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Global Market Report - 14 October

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

Australian shares are set to follow Wall Street lower after a covid vaccine trial left a patient ill and further disagreement over a stimulus package. 

The Australian SPI 200 futures contract was down 61 points, or 1 per cent, to 6,142 points at 8.30am Sydney time on Wednesday, suggesting a negative start to trading.

Wall Street lost ground on Tuesday, with halted covid-19 vaccine trials and an elusive US stimulus agreement weighing on sentiment as third-quarter earnings season got under way.

The Dow Jones Industrial Average fell 158.04 points, or 0.55 per cent, to 28,679.48, the S&P 500 lost 22.51 points, or 0.64 per cent, to 3,511.71 and the Nasdaq Composite dropped 12.36 points, or 0.1 per cent, to 11,863.90. 

Locally, the International Monetary Fund said Australia is now expected to contract 4.2 per cent this calendar year, less severe than the 6.7 per cent fall tipped in April.

After a good US lead, the S&P/ASX200 benchmark index finished up by 63.7 points, or 1.04 per cent, to 6,195.7 on Tuesday. Earlier, the index rose above 6,200, a level it had not breached since March, and reached a session high of 6,214.7. The All Ordinaries index ended better by 57.1 points, or 0.9 per cent, to 6,400.2.

Gold was down 1.5 per cent at $US1,894.13 an ounce; Brent oil was up 1.9 per cent to $US42.49 a barrel; Iron ore was down 2.5 per cent to $US121.15 a tonne. 

Meanwhile, the Australian dollar was buying 71.54 US cents at 8.30am, down from 71.88 US cents at Tuesday’s close.

Asia

China stocks inched higher on Tuesday, on some profit-taking after recent sharp gains and concerns after mainland China reported a new cluster of coronavirus infections in the eastern port city of Qingdao, though strong trade data capped losses. 

Some investors were worried that the new cluster in Qingdao could prompt a potential spike in locally transmitted cases linked to the Golden Week holiday that ended last week.

Mainland China reported its first locally transmitted covid-19 infections in nearly two months, as Qingdao launched a city-wide testing drive after discovering new cases linked to a hospital designated to treat imported infections.

The Shanghai Composite index was up 0.04 per cent at 3,359 while the blue-chip CSI300 index was up 0.33 per cent.

Trading in Hong Kong's securities and derivatives markets was cancelled on Tuesday due to Typhoon 8 signal.

Around the region, MSCI's Asia ex-Japan stock index was firmer by 1.29 per cent while Japan's Nikkei index was up 0.16 per cent.

Europe

European shares fell on Tuesday as Johnson & Johnson’s move to pause its covid-19 clinical trials raised doubts about the timeline of a vaccine, while bank stocks tracked a slide in bond yields on bets of more stimulus by the European Central Bank.

A month after AstraZeneca suspended late-stage trials of its vaccine candidate, Johnson & Johnson said it had temporarily halted trials due to an unexplained illness in a study participant.

The pan-European STOXX 600 snapped a three-day winning streak to fall 0.6 per cent, with banks slumping 2.7 per cent as long-dated sovereign bond yields in Italy and Greece sank to record lows.

Only the telecoms, media and tech sectors ended the day marginally higher. Still, analysts said the news was unlikely to spark a prolonged sell-off in equity markets.

“With numerous vaccines in the pipeline, this setback might not be viewed too negatively unless the unexplained illness becomes more expensive in other trials,” said Stephen Innes, a markets strategist at Axi.

Investors were also digesting mixed signals on more US fiscal aid, with House Speaker Nancy Pelosi saying a recent offer from President Donald Trump fell far short of what the American people need, but added she still hoped a deal could be reached.

The US S&P 500 and the blue-chip Dow indexes lost 0.3 per cent.

Hopes of more US fiscal aid and signs of an economic rebound have powered European stock markets, helping the benchmark STOXX 600 on Monday to hit its highest close in nearly a month.

Losses on Tuesday were led by German and British mid-cap stocks as data signalled a long road to pre-pandemic economic output.

German investor sentiment fell more than expected in October on a triple whammy of coronavirus, Brexit and US election angst, while in Britain, the unemployment rate rose in the three months to August to hit its highest in more than three years.

“UK unemployment is unfortunately set to rise further on the combined impact of fresh covid-19 restrictions and the end of the original furlough scheme,” said ING economist James Smith.

In company news, Airbus fell 3.5 per cent as JPMorgan cuts its rating on the planemaker's stock to "underweight" from "neutral".

British clothing retailer French Connection Group slumped 19.6 per cent in its worst session since March after posting a slump in first-half sales due to the health crisis.

North America

With all three major stock indexes closed in the red, Microsoft Corp and Amazon.com helped mitigate the tech-heavy Nasdaq’s loss.

Johnson & Johnson announced on Monday it was pausing clinical trials of a covid-19 vaccine candidate due to an unexplained illness in a study participant. The delay weighed on the company’s shares, even after its beat-and-raise earnings report.

Late in the session, rival Eli Lilly & Co said it was also halting its coronavirus antibody trial because of safety concerns.

“We have this recent spike in coronavirus cases coinciding with big drug companies halting vaccine trials,” said Robert Pavlik, chief investment strategist at SlateStone Wealth LLC in New York. “That’s making the market nervous and in response, you’re seeing the lockdown stocks moving higher.”

Hopes for the passage of a new coronavirus relief package faded as US House Speaker Nancy Pelosi rejected the $1.8 trillion coronavirus relief proposal from the White House, saying it “falls significantly short of what this pandemic and deep recession demand.”

Senate Majority Leader Mitch McConnell said the Republican-led Senate would vote on a targeted pared-down stimulus package on Monday.

Meanwhile, millions of Americans struggle to make ends meet nearly 2½ months after emergency unemployment assistance expired.

JPMorgan Chase & Co and Citigroup Inc were the first two major US banks to report third-quarter results.

Although JPMorgan handily beat consensus profit estimates, gaining from a boom in its trading business, its peer Citigroup, while also beating expectations, was slammed by low interest rates and a slowdown in loan demand. Their shares, along with the broader S&P Banking index lost ground.

Apple Inc shares slid after unveiling the latest incarnation of its flagship gadget, the iPhone 12 with 5G connectivity.

Third-quarter reporting season has left the starting gate, and analysts now see S&P 500 earnings, in aggregate, falling by 19.6 per cent year-on-year, according to Refinitiv.

Other earnings on tap this week include Bank of America Corp, Goldman Sachs Group Inc, Wells Fargo & Co, UnitedHealth Group and United Airlines Holdings Inc expected on Wednesday, with Morgan Stanley and Honeywell International Inc due on Thursday.

Shares of Delta Air Lines Inc dropped after the commercial carrier reported a 76 per cent plunge in quarterly revenue and announced it has delayed a targeted halt to its cash bleed.

Planemaker Boeing Co reported order cancellations for its grounded 737 MAX aircraft and said deliveries were less than half the number as the same month a year ago. The stock was the heaviest drag on the Dow.

is content editor for Morningstar Australia

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