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Global Market Report - 06 October

Lewis Jackson  |  06 Oct 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to move higher after US share markets rose and oil prices set new records.

The Australian SPI 200 futures contract was up 36 points or 0.49 per cent at 7,253 near 7.45 am AEST on Wednesday, suggesting a positive start to trading.

US stocks rose on Tuesday following Monday's tech-driven selloff, while supply-and-demand friction pushed energy prices to multiyear highs.

The Dow Jones Industrial Average rose 0.9% and the S&P 500 gained 1.1%. The tech-heavy Nasdaq Composite Index jumped 1.3% a day after falling more than 2%.

The Australian dollar was buying 72.88 US cents near 7.45am AEST, up from the previous close of 72.84. The WSJ Dollar Index, which measures the US dollar relative to 16 foreign currencies, rose to 88.42.

Locally, the S&P/ASX 200 closed 0.4% lower at 7248.4, with technology and consumer shares weighing as the index followed US stocks lower. The benchmark had been more than 1% lower, threatening to give back all of Monday's 1.3% gain, but it rallied through the afternoon.

The tech sector gave up 3.0% and provided three of the six worst-performing ASX 200 components in Tyro, Afterpay and Appen.

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Travel and entertainment stocks Skycity, Crown and Corporate Travel Management lost between 1.9% and 2.8%.

The financial sector lost 0.2% after the RBA hinted at tighter mortgage-lending standards.
The energy sector pared the overall losses, rising 2.4% amid higher oil prices.

The Reserve Bank of Australia on Tuesday kept official interest rates at record lows, while sounding a warning about soaring house prices, hinting that a tightening of mortgage lending regulation to calm the housing market is under consideration.

Gold futures fell 0.4% to $US1760.90 an ounce; Brent crude rose 1.6% to $US82.56 a barrel, its highest close since 2018; Iron ore was down 0.5% US$116.58.

The yield on the Australian 10-year bond rose to 1.51%; The yield on the US 10-year note moved up to 1.53%.

Asia

Chinese markets were closed Tuesday for a week-long national holiday.

Hong Kong's Hang Seng Index rose 0.3%, recovering slightly from Monday's 2.2% decline. Chinese oil majors advanced amid the prospect of elevated oil prices, with PetroChina jumping to its highest close since January 2020. Sentiment toward Chinese property developers soured further after Fantasia Group said it failed to repay some maturing US-dollar bonds.

Japanese stocks were dragged lower by falls in tech and electronics stocks, as the prospects of economic reopening triggered the unwinding of bets for more digital transactions. The Nikkei Stock Average lost 2.2%. Investors are focusing on any policy-related developments from the new Prime Minister Fumio Kishida government.

Europe

European stocks rose Tuesday as rising oil prices boosted oil stocks. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies, was up 1.2%.

"The energy sector unsurprisingly remains one of today's top performers, with companies like Total, BP and Shell still well-supported by bull traders, as most market operators continue to process the latest price surge in natural gas and crude oil," says ActivTrades analyst Pierre Veyret.

In London, the FTSE 100 closed up 0.9%.

North America

US stocks rose on Tuesday following Monday's tech-driven selloff, while supply-and-demand friction pushed energy prices to multiyear highs.

The Dow Jones Industrial Average rose 0.9% and the S&P 500 gained 1.1%. The tech-heavy Nasdaq Composite Index jumped 1.3% a day after falling more than 2%.

The shaky state of the stock market over the past month is both a result of typical seasonal volatility—September and October tend to see more selloffs than other months—but also somewhat inevitable. Backed by a Federal Reserve that has pursued a highly accommodative monetary policy, stock investors enjoyed an uninterrupted rally since last March, with the S&P 500 nearly doubling.

The recent spate of volatility was both unavoidable and relatively modest, said Michael Gayed, a portfolio manager and author of the Lead-Lag Report newsletter. Including Tuesday's gains, the S&P is down less than 5% from its early September record. "If anything, this is long overdue," he said.

Investors do have several worries: inflation, Covid-19's continued effect on the economy and when the Fed will begin easing off the monetary levers. Lately they also have had to worry about whether the US government will default on its debt as well as supply-chain snarls and surging commodities prices, which bring home the inflation issue to nervous investors.

"The equity markets today are worrying more about inflation, the possibility that we're going to then see higher rates, and the fact that that does undermine the very lofty levels that they have been trading at, " said Rob Carnell, head of research for Asia-Pacific at ING.

What is important to watch now, Mr. Gayed said, is the bond market. The yield on the US 10-year Treasury note is essentially the bond market's reading on where inflation is headed. Its recent rise has shaken investors who had relied on the Fed's assessment that high inflation was transitory.

"Markets could become very manic if the bond market says 'we were wrong about inflation,'" he said.

The yield on the benchmark 10-year US Treasury note rose to 1.528% Tuesday from 1.481% Monday. Yields move inversely to prices.

Tech stocks are especially sensitive to changes in bond yields, which affect the values that investors ascribe to far-off future profits. Higher bond yields have been the prime mover behind the selloff in tech stocks.

Those falls took a breather early Tuesday. Facebook shares rose 2.1%, a day after an outage shut down its social media and messaging platforms. Facebook whistleblower Frances Haugen is set to testify before Congress on Tuesday.

Microsoft rose 2.1%, Amazon gained 1% and Apple added 2.1%.

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

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