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Global Market Report - 12 May

Lewis Jackson  |  12 May 2021Text size  Decrease  Increase  |  
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Australia

Australian shares are set to drop as global markets fall over fears of rising inflation in the US.

The Australian SPI 200 futures contract was down 45 points or 0.6 per cent to 7020 near 7.00 am Sydney time on Wednesday, suggesting a negative start to trading.

US stocks closed lower on Tuesday as rising commodity prices and labour shortages fed fears that despite reassurances from the US Federal Reserve, near-term price spikes could translate into longer-term inflation.

The Dow Jones Industrial Average fell 473.66 points, or 1.36 per cent, to 34,269.16, the S&P 500 lost 36.33 points, or 0.87 per cent, to 4,152.1 and the Nasdaq Composite dropped 12.43 points, or 0.09 per cent, to 13,389.43.

Locally, technology stocks were routed Tuesday in a downbeat Australian share market and a fund manager tips the tech slide will continue.

Information technology shares lost 4.18 per cent after US markets closed lower due to inflation fears.

Buy now, pay later stocks were chief victims on the local market. Zip lost 9.14 per cent to $6.76. Afterpay shed 8.72 per cent to $89.00. Sezzle fell 5.58 per cent to $7.95.

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The benchmark S&P/ASX200 index closed lower by 75.8 points, or 1.06 per cent, to 7097 on Tuesday.

The All Ordinaries closed down 88.2 points, or 1.19 per cent, to 7331.6 points.

Tribeca Investment Partners portfolio manager Jun Bei Liu said the key theme for the next 12 months was reflation.

Investors expect government efforts to stimulate economies from coronavirus recessions will eventually lead to inflation. Higher prices and rates do not bode well for technology providers, which often rely on cheap borrowing.

Inflation concerns will be top of mind for investors when the US gives its consumer price index report this week.

In Tuesday’s budget, Treasurer John Frydenberg announced $25.1 billion of personal tax cuts for households in 2021/22, $17.7 billion to fund aged care forms, and an extra $13.2 billion for the NDIS.

On the ASX, technology shares were far from the only ones declining. Most shares declined and only those in consumer staples moved higher (0.27 per cent).

Energy shares were hard hit and shed 2.71 per cent. Beach Energy was a major loser and lost 4.12 per cent to $1.28.

The category's losses follow a cyber attack earlier this week which forced a major US fuel pipeline to shutdown. Colonial Pipeline, the largest pipeline in the US, said it should restore service by the end of the week.

Shares in materials, financials and telecommunications also lost more than one per cent.

Boral had a better day after Seven Group's $8 billion takeover offer late on Monday. Boral encouraged shareholders to reject the offer, saying the bid undervalues its target.

Shares in Boral were up 3.38 per cent to $6.72. Shares in Seven were down 2.79 per cent to $20.56.

Big miners were sold after their whopping gains on Monday helped the market to a record close.

Fortescue Metals lost 2.82 per cent to $24.09 on Tuesday and Rio Tinto shed 1.75 per cent to $130.61 even as the iron ore price continued to climb. BHP dropped 0.72 per cent to $51.28.

The Federal Court approved NAB's plan to buy digital bank 86400. NAB in January said it would pay about $220 million. The bank will combine 86400 with its existing online-only service, UBank.

A2 Milk fell 6.39 per cent to $5.71 a day after lowering its full-year sales forecast.

On Wednesday, building products provider CSR will give full-year earnings.

Gold was down 0.1 per cent at $US1834.39 an ounce; Brent crude was up 0.4 per cent to $US68.61 a barrel; Iron ore was down 0.7 per cent at $US228.93 a tonne.

Meanwhile, the Australian dollar was buying 78.40 US cents around 7:00am, up from 78.37 this time Tuesday.

Asia

China stocks ended firmer on Tuesday, underpinned by gains in consumer and healthcare firms, after data showed that factory-gate prices in the world’s second-largest economy last month had reached the highest level since October 2017.

The blue-chip CSI300 index was up 0.6 per cent at 5,023.06, snapping a four-day losing streak, while the Shanghai Composite Index firmed 0.4 per cent to 3,441.85.

Leading the gains, the CSI300 consumer staples index and the CSI300 healthcare index closed up 3.3 per cent and 2 per cent, respectively.

