Sydney-based Australian Securities Exchange started the week lower after the international markets closed lower on Friday.
Markets succumbed to a steep crash after China allowed its yuan to fall to its lowest level since 2008 amid the escalating trade tensions between the two largest economies of the world. The move dragged the Chinese yuan to breach the closely watched level of 7 against the US dollar for the first time since the global financial crisis, in order to neutralize the impact of US President Donald Trump’s latest round of tariffs that he plans to impose on further $300 billion Chinese imports.
Strategically, the devaluation of Chinese yuan provides cushion to its exports in the United States, but it poses the potential to hamper the economic growth of Australia for China being its largest trading partner.
The slide in Chinese currency, therefore, coupled with the bleak performance data of Australian service sector sent the shockwave across the Australian stock market. ASX fell 3.061% in a day trade to close at A$86.470 on Monday. The benchmark S&P ASX 200 also declined 1.90% to 6,640.30 points, reflecting a loss of 128.30 points in a day-trading session.
Australian Dollar fell through US68 cents to stand at US67.57 cents, down 0.62% as of 5 August, 7:59 PM AEST.
China vows to respond to new tariffs threatened by Donald Trump
A prolonged conflict between the world’s two superpowers is reaching the ferocious mien despite the months’ long optimism built through the trade truce inked on the sidelines of G-20 summit in Japan.
Donald Trump last week proposed to impose 10% tariffs on ~$300 billion Chinese goods to come into effect from 1 September 2019. The tariffs, slapped on the grounds of unfair trade practices of China, would come in addition to the levy Trump has already imposed on $250 billion of imports from China, thereby bringing all the Chinese goods under taxes in America.
The sudden announcement stunned Chinese Bureaucrats as both the nations were on the verge of resolving trade tensions. Beijing, therefore, instructed state-owned companies to suspend imports of US agricultural products, in response.
On Friday, Beijing vowed to retaliate if the United States implements further tariffs on ~$300 billion value of Chinese goods. The market reports state that smartphones, clothing, toys and more would come under the ambit of US’ new round of tariffs on Chinese imports.
Beijing’s commitment to take countermeasure on the US threats of more tariffs created panic in the financial market all across the globe from Asia through Europe to Australia.
Nasdaq composite index declined 1.32% to close at 8,004.07 points; S&P 500 fell 0.73% to 2,932.05 points; and Dow Jones Industrial Average fell 0.37% to 26,485.01 on Friday. In the Asian market, India’s NIFTY 50 fell 1.23% to 10,862.60 points; Singapore’s Straits Times Index (STI) lost 66.6 points or 2.04% to close at 3,194.51; and Hong Kong’s Hang Seng Index sank 2.9% on the trade war tensions combined with the protest moved to shut down the Hong Kong’s financial hub. The benchmark Shanghai Composite Index dropped 1.62%, or 46.34 points, to close at 2,821.50.
A decline in Australian Service Sector
The Australian Industry Group Australian Performance of Services Index (Australian PSI) reported a decline of 8.3 points from the previous month to 43.9 in July 2019. The marks the steepest contraction in the monthly performance of the Australian service sector since November 2014.
In July, all the five activity indexes of Australian PSI were negative, with employment down 3.8 points to 43.8, supplier deliveries down 12.3 points to 40.5, sales slid 8.0 points to 45.1, and finished stocks fell 3.4 points to 46.2.
However, the Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) surged up to 51.3 points in July, compared to 49.4 points in the previous months. It is worth noting that performance above 50 points reflect growth in the sector, whereas, readings below 50 points indicate contraction as noted in the previous month for the first time in about three years.
The growth in Australian PMI was majorly driven by the positive change of 3.1 points in employment to 53.2 and a surge of 3.2 points in new orders. Also, exports grew 1.5 points to 54.6, on the back of strong demand for Australian consumer discretionary products such as pharmaceuticals, food, beverages, cosmetics and vitamins.
Gainers and Losers
On Monday, Information Technology sector declined 5.46% to 1,300.5 points on ASX, which included Appen (ASX: APX), WiseTech Global (ASX: WTC), and Afterpay Touch (ASX: APT) among the group of worst performers in a day-trading session.
Energy and Mining sector companies have been on the rise including Resolute (ASX: RSG), Oil Search (ASX: OSH), and Evolution Mining (ASX: EVN) among the top 5 performers on S&P/ASX 200. However, on the overall front, Energy sector performance dropped by 1.59% to end the day at 10,636.4 points on 5 August 2019.
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