ASX Drops Amid Looming “Phase-One” Trade Deal and Fed’s Interest Rate Decision

All the industry sectors closed the trading session in red, except the stocks of materials sector that rose by 0.12 per cent. The losses in the benchmark index were driven by the stocks in the telecommunications sector, that fell by 1.75 per cent on Thursday.

Take a look at the best and worst performers of the Australian share market:

In addition to these worst performing stocks, the WAAAX stocks also saw a significant fall in their share prices on Thursday:

• WiseTech Global Ltd (ASX: WTC), down by 1.56 per cent to $24.550
• Appen Ltd (ASX: APX), down by 1.44 per cent to $21.850
• Altium Ltd (ASX: ALU), 1.04 per cent down to $34.310
• Afterpay Touch Group Ltd (ASX: APT), fell 2.04 per cent to $28.870
• Xero Limited (ASX: XRO), 1.53 per cent down to $78.880

Australia?s oldest lender, Westpac Banking Corporation (ASX: WBC) also lost over 1 per cent after its annual general meeting, that gave a chance to investors to vote on board members and remuneration and voice concerns. The company and its board received several critical comments and questions associated with AUSTRAC in the meeting. This drove WBC down, which closed the trading session at $24.080, with a fall of 1.23 per cent relative to the last closed price.

Phase One Deal Approaches Near, Drive ASX Down

As per market experts, the performance of the Australian share market was majorly influenced by the approaching ?phase one trade deal? deadline that is keeping investors on edge.

An American trade coalition (Americans for Free Trade or AFT) has advised the US President, Mr Donald Trump to reach a partial trade deal with China to resolve the prevailing trade war between the US and China. The coalition encouraged the Trump administration to suspend implementation of the scheduled tariff rise on Chinese goods on 15^th December if the partial deal is not finalized before the set date.

The Trump administration has planned to impose 15 per cent tariff on Chinese goods worth billions of dollars on 15^th December 2019. The tariffs that are due to be activated would affect goods ranging from wheat and corn to rare earth magnets and small aircraft.

The coalition has urged to extend the deadline until a partial trade deal is reached. Previously, Mr Trump also delayed this scheduled tariff hike from September to December to prevent American consumers during the holiday season.

AFT continues to believe that tariff rise is a wrong approach practiced by the administration to punish China for its trade misdeeds as this is only aggravating economic harm to American farmers, businesses, workers and families across the country.

Moreover, Chinese officials also expect the President to postpone the warned tariff hike, providing more time to discuss on interim trade deal. A top negotiator of China has also asked the US to relax portions of the current tariffs on about $360 billion worth of Chinese goods.

China has previously warned of harsh consequences if the US levy the scheduled tariffs. China is likely to impose 25 per cent additional tariff on the US-made vehicles and 5 per cent tax on auto parts that was suspended early in 2019, in case the US escalates the trade war.

However, as per China?s Commerce Ministry, the US and China are closely communicating on trade.

Market experts are of the opinion that Mr Trump might have to sacrifice the US equity market if he imposes tariffs on this Sunday. They believe that an additional wave of tariffs might also weigh on the US economic growth.

Federal Reserve Kept US Interest Rates on Hold

In line with the market expectations, the US Federal Reserve has kept the interest rates on hold in a recent meeting, affecting the Australian equity market. The Fed has held its benchmark rate steady in the range of 1.5 per cent to 1.75 per cent.

The central bank noted that unemployment has stayed at lower levels for an extended period of time without affecting inflation, reflecting the solid state of economy. It is of the view that the current position of monetary policy is appropriate to assist in strong labor market conditions, sustained expansion of economic activity and keeping inflation in the target range.

The Fed?s decision has countered recession fears amid continuing trade uncertainty. It is worth noting that the central bank has already reduced the interest rates thrice this year.

Moreover, the central bank has signaled that it is unlikely to change/lower the interest rates in 2020 in the wake of a solid economy. Fed Chair Jerome Powell also stated that the interest rates would only be increased at the time of persistent and significant inflation.

Majority of the Fed leaders expect the US economy to remain in a good place next year, thereby anticipating no changes in interest rates.

The Australian dollar increased against the US dollar after the Fed?s decision on Thursday morning. The Dow Jones Industrial Average also climbed 0.11 per cent or 29.58 points, closing at 27,911.3 points on Wednesday. In addition, the S&P 500 index rose 0.3 per cent to 3,141.63 points, and Nasdaq Composite improved 0.4 per cent to 8,654.05.

It is to be noted that despite a rally on Wall Street, the Australian shares declined heavily on Thursday.

Stay tuned for more updates on Australian equity market!

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