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Global Market Report - 2 October

Lex Hall  |  02 Oct 2020Text size  Decrease  Increase  |  
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Australia

Australian shares are set to fall despite gains on Wall Street, which defied mixed news on stimulus talks and fears the recovery is losing momentum.

The Australian SPI 200 futures contract was down 41 points, or 0.7 per cent, to 5,827 points at 8.30am Sydney time on Friday, suggesting a negative start to trading.

Wall Street closed higher at the end of a whipsaw session on Thursday as investors juggled hopeful and pessimistic news on the progress of stimulus talks Washington amid signs of waning momentum of economic recovery from the pandemic recession, now entering its ninth month.

The Dow Jones Industrial Average rose 35.2 points, or 0.13 per cent, to 27,816.9, the S&P 500 gained 17.8 points, or 0.53 per cent, to 3,380.8 and the Nasdaq Composite added 159.00 points, or 1.42 per cent, to 11,326.51.

The S&P/ASX200 benchmark index closed higher by 57 points, or 0.98 per cent, to 5,872.9 points on Thursday. The index was up 1.5 per cent for much of the day, and hit a session high of 5,916.5 before easing in the last hour. The All Ordinaries index finished up by 60.1 points, or 1.0 per cent, to 6069.4.

Locally, Future Fund and Nine Entertainment Group chairman Peter Costello says a 4 per cent return after inflation is a realistic aspiration for investors in the current low-growth world, and that the days of double-digit investment returns are “long gone”, The Australian reports.

Gold was up 1.1 per cent at $US1,905.75 an ounce; Brent oil was down 3.5 per cent to $US40.82 a barrel.

Meanwhile, the Australian dollar was buying 71.68 US cents at 8.30am, down from 71.93 US cents at Thursday’s close.

Asia

Chinese markets were closed for holidays.

Trading on the Tokyo Stock Exchange was brought to a complete standstill by a hardware failure for all of Thursday, in the worst-ever outage for the world’s third-largest equity market.

Japan’s TSE said it would reopen as usual on Friday, but frustrated investors were left unable to buy shares in Tokyo following an overnight rise on Wall Street.

The outage will test the exchange’s credibility just as new Prime Minister Yoshihide Suga has prioritised digitalisation and could dent Tokyo’s hopes of wooing banks and fund managers from Hong Kong amid a new security law imposed by China.

“I feel painfully responsible for all the confusion this incident has caused for investors and market participants,” TSE chief executive officer Koichiro Miyahara told a news briefing

The TSE said the glitch was the result of a hardware problem at its “Arrowhead” trading system, and a subsequent failure to switch to a back-up. It caused the first full-day suspension since the exchange switched to all-electronic trading in 1999.

Fujitsu, which developed the trading system, said it was investigating the problem, while the TSE said it has no plan at this point to ask for any compensation.

Tokyo Governor Yuriko Koike said a quick fix was crucial to ensure trust in the roughly US$6 trillion ($8.35 trillion) market.

Europe

European stocks handed back most of their early gains to close slightly higher on Thursday, as a slide in oil majors and German drugs company Bayer offset a slew of positive earnings reports.

After rising as much as 0.9 per cent, the pan-European STOXX 600 ended 0.2 per cent higher, fading as oil prices slumped 5 per cent on a worsening demand outlook as coronavirus cases rise.

Total, BP and Royal Dutch Shell fell between 2.4 per cent and 3.8 per cent, while the oil & gas index slid 1.7 per cent, the biggest decliner among sectors.

European countries have seen a resurgence in covid-19 cases, with Madrid set to become the first capital to go back into lockdown, while British health minister Matt Hancock introduced more coronavirus restrictions across a wider area of England.

“Second wave effects carry a lot of uncertainty about the growth environment,” Bert Colijn, senior economist for the euro zone at ING, said in a note.

“A new round of more national lockdowns could have a serious impact on the labour market again, which is not our base case, but cannot be ruled out either.”

The European Union’s statistics office, Eurostat, said unemployment in the bloc rose to 8.1 per cent of the workforce in August from 8.0 per cent in July, continuing an upward trend caused by the economic downturn triggered by the pandemic.

A separate survey showed the recovery in euro zone manufacturing activity was largely as expected in September.

Globally investors clung to hopes of a fresh round of stimulus to prop up the US economy amid growing uncertainty about the November presidential election.

German stocks slipped 0.2 per cent, weighed down by a 13.1 per cent slump in Bayer after it flagged that adjusted profit may slip next year and it may have to write down the value of agriculture assets by close to 10 billion euros.

Among the bright spots, H&M surged 6.1 per cent as it beat third-quarter profit forecasts and announced plans to close hundreds of stores next year as the coronavirus crisis drives more shoppers online. The retail index rose 2.5 per cent to lead sectoral gains.

STMicroelectronics jumped 6.9 per cent after it forecast 2020 sales above previous estimates and said a sharp rise in automotive and microcontroller demand helped preliminary results.

Banco gained 4.2 per cent after sources told Reuters that France's Credit Agricole was exploring a possible deal to buy Italy's third biggest bank.

North America

All three major US stock indexes closed higher, with the Nasdaq in the lead and the Dow seeing the smallest gain.

A spate of data, including jobless claims and consumer spending, suggested that the plodding economic recovery could be losing steam.

Investors now look to the Labor Department’s employment report expected Friday to further gauge the economy’s progress.

In negotiations for a new pandemic relief deal, the White House countered House Democrats’ US$2.2 trillion package with a US$1.5 trillion-plus proposal.

But an imminent deal seemed elusive after US House Speaker Nancy Pelosi cautioned that Democrats and the White House remained locked in a debate over dollars and values.

“It’s all about fiscal stimulus and the ball is in Congress’ court,” said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina. “We continue to believe they’re inching closer and approaching the final inning, but the last stretch is often the hardest.”

“We believe we’ll have a deal before the election and both sides will claim victory,” Detrick added.

The S&P 500 and the Nasdaq again got most of their support from large cap tech and tech-adjacent stocks, with Amazon.com, Microsoft Corp and Apple providing the biggest boosts.

“With the disappointment out of Washington we see this move back to the safety trade of big tech,” Detrick said. “Today is a microcosm of last six months.”

Of the 11 major sectors in the S&P 500, seven ended the session higher. Real estate was the largest percentage gainer, while energy companies were the biggest losers, down 3.1 per cent.

With the books closed on the third quarter, market participants await earnings season, set to get under way in about two weeks.

Analysts currently see S&P 500 earnings, in aggregate, falling by 21.4 per cent year-on-year according to Refinitiv.

Exxon Mobil Corp dropped 3.5 per cent after it signalled a bigger-than-expected third quarter loss due to falling oil prices and plunging demand.

Shares for retailer Bed Bath & Beyond soared by 25.1 per cent after posting a surprise quarterly profit due to its booming online business.

Boeing Co rose 1.6 per cent and after US Federal Aviation Administration Chief Steve Dickson remarked "I liked what I saw" in the previous day's 737 MAX test flight.

is content editor for Morningstar Australia

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