China’s factory-gate prices rose at the fastest rate in three and a half years in April as the economy gathers momentum after strong first-quarter growth, but economists downplayed the risks to inflation.

The medium-term correction could be drawing to a close, though investors need pay attention to the central bank’s monetary policy direction, as commodities price hikes led to talks of inflation, Wanlian Securities said in a note.

China’s population grew at its slowest since the 1950s as births declined, sowing doubt over Beijing’s ability to power its economy as it succumbs to the same ageing trends afflicting developed nations such as Japan.

The Hang Seng index fell 2.0 per cent to 28,013.81, lowest closing since March 25, while the China Enterprises Index lost 2.1 per cent to 10,431.55 point

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 1.72 per cent, while Japan’s Nikkei index closed 3.08 per cent lower.s.

Europe

European stocks tumbled from all-time highs on Tuesday, with the travel, retail and technology sectors among the top losers after global sentiment turned risk-averse on worries about rising inflation in the United States.

The pan-European STOXX 600 index fell 2.0 per cent, its biggest percentage decline since late December. The main bourses in Frankfurt, Paris and London all lost more than 2 per cent.

Wall Street’s main indexes slid for the second straight day, with the benchmark S&P 500 hitting a one-month low on fears that rising inflation could push the US Federal Reserve to tighten monetary policy faster than expected.

Travel and leisure stocks slumped 5.7 per cent overall. Sweden’s Evolution Gaming Group tumbled 13.8 per cent after the bookrunner announced the pricing of block trades.

Meanwhile, British Airways’ owner, IAG, slumped 7.4 per cent after announcing a convertible bond offering worth 800 million euros.

German conglomerate Thyssenkrupp tumbled 10.2 per cent as its closely watched cash flow plunged deeper into the red in the second quarter, hit by restructuring costs and investments.

The pullback in European stocks comes after a strong rally, with the STOXX 600 up 9 per cent so far this year as a solid earnings season and optimism about the reopening of the economy saw more buying in economy-sensitive parts of the market.

Among the few gainers was the UK lifestyle e-commerce company THG HG Plc, which soared 11.9 per cent after raising more than $1 billion in equity, including $730 million from Japan’s SoftBank Group.

North America

US stocks closed lower on Tuesday as rising commodity prices and labor shortages fed fears that despite reassurances from the US Federal Reserve, near-term price spikes could translate into longer-term inflation.

The Dow Jones Industrial Average fell 473.66 points, or 1.36 per cent, to 34,269.16, the S&P 500 lost 36.33 points, or 0.87 per cent, to 4,152.1 and the Nasdaq Composite dropped 12.43 points, or 0.09 per cent, to 13,389.43.

While all three indexes pared their losses from session lows, the sell-off was fairly evenly dispersed across the sectors.

Economic data released on Tuesday from the Labor Department showed job openings at US companies jumped to a record high in March, further evidence of the labor shortage hinted by Friday’s disappointing employment report.

The report suggests labor supply is not keeping up with surging demand as employers scramble to find qualified workers.

Burrito chain Chipotle Mexican Grill announced it would hike the average hourly wage of its workers to $15, a further sign that the worker shortage in the face of a demand revival could add fuel to the inflation surge.

That worker shortage, along with a supply drought in the face of booming demand could contribute to what is seen as inevitable prices spikes, which the US Federal Reserve has repeatedly said are unlikely to translate into long-term inflation.

Market participants will scrutinize the Labor Department's CPI report, due early Wednesday, for further signs of potential inflationary pressures.

Of the 11 major sectors in the S&P 500, only materials ended the session green. Energy suffered the largest percentage loss, closing down 2.6 per cent

Boeing Co lost 1.7 per cent after the planemaker announced deliveries of its 737 MAX fell to just four planes in April due to an electrical problem.

Tesla Inc continued its slide, dropping 1.9 per cent following the electric automaker’s decision to expand its Shanghai plant owing to heightened US-China tensions.

Mall REIT Simon Property Group Inc fell 3.2 per cent after the company said it does not expect a return to 2019 occupancy levels until next year or 2023.

With Reuters

is a reporter/data journalist for Morningstar. You can follow Lewis on Twitter @lewjackk

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