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A winning week for Australian stocks faces a test after Wall Street retreated ahead of a White House statement tonight on China.

ASX SPI200 index futures declined 20 points or 0.3 per cent to 5836, signalling early pressure on a rally that has lifted the S&P/ASX 200 354 points or 6.4 per cent in four sessions. 

A Wall Street rally ran out of puff after lunch as the White House announced a news conference tonight to unveil the US response to a national security bill for Hong Kong approved by China’s National People’s Congress yesterday. The governments of Australia, the US, the UK and Canada issued a joint statement expressing “deep concern regarding Beijing’s decision”. The proposed law is seen as a threat to civil liberties in Hong Kong and the “one party, two systems” principle that has earned Hong Kong special trading privileges in the past.

The S&P 500 faded to a loss of six points or 0.21 per cent, reversing an initial advance of around 1 per cent. The Dow shed 148 points or 0.58 per cent after being up 210 points. The Nasdaq lost 43 points or 0.46 per cent.

“If the HK response involves broad sanctions against individuals or entities, that would be a larger issue and not something the SPX could easily dismiss,” market commentator Adam Crisafulli of Vital Knowledge told clients. “Investors aren’t paying enough attention to rising US-China tensions.”

Markets outside of Asia have shrugged off deteriorating Sino-US relations this week as investors focussed on economic revival. Dow component Boeing announced overnight it had resumed production of its troubled 737 MAX. Another 2.1 million Americans filed for unemployment benefits last week, but economists were cheered by a 4 million drop in continuing claims, the first decline since the start of the COVID-19 pandemic. The US economy is coming “out of the hole”, Bank of America CEO Brain Moynihan told CNBC.

“Stay-at-home” stocks came under pressure for a second day. Facebook dropped 1.6 per cent, Netflix 1.5 per cent and Amazon 0.4 per cent. Twitter dropped 4.5 per cent ahead of a White House executive order this morning on social media.

The best-performing sectors were traditional defensives: utilities up 3 per cent, health 1.3 per cent and real estate 1.2 per cent. The biggest losers were energy, down 2.9 per cent, and financials, down 1.6 per cent as Citigroup shed 5.9 per cent, Bank of America 4.3 per cent and Goldman Sachs 4 per cent.

The materials sector held on to a gain of 0.8 per cent. BHP’s US-listed stock added 1.06 per cent and its UK-listed stock 1.15 per cent. Rio Tinto edged up 0.32 per cent in the US and 0.69 per cent in the UK. The gains came as spot price for iron ore landed in China rose $1.30 or 1.4 per cent to US$96.40 a dry ton.

The S&P/ASX 200 has enjoyed its best week of the year as the heavyweight bank stocks finally joined the two-month recovery. However, the rally in financials started to look overextended yesterday, with the big four all closing well below their session peaks. The S&P/ASX 200 needs to finish this session with a loss of less than 34 points to claim its best weekly return of the year, topping a 320-point advance in early April.   

American energy companies fell as an unexpected increase in US stockpiles last week overshadowed a rise in crude oil. Brent crude settled 55 cents or 1.6 per cent higher at US$35.29 a barrel. US crude stockpiles increased by 7.9 million barrels last week following  record imports of more than 2 million barrels a day from Saudi Arabia.

Gold edged higher as traders bought havens ahead of possible US sanctions against China. Gold for August delivery settled $1.50 or 0.1 per cent ahead at US$1,728.30 an ounce.

Aluminium hit a two-month peak during a generally positive night for industrial metals on the London Metal Exchange. Benchmark aluminium rose 0.9 per cent to US$1,514.45 a tonne. Copper gained 1.5 per cent, nickel and zinc 1.1 per cent and tin 1 per cent. Lead dipped 0.5 per cent.

The dollar climbed 0.02 per cent to 66.36 US cents.

A busy end to the week tonight on Wall Street includes President Trump’s press conference on China, a virtual panel discussion involving Federal Reserve Chair Jerome Powell, and reports on consumer sentiment and personal spending.

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