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Global Market Report - 18 February

Lex Hall  |  18 Feb 2021Text size  Decrease  Increase  |  
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Australia

Australian shares are set to follow Wall Street lower as inflation fears spurred a retreat from tech stocks. 

The Australian SPI 200 futures contract was down 27 points, or 0.4 per cent, at 6,798 points at 8.30am Sydney time on Thursday, suggesting a negative start to trading.

The S&P 500 and the Nasdaq fell on Wednesday as concerns about inflation pressured stocks and investors rotated out of technology shares.

The Dow Jones Industrial Average rose 50.95 points, or 0.16 per cent, to 31,573.7, the S&P 500 lost 9.33 points, or 0.24 per cent, to 3,923.26 and the Nasdaq Composite dropped 124.72 points, or 0.89 per cent, to 13,922.78.

Locally, Nationals senators have drafted legislation allowing the Clean Energy Finance Corporation to invest in nuclear power as two-thirds of Coalition MPs backed lifting the ban on the controversial fuel source to help shift the nation to a carbon-neutral future, The Australian reports.

Facebook has restricted publishers and people in Australia from sharing or viewing Australian and international news content, in a move that will send shockwaves through the local media industry.

The S&P/ASX200 benchmark index closed lower by 32.1 points, or 0.46 per cent, to 6,885.2 on Wednesday.

The All Ordinaries closed lower by 30.5 points, or 0.42 per cent, at 7,158.8.

The declines follow those of the S&P 500 and Nasdaq, while Chinese markets were closed for the Lunar New Year holiday.

Spot gold was down 1.2 per cent to $US1,772.76/oz; Brent crude was up 1.3 per cent to $US64.20 a barrel; Iron ore was up 0.14 per cent to US$163 a tonne.

Meanwhile, the Australian dollar was buying 77.47 US cents at 8.30am, down from 77.53 US cents at Wednesday's close.

Asia

Japanese shares fell on Wednesday as investors booked profits after a recent rally drove them to a 30-year high, even as pandemic-beaten shares gained on expectations for an economic recovery from a coronavirus-driven slump.

The Nikkei share average edged down 0.58 per cent to 30,292.19 from Tuesday’s high of 30,714.52, a peak since August 1990.

Europe

European shares retreated from near one-year highs on Wednesday as concerns over a possible spike in inflation and rising bond yields prompted a pullback in risk-driven assets, while Gucci owner Kering led losses after posting lower sales.

The pan-European STOXX 600 index closed 0.7 per cent lower, while London’s mid-cap FTSE 250 lost 1.3 per cent as data showed British inflation rose a little more than expected in January.

The possibility of a near-term spike in inflation, coupled with rising debt yields, has seen investors pricing in the likely tapering of monetary policy by major central banks, which in turn could weigh on risk-driven assets.

“We believe central banks for now have strong incentives to lean against any rapid rise in nominal yields even as inflation rises...Yet rising debt levels may eventually pose risks to the low-rate regime,” analysts at Blackrock Investment Institute said in a note to clients.

“Whether the low-rate regime lasts will depend not only on monetary policy but on the perceived safety of government bonds. Markets may eventually demand a higher premium for government bonds, even if central banks are more tolerant of higher inflation.”

Bets on a pickup in inflation pushed German bond yields to their highest in nearly a year, while US yields recently scaled a similar milestone.

Accommodative monetary policy and unprecedented stimulus measures had pushed Europe’s benchmark STOXX 600 more than 50 per cent up from a coronavirus-driven crash in March.

But the index lagged its US counterpart due to fears of the business impact from prolonged lockdowns, as well as a rocky vaccine rollout across the euro zone.

Investors were awaiting cues on the Federal Reserve’s stance from the minutes of its recent meeting, due later in the day.

In company news, shares of French conglomerate Kering bottomed out the STOXX 600 as it said sales from its Gucci brand fell 10.3 per cent in the fourth quarter.

The broader European retail index lost 3.1 per cent and lagged its peers for the day.

Lucky Strike maker British American Tobacco shed 3.9 per cent even as it reported a stronger-than-expected annual profit, while Nivea maker Beiersdorf tumbled 5.9 per cent after it said it did not expect a recovery in profitability in 2021 even though sales should rise.

Swedish cloud computing services provider Sinch AB topped the STOXX 600 after it agreed to buy US-based communications company Inteliquent for US$1.14 billion ($1.47 billion).

Oil and gas stocks were among the few gainers for the day, tracking strength in the crude market.

North America

The S&P 500 and the Nasdaq fell on Wednesday as concerns about inflation pressured stocks and investors rotated out of technology shares.

The Dow Jones Industrial Average edged higher, however, aided in part by gains in shares of Verizon Communications Inc and Chevron Corp, which rose after Warren Buffett’s Berkshire Hathaway Inc disclosed major investments in the companies on Tuesday. Verizon shares climbed 5.0 per cent, and Chevron shares advanced 2.7 per cent.

Technology shares led losses on the S&P 500 and Nasdaq. Apple Inc, PayPal Holdings Inc and Nvidia Corp weighed most on both indexes. The S&P 500 tech index fell 1.3 per cent.

Both of those indexes briefly pared losses while the Dow momentarily added to gains after the release of minutes from the Federal Reserve’s January policy meeting. All of the meeting’s participants supported the decision to keep rates unchanged and maintain an accommodative monetary policy.

The Fed has pledged to pin interest rates near zero until inflation rises to 2 per cent and looks set to exceed that goal. That stance, coupled with President Joe Biden’s proposed $1.9 trillion package for pandemic relief, has some analysts warning of a coming surge in inflation.

As a result, some investors have considered whether the Fed may have to change course sooner than expected. Data released on Wednesday showed a substantial jump in US producer prices and a strong rebound in retail sales.

Fears that the Fed may have to change course on policy more quickly than expected have driven recent declines in stocks. Those worries have been bolstered by a sharp rise in benchmark Treasury yields, fueled in part by expectations for greater inflation.

“You maybe have to put somewhere in the foreseeable future that they have to do something,” said Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut, referring to the Fed.

“But it’s a high threshold we have to cross in order to get them to react,” he added. “That’s why we’re not selling off massively.”

The Dow Jones Industrial Average rose 50.95 points, or 0.16 per cent, to 31,573.7, the S&P 500 lost 9.33 points, or 0.24 per cent, to 3,923.26 and the Nasdaq Composite dropped 124.72 points, or 0.89 per cent, to 13,922.78.

Wells Fargo & Co shares jumped 5.2 per cent after a report said the lender won Fed acceptance for overhauling risk management and governance tied to regulatory asset cap.

US-listed shares of Shopify Inc slid 2.8 per cent after the Canadian e-commerce giant hinted at slower revenue growth in 2021 as vaccine rollouts encourage people to return to stores after a year marked by an upsurge in online shopping.

With Reuters

is content editor for Morningstar Australia

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