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Global Market Report - 13 January

Lewis Jackson  |  13 Jan 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to open flat after Wall Street eked out small gains amid a record showing for US inflation in line with analyst expectations.

ASX futures were up 3 points or 0.04% at 7353 as of 8.00 am AEST, suggesting a positive start to trading.

US inflation hit its fastest pace since 1982, but stocks on Wednesday took the news in stride.
The S&P 500 gained 0.3%, while the Dow Jones Industrial Average added 0.1%. The tech-heavy Nasdaq Composite Index added 0.2%.

Investors on Wednesday scrutinized data showing the consumer-price index—which measures what consumers pay for goods and services—rose 7% in December from the same month a year earlier, up from 6.8% in November. That marks the fastest pace in 40 years and the third straight month in which inflation exceeded 6%.

However, the readings were generally in line with expectations.

Locally, the S&P/ASX 200 closed 0.7% higher at 7438.9, led by a rebound in commodity, tech and health stocks. The benchmark jumped more than 1.0% in early trade, building on a positive lead from US equities.

It snapped a two-day losing streak despite paring gains and is 0.2% lower so far this week. The energy sector led gains, climbing 3.0% amid higher oil prices.

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Lithium, gold and iron ore stocks also rose, although Fortescue slipped 1.1% after it was downgraded to sell from neutral by Citi.

Consumer-staples shares again dragged on the market amid concerns that Covid-19-driven staff shortages are hitting the flow of goods.

Overseas, the pan-continental Stoxx Europe 600 gained 0.6%. Hong Kong-listed Chinese tech stocks such as JD.com and Meituan jumped Wednesday. Hong Kong's Hang Seng Index surged 2.8% and China's Shanghai Composite rose 0.8%. Japan's Nikkei 225 rallied 1.9%.

Turning to commodities, gold futures increased 0.5% to $US1827.00 an ounce; Brent crude added 1% to $US84.54 a barrel; Iron ore rose 2.3% to US$131.60 a tonne.

In bond markets the yield on the Australian 10-year bond fell to 1.84%, while the US 10-year Treasury slipped to 1.73%.

The Australian dollar rallied to 72.85 US cents near 8.00am AEST, up from the previous close of 72.09. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, fell to 88.99.

Asia

Chinese shares closed higher, tracking broad gains in other Asia stock markets. The Shanghai Composite Index ended 0.8% higher, the Shenzhen Composite Index gained 1.4% and the ChiNext Price Index rose 2.6%. Stocks of electric vehicle-related companies were stronger, following recent data showing that EV sales had driven the increase in China's passenger car sales in 2021. Ganfeng Lithium gained 3.4%, battery maker CATL was 5.3% higher and auto maker BYD Co. advanced 7.1%.

China's property sector will continue to be watched following the recent attention on Shimao Group, one of the country's largest developers by contracted sales, and its liquidity position as well as its ability to service debts, IG says.

Chinese tech stocks rose sharply in Hong Kong, taking cues from gains in the US ADR market overnight. JD.com was the top gainer, surging 9.9% amid largely positive estimates of the e-commerce company's 4Q performance by analysts, and after it opened its first physical retail store in Europe. Other advancing stocks include Meituan, rising 9.3%, Alibaba Group, up 4.7%, and Tencent Holdings, 3.2% higher. The Hang Seng Tech Index continues its recent rallying trend and is up 3.9%. This helps push the benchmark Hang Seng Index to a four-week high, up 2.1%.

Japanese stocks ended higher, led by gains in energy and tech stocks as the recent rising momentum of government bond yields eases. Oil explorer Inpex advanced 6.8% and SoftBank Group gained 6.0%. The Nikkei Stock Average rose 1.9%. Covid-19 infection trends and the government's response are in focus.

Europe

European stocks rose in closing trade after data showed US inflation accelerated in December but in line with expectations. The pan-European Stoxx Europe 600 added 0.65%.
Energy and mining stocks were top performers as a weaker dollar lifts commodity prices.

