Australia and China's spat may take edge off positive lead from overseas markets

By Trevor Hoey. Published at Apr 28, 2020, in Market Wrap

Overseas stock markets rose in unison over the last 24 hours with strong performances across the UK, mainland Europe and the US representing a show of confidence after robust gains in Australia and Asia.

The S&P/ASX 200 Index’s (ASX: XJO) gain of 78.8 points or 1.5% to close at 5321 points was particularly impressive as it occurred while the banks were being sold down.

The four big banks account for a significant proportion of the index and have the ability to steer the XJO one way or the other, especially if they are all heading in the same direction.

Consequently, a better day for the banks could have seen the XJO go close to a triple digit gain.

Unfortunately, it is likely that we will see more fallout from the financial sector as some of the key factors that triggered the sell down in NAB yesterday are likely to feature in the results of other banks in the near term.

The ASX SPI200 index is pointing to a much more modest gain on Tuesday, up 5 points to 5313 points.

Commodity prices could place downward pressure on the ASX today with declines in gold, oil and iron ore.

There could also be some negative sentiment towards such stocks should investors anticipate that coronavirus related ructions between Australia and China escalate.

This isn’t out of the question as China quickly played the trade card in response to Australia’s request for an open investigation into China’s part in the origination the virus, as well as their responses in terms of being transparent with the state of play and instigating containment measures.

Very quickly China’s ambassador Cheng Jingye came out publicly and reminded Australia that the Chinese might abandon Australian wine and beef if such a project goes ahead.

But Australia's foreign minister Marise Payne called him out on the threat, saying Australia was making a 'principled call' for an investigation and would not submit to economic coercion.

While being a tad flippant, Australian consumers wouldn’t mind if they could once again buy our best home-grown beef and top-notch wines at reasonable prices.

24 hours

In market action yesterday, the Nikkei 225 led the way in Asia, gaining 2.7% or 521 points to close at 19,783 points.

The Hang Seng rallied nearly 450 points to close at 24,280 points.

The Shanghai Composite was up a relatively meagre 7 points, closing at 2815 points.

Moving across to the UK, the FTSE 100 increased 94 points to close at 5846 points, representing a gain of 1.6%.

Mainland European markets were particularly strong with the DAX surging 3.1% to close at 10,660 points.

Banks, airlines, car manufacturing group and pharmaceutical companies all made strong gains with Deutsche Bank AG performing particularly well, gaining 12.7%.

Banks and car manufacturers also led the way in France as the CAC 40 rallied 2.5% to close at 4505 points.

As more states opened up for business, albeit tentatively, US markets responded positively.

The Dow was up 358 points or 1.5% to 24,183 points.

There was a similar proportionate increase in the S&P 500 which rallied 42 points to close at 2888 points.

The NASDAQ gained 1.1% or 95 points to close at 8730 points.

With widespread positive sentiment, the CBOE Volatility Index (VIX) continued to decline, closing at 33.3 points.

On the commodities front, oil is under pressure again with Brent Crude falling below the US$25 per barrel mark, closing in the vicinity of US$23 per barrel.

Gold retraced from highs of around US$1740 per ounce early in the session to close at US$1727 per ounce.

Iron ore was down 1% to US$83.48 per tonne.

The Australian dollar is fetching just under US$0.65.

US consumer confidence figures will be the key focus over the next 24 hours.

While getting back to business in the US has been a big driver, of equal importance is consumer confidence as it will be a pointer as to how quickly those businesses can recover.

Given the spike in unemployment, it could still be some time before confidence returns to normal.

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