UNIT University Network for Investing and Trading UniMelb

Before The Bell 28/04/2019

By: Bryan Tan


Equities:

In the US, the S&P 500 closed on Friday at a record high of 2939.88. This was in part due to better-than-expected Q1 earnings reports from various giants such as Amazon, whose quarterly profit doubled, Walt Disney, which is riding the high of record-breaking revenues from Avengers: Endgame, and Ford Motor Company, whose stock rose 10.7% as a result of strong truck sales in its core US market. The US Commerce Department also released data on Friday regarding US GDP growth rising faster than expected, which buoys the market even further. This is a drastic turnaround from the late 2018 sell-off as a result of market-wide pessimism. The market is currently optimistic about a possible trade war resolution between China and the US due to President Xi’s recent signalling of approval for Trump’s trade war demands. However, considering the volatility and unpredictable nature of President Trump, it is highly uncertain that a resolution is on the horizon.

In Australia, the housing market is expected to fall further in order to align with the earnings of full-time workers, according to analysts from NAB. In lieu of the US market’s strong performance, the ASX200 is up by 1%. The ASX is the only major market climbing compared to other major Asian markets, according to the MSCI AC Asia Pacific Index, which was down 0.5% last week.

Earnings season continues next week, with several prominent large-cap companies such as Samsung, Alphabet A, and Mastercard set to announce quarterly earnings.

Commodities:

Oil prices are slowly rising as a result of various factors. The US has announced that it will no longer grant any exemptions for Iranian oil exports due to its opposition of the Iranian regime. New data out of Saudi Arabia shows that the Ghawar oil field is depleting fast and cannot pump more than 3.8 million barrels per day, which is 1.2 million barrels per day short of the Saudi’s assertions of 5 million barrels per day. The rising crude oil and petrol prices reflect the impending supply deficit and erosion of the global oil supply capacity buffer. OPEC’s reaction to the supply shock will be instrumental in determining the prices of oil in the coming weeks.

Forex:

The Chinese economy showing signs of recovery is good news for the Australian dollar, and Goldman analysts have issued a buy recommendation for AUD against the New Zealand dollar, Canadian dollar or South African rand, citing optimal exposure to Chinese growth whilst minimising sensitivity to commodity prices.

The market is currently bearish on the AUD considering potential interest rate cuts by the RBA. The AUD briefly fell below the 70-cent level to .6988 against the greenback on Thursday but recovered to .70370 at close on Friday. The interest rate cuts are more likely than not due to weak Australian inflation reports. Expect the Australian dollar to spend more time under the 70-cent mark unless the RBA calms speculation about the interest rate cuts.


Sources: Bloomberg, DailyFX, AFR, CNBC, Financial Times

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