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Wednesday 19

December, 2018 5:10 PM



Stockmarket Month in Review July 2018

Stockmarket Month in Review July 2018

Global sharemarkets began the second half of the year positively, shrugging off escalating trade concerns.

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06.08.2018 04:16 PM

• Positive earnings results and strong economic data offset tariff concerns

• US tariffs implemented –

• China retaliates with ‘tit for tat’ response to tariffs

Global sharemarkets began the second half of the year positively, shrugging off escalating trade concerns. Instead, investors focused their attention on positive underlying fundamentals including solid US and European earnings results. US economic data releases were robust with the June quarter GDP growth rate of 4.1 per cent the strongest in four years. The IMF retained its global growth forecast of 3.9 per cent for this year, but acknowledged some concerns over the impact of tariffs on global growth.

Markets lifted in the first week of July despite the Trump Administration’s confirmed implementation of 25 per cent tariffs on US$34 billion (with a further US16 billion under review) worth of Chinese imported goods. Over the week to July 6, the Dow Jones index rose by 0.8 per cent; the S&P500 and German Dax indexes both rose 1.5 per cent; the Nasdaq was up 2.4 per cent; ASX200 index lifted 1.3 per cent; but the Nikkei was down 2.3 per cent.

The trade war intensified into the second week of July after China slapped retaliatory duties of 25 per cent on US imports. US President Trump responded by announcing a proposal to add tariffs to another US$200 billion worth of Chinese imports, subject to a consultation process.

On the data front, US and Chinese consumer and business inflation both lifted. Aussie consumer confidence rose to its highest level in 4½ years in July. The Bank of Canada increased interest rates by 0.25 per cent to 1.5 per cent. The Nikkei index rebounded by 3.7 per cent, the Dow Jones index increased by 2.3 per cent, but the ASX200 index edged lower by 0.1 per cent, but breached the 6,300 point level for the first time in 10½ years on July 9.

In the middle of the month China released its June quarter economic growth data. As expected, the annual GDP growth rate slowed by just 0.1 per cent to 6.7 per cent. The June activity data was mixed. A US$74 billion liquidity injection into the financial system by the People’s Bank of China raised hopes that China would ease policy to support growth.

The ASX200 index outperformed during the week ended July 20, supported by lifting industrial, financial and consumer shares. Australia’s unemployment rate fell to 5½ year lows of 5.37 per cent. The ASX lifted by 0.3 per cent, ahead of the Dow Jones index which was up by 0.2 per cent and the S&P500 index which was flat.

On July 26 President Trump said the US and EU had agreed to "work together toward zero tariffs" on nonauto industrial goods, while the EU would import more American natural gas and soybeans. And agriculture-focused shares, Deere and Caterpillar, gained on reports that the Trump Administration plans to offer US$12 billion in emergency aid to farmers hit by tariffs.

As at July 31, 60 per cent of the companies in the S&P 500 had reported their results with 82 per cent of companies reporting Earnings Per Share (EPS) growth above estimates. Shares of Facebook fell on July 26 by 19 per cent after disappointing revenue and declining monthly user numbers, wiping off $119 billion in market capitalisation. The Nasdaq index fell by 1.1 per cent over the week ended July 27. The Dow Jones was up by 1.6 per cent and the ASX200 index was up by 0.2 per cent.

Over July the US Dow Jones rose by 4.7 per cent. The S&P 500 index rose by 3.6 per cent and the Nasdaq lifted 2.2 per cent. Across Europe the German Dax rose by 4.1 per cent and the London FTSE was 1.5 per cent higher. In Japan, the Nikkei rose by 1.1 per cent. The ASX200 rose by 1.4 per cent and the All Ordinaries increased by 1.2 per cent.

Fourteen of the 22 sub-industry sectors in Australia rose in July. Telecommunications (up by 7.9 per cent) was strongest performer, led by gains from TPG Telecom (up by 11.4 per cent). However, Consumer Durables & Apparel (down by 7.6 per cent) was the biggest laggard, with Michael Hill International down by 2.1 per cent. And larger companies outperformed with both the ASX50 and ASX100 indexes up by 1.6 per cent.

Published by Ryan Felsman - Senior Economist (Author) CommSec
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