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Global Market Report - 16 November

Emma Rapaport  |  16 Nov 2020Text size  Decrease  Increase  |  
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Australia

Australian shares are set to rally at the open after the US benchmark S&P 500 Index closed in record territory at the end of last week on the diminished prospects of a national lockdown. 

The Australian SPI 200 futures contract closed up 0.9 per cent higher at 6,442.5 points at the weekend, suggesting a positive start to trading.

The S&P 500 notched a record closing high on Friday with upbeat earnings reports helping to drive optimism about the economy along with hopes for successful covid-19 vaccines, even as investors monitored a surge in virus cases and restrictions around the country.

The Dow Jones Industrial Average rose 399.64 points, or 1.37 per cent, to 29,479.81, the S&P 500 gained 48.14 points, or 1.36 per cent, to 3,585.15 and the Nasdaq Composite added 119.70 points, or 1.02 per cent, to 11,829.29.

Locally, the S&P/ASX 200 index dropped 0.2 per cent to close the trade at 6,405.2 points. Still, the benchmark index notched a weekly gain of 3.5 per cent.

Gold was up 0.7 per cent at $US1,889.20 an ounce; Brent oil was down 1.7 per cent per cent to $US42.78 a barrel; Iron ore was down 1.1 per cent at $US122.37 a tonne.

Meanwhile, the Australian dollar was buying 72.70 US cents at the weekend, up 0.5 per cent from 72.65 US cents at Friday’s close.

Asia

China stocks closed lower on Friday to post a weekly loss, after Trump administration decided to ban US investments in firms linked to the Chinese military, while a series of corporate bond defaults also hurt sentiment.

The blue-chip CSI300 index ended 1.1 per cent lower at 4,856.85, while the Shanghai Composite Index eased 0.9 per cent to 3,310.10.

In Hong Kong, the Hang Seng Index dipped 0.2 per cent to 26,169.38. The benchmark fell 0.3 per cent on Wednesday from a four-month high.

Europe

European shares ended flat on Friday as surging coronavirus cases compounded fears of the damage to the bloc’s economy in the coming winter months, although the benchmark index clocked its second straight week of gains.

The pan-European STOXX 600 edged 0.01 per cent higher after jumping earlier this week on optimism around a working covid-19 vaccine. The index has gained 12.5 per cent in the past two weeks, also buoyed by hopes of calmer global trade under US President-elect Joe Biden.

“Even if the greater likelihood of a vaccine has brightened prospects for next year, the near-term economic outlook is still very gloomy,” said Jessica Hinds, Europe economist at Capital Economics.

“Much of the euro-zone is yet again subject to substantial restrictions on daily life that are taking their toll on economic activity, particularly in parts of the services sector.”

German Health Minister Jens Spahn said it was too early to say whether restrictions imposed last week would need to be extended beyond November, while French Prime Minister Jean Castex said there would be no easing for at least two weeks.

German shares rose 0.2 per cent, while France's CAC 40 index gained 0.3 per cent after having risen to an eight-month high earlier this week.

Despite rallying more than 40 per cent since a coronavirus-driven crash in March, the STOXX 600 is down about 7 per cent this year on concerns that the second round of lockdowns would threaten a nascent economic recovery. The US S&P 500, in contrast, has risen 9.5 per cent so far in 2020.

With the euro zone likely heading back into recession this quarter, the European Central Bank has already said it would provide more stimulus in December.

European banking stocks outperformed major sectors by surged 16.5 per cent this week, while travel stocks, which have lost 25 per cent of their value so far this year, ended their second week higher.

Technology stocks, which have tracked a surge in their per cent peers as investors gravitate toward sectors that have seen higher demand in this year's stay-at-home environment, gained 0.3 per cent on Friday.

In company news, French power group EDF gained 0.4 per cent as it showed signs of improving performance in the third quarter, while German property group Deutsche Wohnen fell 1 per cent after its third-quarter earnings update.

Overall, quarterly results for STOXX 600 companies have been better than expected, with 68 per cent of the firms that have reported results so far beating analysts’ earnings estimates, according to Refinitiv data.

North America

The S&P 500 notched a record closing high on Friday with upbeat earnings reports helping to drive optimism about the economy along with hopes for successful covid-19 vaccines, even as investors monitored a surge in virus cases and restrictions around the country.

After a volatile trading week where the market was whipsawed between hopes and fears around the virus, Cisco Systems Inc provided the biggest boost to the S&P 500 after its quarterly report showed a work-from-home driven surge in demand.

Walt Disney Co also rose as its rapidly growing streaming video business, and a partial recovery at its theme parks tempered its quarterly loss.

“At least for today it looks like sentiment regarding the potential for vaccines combined with very strong earnings announcements from a number of companies has investors hopeful that the economy can continue to recover,” said Michael Arone, chief investment strategist at State Street Global Advisors.

The Dow Jones Industrial Average rose 399.64 points, or 1.37 per cent, to 29,479.81, the S&P 500 gained 48.14 points, or 1.36 per cent, to 3,585.15 and the Nasdaq Composite added 119.70 points, or 1.02 per cent, to 11,829.29.

Along with the S&P, the small cap Russell 2000 also registered a record closing high on Friday, rising 2.1 per cent on the day.

Friday’s outperformance of more economically sensitive cyclical sectors including energy, real estate and industrials over growth sectors like technology was a clear indication of “optimism around the economy” said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta.

The Russell 1000 value index, which is heavily weighted toward cyclical sectors such as banks and energy, rose 1.97 per cent on Friday while the growth index, with a large tech company weighting, added 0.7 per cent.

The three major US stock indexes had fallen on Thursday as more than a dozen US states reported a doubling of new covid-19 cases in the last two weeks, with Chicago’s mayor issuing a month-long stay-at-home advisory.

But a senior adviser to President-elect Joe Biden said there were no plans for nationwide lockdowns next year and instead talked about restrictions for specific regions when the virus spread is bad there.

State Street’s Arone said the aversion to a full lockdown likely cheered up some investors but that optimism may be overdone. He cited Fed official warnings about the potential economic damage rising virus cases could do without a fresh economic stimulus package in sight.

“The market is underestimating some of the impact that rising cases and no stimulus will have on the economy and earnings and they’re over estimating the potential timeline and breadth of a vaccine distribution,” Arone said.

“In the spring folks were bracing for the worst and the worst didn’t happen. Now they’re expecting the best and they may be a little too rosy.”

Positive data from Pfizer’s virus vaccine study on Monday had prompted a rally that pushed the S&P 500 up 2.2 per cent for the week and gave the Dow a 4 per cent weekly gain. The indexes also registered their biggest two-week percentage gains since April.

The tech-heavy Nasdaq, however, showed a 0.6 per cent decline for the week as investors booked profits in technology stocks, which have benefited from a stay-at-home environment.

Globalt’s Martin also pointed to investor hopes for news of more coronavirus vaccine progress soon, after Moderna Inc said earlier this week that it had enough data for a first interim analysis of its late-stage trial.

With third-quarter reports released from about 90 per cent of S&P 500 companies Refinitiv IBES estimates now show profits falling 7.8 per cent from last year compared with a 1 October expectation for a 21.4 per cent slump.

Biden solidified his victory over President Donald Trump on Friday after the state of Georgia went his way, leaving incumbent Donald Trump little hope of reversing the outcome through legal challenges and recounts.

is an editor for Morningstar.com.au

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