Australian Stock Market Report – Morning July 18, 2014

Morning Report
(06:10 AEST)

The Philadelphia Fed´s manufacturing index rose from +17.8 to +23.9 in July, well ahead of forecasts (+16.0). The index has been particularly strong in the past four months. Across the subindices new orders, shipments, employment all recorded healthy gains. US jobless claims fell by 3,000 to a seasonally adjusted 302,000 last week.

European shares slumped on Thursday, extending losses after news that a Malaysian passenger plane had crashed in Ukraine near the Russian border. Airline stocks fell, with Air France KLM down 1.5%, Lufthansa lost 2.4%, International Consolidated Airlines Group - the owner of British airways and Iberia fell 3.4%. The FTSEurofirst 300 index lost 1.0% with the German Dax down by 1.1% while the UK FTSE fell by 0.7%. Australia´s major miners were weaker in London trade with shares in BHP Billiton down by 1.2% while Rio Tinto fell by 0.6%.

US sharemarkets sold-off on Thursday with the S&P 500 posting its biggest one day drop in more than three months after a Malaysian airlines plane crashed near Ukraine-Russia border. Investor sold off equities with the CBOE Volatility Index ´´fear gauge´´ surging 17.6%. The Dow Jones index fell by 161 points or 0.9% with the S&P 500 index down by 1.2% while the Nasdaq fell by 63 points or 1.4%.

US treasury prices rallied on Thursday (yields lower) as investors flocked to the safety of US government bonds following the Malaysian Airlines crash. US 2 year yields were down 4 points to 0.45% while US 10 year yields were down 8 points to 2.45%.

Major currencies were mixed against the US dollar in the European and US sessions on Thursday. The Euro touched early highs near US$1.3540 before easing to US$1.3520, and closing US trade near $US1.3525. The Aussie dollar hit highs near US93.90c before easing in the later part of trade to lows near US93.50c and ending the US session near its lows. And the Japanese yen rose from 101.55 yen per US dollar to highs near JPY101.15, ending US trade near its highs.

World oil prices rose on Thursday as geopolitical concerns not only in Russia/Ukraine but also further unrest in Israel, lifted prices. News emerged this morning that Israel has launched a ground offensive in the Gaza Strip. Brent crude rose by US$2 or 1.9% to US$107.85 a barrel and the US Nymex price rose by US$1.99 a barrel or 1.9% to US$103.19 a barrel.

Base metal prices were mixed on Thursday but gains and losses didn´t exceed 1%. Lead fell 0.6% but aluminium rose by 1%. Gold prices rose on safe-haven flows with the Comex gold futures quote up by US$17.10 or 1.3% to US$1,316.90 per ounce. Iron ore fell by US50c to US$97.50 a tonne on Thursday.

Ahead: In Australia the Commonwealth Bank Business Sales Index is released. In the US, the University of Michigan confidence index and the US leading indicators index are both released.