indices experienced similar trading conditions with a general decline, but on a high volume. The DAX index fell 0.13% and the FTSE 100 index fell 0.23%. The Nikkei index fell nearly 1%, the Hang Seng Index fell 0.27%, and the Chinese Shanghai and Shenzhen 300 Index became one of the few gainers on the globally, up 0.14%.

Even though President Trump cancelled the military operations at the very last moment, this does not mean that the risk of the US-Iraq war is necessarily reduced.

The US-China trade war

Even though the trade war between the US and China has eased in the past week, the end of the trade war is not in sight ahead of the G20 Conference.

The G20 meeting is scheduled to take place this weekend and President Trump is expected to meet with Chinese President Xi Jinping. “The G20 is where they agree to hold future meetings,” said Steve Goldman, managing director of Kapstream Capital. Mr. Goldman also added that “I don’t think there is a solution to the trade war in the short-term because it is not an economic issue, but a political issue”. With the lack of progress in US-China trade talks and potential for conflict in the Gulf region, investor confidence has shown volatility.

By Louis Cai

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