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Market Wrap 11/05/2018

By: Michael Lee


Equities:

Equity markets continued to be dominated by the growth story in the US with low unemployment and moderate inflation at 2.1%. The S&P 500 recorded 2.2% for the week. What’s new is the optimism from the denuclearisation of North Korea with three Americans hostages being released, ahead of the upcoming Trump-Kim summit in Singapore. Kim at the same time met the Chinese President Xi for the second time in two months and was reported to have commented on the possibility of denuclearization, as well. The sight of potential geopolitical ease in North Korea seemed to have reduced uncertainty in the market and offset the tension from Trump’s intention to withdraw from the Iran nuclear accord. Trump criticized the deal for its inability to stop Iran from seeking nuclear weapons in the future.

In other news, Warren Buffett scooped up another 75m shares in Apple, taking his stake in the company to $42bn. In a recent CNBC interview, his business partner Charlie Munger said that they should have bought more earlier. Apple, the world’s biggest company with 4% weight in S&P 500 by market cap advanced 3% since the beginning of the week. This also lifted the confidence in US equity and the rest of the world. In Australia, the ASX 200 reached 10-year high on Friday before finishing lower at 6,116, up 0.9% for the week.  Mining giant BHP led the pack by gaining 5.3% against the back drop of Royal Commission’s probe into the seemly scandalous financial industry. The extent of negligence or potential fraud continued to roil the reputation of large banks with the Commonwealth Bank of Australia having admitted “its planning arms breached the Corporations Act when they charged clients – including some who had died – fees for services they did not receive while other banks have fought bank against the accusations levelled at during the royal commission”, according to Sunday Morning Herald. Finally, on the positive note, the federal budget shows that the government fiscal budget would return to surplus within 3 years and signaled continuous improvement in the economy. Meanwhile, Mahathir Mohamad has been elected the new Prime Minister of Malaysia, marking the end of the ruling coalition’s 60-year reign. Malaysia’s national stock exchange was close on Thursday and Friday, due to the election.

Commodities:

The potential sanction on Iran has caused the oil price, such as WTI crude to rocket over 2.2% for the week. The 62% Iron ore fine benchmark declined 0.5% to $66.46 a tonne on with Rebar futures in Shanghai fell to a two-week low on Thursday.

Forex:

The degree of volatility is high with AUD depreciating over 1.3% against the greenback by Wednesday before recouping much of the loss on Friday. Argentine PESO fell to a record low, trading at USD/ARS 22.7, amid concern about the nation’s ability to reign in inflation and currency outflow after seeking aid from the International Monetary Fund via a US$30 billion credit line.

Bonds:

The yield on 10-year Treasury yield briefly topped 3% and the 2-year yield reached 2.5%, topping the 2008 . With higher yields on US bond, the government budget deficit is expected to surpass $1 trillion by 2020, as Fed trims its US4.4 trillion balance sheet by allowing maturing securities to roll off gradually.

Other Assets:

Bitcoin dived and traded at $8974 on Friday. Despite Goldman Sachs joining the digital currency revolution by offer bitcoin trading, the ongoing debate of cryptocurrency continues to draw different nicknames and opinions from the investor community on whether the currency is simply a technology mirage or in fact “digital gold”.


Sources: AFR, Bloomberg, Reuters, The Washington Post, Financial Time, CNBC, SMH

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