Australia

The Australian sharemarket is set to open lower following losses in key US tech stocks in a trading session that ended early ahead of the US 4th of July holiday while Asian shares were buffetted by ongoing trade tensions.

The Australian futures index was down 26 points at 6143 at 8.30am (AEST). The Australian dollar is buying 73.87 US cents.

The RBA kept rates at a record low 1.5 per cent on Tuesday and showed no hint of raising them soon. Its governor cited "the direction of international trade policy in the US" as an uncertainty.

Currencies most exposed to trade such as the Australian dollar and emerging currencies remain under pressure — the Aussie, considered a liquid proxy for China-related risk, was close to 18-month lows against the greenback

Out today: AiG services index for June; May trade data; retail sales May; job ads for June

Asia

The prospects of a full-blown trade war and relentless yuan weakening — it has fallen 5 per cent in the past two weeks to 10-month lows — reportedly forced China into intervention via state-run banks. The currency then reversed earlier losses to move back into positive territory for the day against the US dollar.

Other Asian currencies weakened, especially those such as the Indonesian rupiah that are doubly exposed - to trade and oil prices approaching $US80 a barrel.

On equity markets, Hong Kong dived as much as 3.3 per cent at one point to nine-month lows, hit also by a US move to block China Mobile from offering services to the US market.

Shanghai's bourse hit a two-year trough though both indexes inched higher towards the close as the yuan recovered. Japan's Nikkei edged to a near three-month closing low.

The Turkish lira, seen as an emerging markets weak link, fell more than one per cent after data showed June inflation accelerating to 14-year highs, hit by oil prices and the pass-through from currency weakness.

Europe

The mood was more cheerful in Europe where a pan-European equity index rose half a per cent, the euro firmed marginally and bond yields rose after German Chancellor Angela Merkel struck the deal with her Bavarian conservative coalition partners.

Equity futures for the US S&P500 and Nasdaq indicated a firmer session after Wall Street ended higher on Tuesday for the third day in a row. Gains of around 1 per cent in tech firms such as Microsoft and Apple offset concerns about trade and its impact on growth.

Tech shares have been relatively resilient to trade fears - the New York Stock Exchange's index of 10 tech giants including China's Alibaba has gained over 30 per cent this year. They are seen delivering another set of robust quarterly earnings.

That helped MSCI's world index to rise 0.2 per cent, inching further off recent two-and-a-half month lows.

North America

Facebook dropped 2.35 per cent on Tuesday after the Washington Post reported a federal probe on the data breach linked to Cambridge Analytica was broadened and will include more government agencies.

The dip in the social media company's stock, along with a 1.7 per cent slide in Apple, weighed on the S&P technology sector, which fell 1.37 per cent.

Energy stocks held on to gains even after crude oil prices reversed course shortly after the market opened as traders booked profits.

Trade tensions continued to fester, with US President Donald Trump on Monday making a veiled threat against the World Trade Organisation. Also looming is a July 6 deadline when Washington is set to impose tariffs on $US34 billion ($46 billion) worth of Chinese goods.

Shares of American Airlines, United Continental and Delta Air Lines fell between 1 per cent and 2.28 per cent after Deutsche Bank downgraded all three stocks, saying the growing US-China trade dispute could weigh on their results.

The Dow Jones Industrial Average declined 0.54 per cent to end at 24,174.82 points, while the S&P 500 lost 0.49 per cent to 2713.22. The Nasdaq Composite dropped 0.86 per cent to 7502.67.

With US exchanges closing at 1pm local time on Tuesday ahead of the 4 July holiday, volume was 3.9 billion shares, compared to the 7.1 billion average over the past 20 trading days.
As well as a day off, traders were looking towards June unemployment data due out on Friday for a glimpse of how much the labour market may be tightening, and for potential price pressure.

Tesla fell 7.2 per cent, declining for the second straight session on questions over whether it could sustain the pace of making its Model 3 sedans.

Economic data was mixed. New orders for US-made goods unexpectedly rose in May, pointing to a strengthening manufacturing sector, but business spending on equipment continued to show signs of slowing.

 

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Morningstar with AAP

Lex Hall is a Morningstar content editor, based in Sydney.

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