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Global Market Report - 14 May

Lex Hall  |  14 May 2020Text size  Decrease  Increase  |  
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Australia

Shares on the Australian market are expected to be down in early trade after the US Federal Reserve chairman warned of extended economic weakness from the coronavirus pandemic.

The SPI 200 futures contract was down 58 points, or 1.07 per cent, to 5,366.0 at 8am Sydney time on Wednesday, indicating a loss in early trade.

Chairman Jerome Powell pledged to use the US central bank's power as needed, but called for Congress to agree on additional fiscal support.

Shawn Cruz, manager of trader strategy at TD Ameritrade in Jersey City, New Jersey, said: "He's saying if you want to avoid a slow recovery and long-term economic damage you need a strong fiscal response, effectively placing that responsibility back over to governments instead of central banks".

The Dow Jones Industrial Average fell 516.81 points, or 2.17 per cent, to 23,247.97, the S&P 500 lost 1.75 per cent and the Nasdaq Composite dropped 1.55 per cent.

In Australia on Wednesday, the benchmark S&P/ASX200 index closed up 18.9 points, or 0.35 cent, at 5,421.9 points.

The All Ordinaries closed up 16.4 points, or 0.3 per cent, at 5,513.7 points.

One Australian dollar was buying 64.52 US cents at 8am, down from 64.79 US cents at the close of trade on Wednesday.

Asia

Chinese shares closed higher on Wednesday, reversing course from small losses as a rally in healthcare stocks boosted the index, although gains were capped due to persisting concerns around a potential second wave of COVID-19 cases.

The Shanghai Composite index ended 0.22 per cent higher at 2,898.05, having shed as much as 0.55 per cent during the session.

The blue-chip CSI300 index gained 0.2 per cent, with its financial sector sub-index sliding 0.13 per cent, the consumer staples sector rising 0.98 per cent, and the real estate index falling 0.06 per cent.

Hong Kong shares closed lower on Wednesday, giving up earlier gains as investors fretted over the economic impact of a possible second wave of coronavirus cases.

At the close of trade, the Hang Seng index was down 65.38 points, or 0.27 per cent, to 24,180.30, having earlier risen as much as 0.31 per cent.

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.4 per cent, while Japan’s Nikkei index closed down 0.49 per cent.

Europe

Travel stocks, automakers and banks led a slide in European shares on Wednesday as fears of a resurgence in coronavirus cases and a worrying outlook from the US central bank chief dented hopes of a swift economic recovery.

The pan-European STOXX index fell 1.9 per cent to hit a one-week low, with losses deepening after US Federal Reserve Chair Jerome Powell warned of an “extended period” of weak growth and stagnant incomes due to the health crisis.

Europe’s hard-hit travel & leisure index and auto stocks fell 5 per cent each, while banking shares slid 3.7 per cent.

A batch of weak earnings reports added to the gloom.

Shares in Germany’s Commerzbank fell 7.1 per cent and Dutch bank ABN Amro dropped 9.1 per cent after swinging to a loss in the first quarter as the pandemic drove up loan loss provisions.

Deutsche Bank sank 6.4 per cent on news that top managers will waive one month of fixed pay in an effort to cut costs.

UK-based luxury carmaker Aston Martin plummeted 16 per cent as it posted a deep first-quarter loss after sales dropped by nearly a third due to the impact of the coronavirus crisis.

European shares have reversed some of the strong recovery gains made in April, as South Korea, Germany and China reported a rise in infections after easing their restrictions and a top US health expert warned against easing lockdowns too soon.

A leading US Republican senator on Tuesday proposed legislation that would authorise President Donald Trump to impose sanctions on China if it fails to give a full account of events leading to the outbreak of the coronavirus.

Sensor producer AMS slumped 8.7 per cent after saying that it planned another capital increase to finance the takeover of Osram.

Shares in Exor, the holding firm of Italy’s Agnelli family, fell 7.2 per cent after French insurer Covea walked away from its planned US$9 billion ($14 billion) purchase of PartnerRe, the Bermuda-based reinsurer owned by Exor.

Earnings expectations are deteriorating sharply in Europe, with companies listed on the STOXX 600 now expected to report a collective drop of 46.7 per cent in earnings in the second quarter, down from a fall of 44.9 per cent forecast the week before.

North America

Wall Street’s three major indexes closed lower for the second day in a row after Jerome Powell warned on Wednesday of extended economic weakness due to the coronavirus pandemic and called for congress to agree on additional fiscal support.

While the indexes closed above their session lows as they pared losses in the final minutes of the day, investors appeared to price in a deeper economic downturn than they had previously expected, fearing Powell’s call for additional stimulus would go unanswered.

While Powell pledged in a webcast to use the US central bank’s power as needed, he suggested that it might not be enough to avoid deep economic damage without more fiscal support.

And divisions among Republicans and Democrats appear to have dimmed the prospects for additional fiscal support from congress, according to Jeff Kleintop, chief global investment strategist at Charles Schwab.

Market participants said they were relieved by Powell’s indication that the Fed would not push interest rates below zero but some seemed taken aback by his downbeat view on the economy.

Schwab’s Kleintop said Powell’s tone was more pessimistic than in the recent past. “The market took away that maybe there’s more bad news out there than they’d been pricing in,” he said.

Powell’s comments followed a sharp selloff in equities on Tuesday after a warning from leading US infectious disease expert Anthony Fauci that the virus was not yet under control. Fauci’s comments prompted concerns about how the economy would emerge from weeks of virus-related lockdowns.

Another negative factor was a decision by an independent board overseeing billions in federal retirement dollars that it would indefinitely delay plans to invest in some Chinese companies.

“It adds to the tension ahead of an announcement Trump said could come this week on the Phase One (US-China) trade deal,” said Schwab’s Kleintop.

The Dow Jones Industrial Average fell 516.81 points, or 2.17 per cent, to 23,247.97, the S&P 500 lost 50.12 points, or 1.75 per cent, to 2,820 and the Nasdaq Composite dropped 139.38 points, or 1.55 per cent, to 8,863.17.

Investor bets on a swift recovery had helped the three main US stock indexes climb about 30 per cent from their March lows.

But as officials around the world and in parts of the US began easing lockdown rules with a view to restarting local economies, fears of a second wave of COVID-19 infections have diminished those hopes.

Energy stocks dropped 4.4 per cent on Wednesday, showing the steepest percentage loss among the 11 major S&P sectors. Interest rate-sensitive bank shares also shed 4.4 per cent, tracking a fall in US Treasury yields.

Wall Street’s fear gauge, the Cboe volatility index , rose for the second day. It gained 2.24 points to 35.28 after touching its highest point since May 4.

Royal Caribbean Cruises shares tumbled just under 5 per cent after it launched a $3.3 billion bond offering, pledging 28 of its ships as collateral and forecast heavy losses for the first quarter.

is content editor for Morningstar Australia

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