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Global Market Report - 06 January

Lewis Jackson  |  06 Jan 2022Text size  Decrease  Increase  |  
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Australia

The S&P/ASX 200 looks set to pull back at the open after after US stocks tumbled as investors considered minutes from the Fed's recent policy meeting.

The Australian SPI 200 futures contract were down 13 points or 0.2% to 7468 near 6.15am AEDT suggesting a negative start to trading. They traded 0.8% lower by 8am.

US stocks fell Wednesday as investors digested minutes from the Federal Reserve's recent policy meeting for clues about plans to wean markets off pandemic-era stimulus measures.

The S&P 500 dropped 1.9% a day after the broad index pulled back from a record high as technology shares fell. The tech-heavy Nasdaq Composite Index fell 3.3%, while the blue-chip Dow Jones Industrial Average -- which set its own record Tuesday -- lost 1.1%, or 392 points.

Locally, Australia's S&P/ASX 200 closed 0.3% lower at 7565.8, edging back from its strongest start to a calendar year.

Tech and health stocks led losses as the benchmark paused following Tuesday's 1.95% gain. The tech sector gave up 2.9%, mirroring similar weakness in the U.S that pulled the Nasdaq Composite and S&P 500 lower. WiseTech and Xero lost 2.9% and 3.8%, respectively, while Afterpay dropped 4.0% to A$80.51 and its lowest close since October 2020.

Health stocks Clinuvel, Imugene and Pro Medicus shed between 7.5% and 9.7%, making them the worst-performing ASX 200 components. The heavyweight financial and materials sectors put on 0.5% and 0.4%, respectively.

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Latitude Group Holdings Ltd. said it plans to buy Humm Group Ltd.'s consumer business, which includes its buy-now-pay-later services, for around 335 million Australian dollars.

Latitude said the deal would comprise 150 million of its own shares and A$35 million in cash.

Humm's consumer business had approximately A$1.8 billion of net receivables and A$152 million of net tangible assets at the end of June. Latitude said a combination of the business would create a company with more than A$8 billion of receivables and more than five million customers, with 70,000-plus merchants.

Asia

Chinese stocks closed lower, weighed by a further weakening of electric vehicle-related sectors. EV makers and suppliers extended losses following a cut in the government's EV subsidy for this year. BYD Co. retreated 6.5%, battery maker CATL declined 3.8% and Ganfeng Lithium shed 3.0%. Dongguan Securities said the Chinese market looks divergent, with sectors like Chinese medicine, metaverse and agriculture outperforming, while sentiment is weak on new-energy vehicles and innovative drugs. China Mobile, whose shares began trading in Shanghai today, closed 0.5% higher after rising as much as 10%. The Shanghai Composite Index lost 1.0% to 3595.18, the Shenzhen Composite Index shed 1.7% and the ChiNext Price Index lost 2.7%.

Hong Kong stocks ended lower amid declines from property and technology companies, taking the benchmark Hang Seng Index 1.6% lower at 22907.25 and the Hang Seng Tech Index down 4.6% to 5323.47. Tech stocks fell after Beijing fined some of the sector's biggest companies for antitrust violations. Meituan slid 11%, Alibaba Health Information Technology dropped 7.4% and JD.com lost 7.2%. Property-related companies also declined, after a China Evergrande unit sought to delay CNY bond payments, underlining the company's liquidity problems. Country Garden Services lost 8.6% and Wharf Real Estate Investment fell 3.0%. 

Japanese stocks end higher, led by gains in auto and machinery stocks, thanks partly to the yen's recent weakening. Toyota Motor climbs 2.6% following news that it became the top-selling car company in the U.S. in 2021. Sony Group advances 3.7% after it said it would create a car unit and explore entering the electric-vehicle market. Meanwhile, Shionogi & Co. drops 7.1% amid concerns that the development of its Covid drug candidate may take longer than previously expected. The Nikkei Stock Average rises 0.1% to 29332.16. USD/JPY is at 116.02, compared with 116.13 as of Tuesday 5 p.m. Eastern Time. The 10-year Japanese government bond yield is flat at 0.085%.

Europe

European stocks gain amid rising hopes about the potentially limited effect of the Omicron coronavirus variant. The Stoxx Europe 600 advances 0.1%, the FTSE 100 is up 0.2% and the DAX and CAC 40 climb 0.7% and 0.8% respectively. Brent crude oil gains 1.6% to $81.28 a barrel.

"Optimism over the minimal negative impact of the Omicron variant continues to please investors," Spreadex trader Oliver Males says.

Meanwhile, the Dow rises 0.3%, but the S&P 500 and the Nasdaq are both in the red. "Many are blaming rising bond yields for triggering this move away from high-growth stocks," Males adds.

North America

US stocks fell Wednesday as investors digested minutes from the Federal Reserve's recent policy meeting for clues about plans to wean markets off pandemic-era stimulus measures.

The S&P 500 dropped 1.9% a day after the broad index pulled back from a record high as technology shares fell. The tech-heavy Nasdaq Composite Index fell 3.3%, while the blue-chip Dow Jones Industrial Average -- which set its own record Tuesday -- lost 1.1%, or 392 points.

The yield on the benchmark 10-Year US Treasury note turned higher to 1.709% Wednesday from 1.666% Tuesday. Bond yields rise as prices fall.

Markets largely began 2022 on a strong footing, lifted by easing concerns about the Omicron Covid-19 variant. Signs that the variant is less likely to cause severe disease means investors are betting it won't derail strong economic growth and corporate earnings like it did in spring 2020.

In 2022, investors are bracing themselves for volatility. Easing supply chain snarls, potential interest rate increases and slowing growth in corporate earnings are going to be closely watched. Adding to the murky outlook: a mixed economic recovery, which is making it harder for investors to consider whether to readjust portfolios more into value over growth stocks. At the same time, ultralow yields on government bonds are fueling the appetite for risky assets.

Investors' focus is shifting away from the new variant to moves by global central banks to tighten monetary policy as economies recover further. The Fed minutes, released at 2 p.m. ET, reflected Fed officials' unease with high inflation, which investors worry could prompt an aggressive response from policy makers.

"We believe the Fed is likely to raise interest rates quicker and potentially shrinking their balance sheet sooner than many expect as they signal fighting inflation is more important than protecting against a drop in economic activity," wrote Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, in a Wednesday note. "What is harder to forecast is to what level of market selloff they are willing to tolerate before changing course."

In individual stocks, Beyond Meat shares pared earlier gains and fell 5% despite the company saying its plant-based alternative to fried chicken would be sold at KFC restaurants from next week. General Motors also turned 4.6% lower after earlier being on a pace to close at all-time highs.

Semiconductor companies mostly got battered. Nvidia fell for a third consecutive day, declining 5.8%. AMD also declined for a third straight trading day, falling 5.7%. Micron slipped 2%.

Energy stocks held in better, with Exxon rising around 1.2%. On Tuesday, oil prices surged after the Organization of the Petroleum Exporting Countries and a coalition of Russia-led oil producers agreed to continue pumping more crude.

ADP's December employment report, which measures the change in employees on private companies' payrolls, said that 807,000 jobs were added last month, significantly above the 375,000 expected by economists.

Fed officials said at their December meeting they would speed up the pace at which stimulus measures are withdrawn, and issued projections for three interest rate rises in 2022. The pivot from the Fed has pushed bond yields higher, which in turn has weighed on technology firms whose future earnings become less attractive when compared with bonds with rising yields.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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