Equities could have reversed Tuesday's gains if Wednesday's US inflation data exceeded expectations but it met most forecasts, IG analyst Chris Beauchamp says. "As a result markets were able to take a more sanguine view and could enjoy at least a few hours without the worry of how soon the next Federal Reserve rate hike will come."

In London, the FTSE 100 climbed 0.8%. Mining companies spearheaded the gains, helped by higher metal prices. Shares in copper producer Antofagasta rose 7.5%. The big four followed suit, with BHP jumping 4.5%, Anglo American up 3.9%, Glencore rising 3.5% and Rio Tinto 2.8% higher. Oil companies also performed well, as shares in BP rose 3.2% and Shell gained 2.7%.

"The FTSE 100's big-name mining and oil contingent have been bolstered by the weaker dollar and the accompanying rise in commodity prices," Beauchamp said.

North America

US inflation hit its fastest pace since 1982, but stocks on Wednesday took the news in stride.

The S&P 500 gained 0.3%, while the Dow Jones Industrial Average added 0.1%. The tech-heavy Nasdaq Composite Index added 0.2%.

Markets have been focused on anything that could shift expectations for the Federal Reserve to begin lifting interest rates as soon as March. Fed Chairman Jerome Powell on Tuesday called high inflation a "severe threat" to a full economic recovery and said the central bank was preparing to raise interest rates because the economy no longer needed emergency support.

Investors on Wednesday scrutinized data showing the consumer-price index -- which measures what consumers pay for goods and services -- rose 7% in December from the same month a year earlier, up from 6.8% in November. That marks the fastest pace in 40 years and the third straight month in which inflation exceeded 6%.

However, the readings were generally in line with expectations.

"I do think the markets are believing that inflation is on the cusp of peaking," said Darrell Cronk, chief investment officer for wealth and investment management at Wells Fargo.

Luca Paolini, chief strategist at Pictet Asset Management, said he expected inflation to reach a peak this quarter, but is waiting to see if higher inflation weighs on profits in the coming earnings season.

Trading has been choppy this week after a rocky start to 2022 that saw Treasury yields jump and tech stocks fall. Investors learned last week that the central bank might hike rates sooner than previously anticipated.

When interest rates are low, investors tend to load up on risk assets such as stocks to generate returns. When inflation accelerates and policy makers raise rates, the value of companies' future earnings drops and investors have more alternatives for places to make money. This particularly hurts technology stocks that promise expanding future profits. The Nasdaq Composite is down 2.9% so far in 2022, while the S&P 500 is down 0.8%.

Investors have watched closely as the central bank has prepared to raise rates and shrink its asset holdings. Fed officials approved plans in December to more quickly scale back, or taper, their asset purchases, a form of economic stimulus.

"I think that the market has been well prepared at this point for the tapering and rate increases," said Mace McCain, president and chief investment officer at Frost Investment Advisors. "They're able to once again look forward to what's going to be a strong earnings season."

Analysts expect that profits from companies in the S&P 500 rose 22% in the fourth quarter from a year earlier, according to FactSet. Delta Air Lines is expected to report Thursday, while JPMorgan Chase, Wells Fargo and Citigroup are expected to report Friday.

Materials stocks led the S&P 500's sectors in recent trading, while the healthcare group lagged behind.

Among individual stocks, shares of Biogen dropped 6.7% after Medicare officials said they would cover its Alzheimer's drug Aduhelm on the condition that patients were in clinical trials and had early-stage symptoms.

Shares of Jefferies Financial Group dropped 9.3% after the company reported lower-than-expected earnings and revenue for the latest quarter. Jefferies said it was hit by challenging market conditions for fixed-income trading.

The yield on the benchmark 10-year Treasury note dropped to 1.724% Wednesday from 1.745% Tuesday, when the rally in government bond yields halted. Yields and prices move inversely.

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

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