At time of writing, the ASX 200 is 0.56% lower, sitting on 6260.6 points. We will look at the factors that explain why the ASX is lower today and what could happen in the coming weeks and months.
Much of today’s market movement can be traced back to US President Donald Trump, or more precisely, China.
Trump’s tweets push global markets, ASX down
Trump fired off a couple tweets in the last 72 hours that sent shivers down traders’ spines.
This was the first salvo:
And this was the second:
The additional tariffs are set to be imposed on Friday, barring an extraordinary breakthrough in talks.
A key player in the talks, US trade representative Robert Lighthizer said on Monday:
‘Over the course of the last week or so we have seen an erosion in commitments by China. That in our view is unacceptable.’
The key point of contention is enforcement.
China wants to address trade issues through administrative and regulatory actions as opposed to enshrining the proposed changes in Chinese law.
After the tweets, the Shanghai Composite promptly fell 5.6%, along with losses in Europe and a 1.7% hit to the S&P 500.
What’s the outlook for the ASX 200?
The trade war has been raging for 10 months, and during this period the ASX experienced a fall in the lead up to the new year and has been on a run over the last few months.
This indicates that the trade war is important to markets, but not the be all and end all.
What really drives the share market is earnings.
As CommSec notes:
‘93 per cent of the companies reporting ‘interim’ results reported a statutory profit (net profit after tax). That is near the record high in the equivalent earnings season in February 2018. But only 49 per cent of companies lifted profits compared with a year ago.’
Australia does a significant amount of business in China and Chinese authorities are hinting at further stimulus.
So the key takeaway here is that while this fall may be sudden and jarring after a long uptrend, there are still opportunities out there — you just have to be more discerning.
It comes as little surprise that gold miners like Saracen Mineral Holdings Ltd [ASX:SAR] are up today.
Instead of going short on blue chips during a downturn in markets, you can go long on gold.
For Money Morning