Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Global Market Report - 20 May

Lewis Jackson  |  20 May 2022Text size  Decrease  Increase  |  
Email to Friend

Australia

Australian shares should open slightly lower after US equities retreated and bonds rose as Wall Street continued to slash risk in the shadow of higher prices and slowing growth.

ASX futures were down 9 points or 0.1% at 7048 as of 8.00am on Friday, pointing to a modest drop at the open.

The benchmark S&P 500 lost 0.6%, coming close to bear market territory -- market shorthand for a 20% fall from a recent high. The Dow Jones Industrial Average fell 0.8%. Both indexes closed at their lowest level since March 2021. The Nasdaq Composite Index, which entered bear-market territory earlier this year, retreated 0.3%, weighed by a 2.5% decline at Apple.

Earnings reports from some of America's biggest retailers in recent days have added to concern that the highest rate of inflation in four decades is catching up with US consumers and pitching the economy toward a recession. Investors were already grappling with the end of an era of loose monetary policy that stoked big gains for stocks and other riskier assets. The combination of factors has recently fed into steep losses for stocks and some corporate bonds, and many investors expect the volatility to continue.

"The price action suggests it isn't over," said Philip Saunders, a portfolio manager at Ninety One, an asset manager based in the UK and South Africa.

Locally, the S&P/ASX 200 closed 1.65% lower at 7064.5 on Thursday as widespread selling wiped out its gains for the week. Consumer, tech and financial stocks led losses as the benchmark index followed the path set by the Dow Jones Industrial Average and S&P 500, both of which recorded their worst percentage declines since June 2020.

Target Australia owner Wesfarmers fell 7.8% to a one-and-a-half year low of $45.89, JB Hi-Fi dropped 6.6% to a five-month low of $44.89, and Harvey Norman lost 5.5% to a nearly two-year low of $4.33.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

Banks Commonwealth, NAB, ANZ and Westpac gave up between 0.95% and 4.05%, while travel and retail stocks were also hit by worries over inflation.

Health was the only one of the ASX 200's 11 sectors to rise, edging 0.1% higher.

In the energy sector, Woodside Petroleum was down 2.8% to $29.89 as shareholders overwhelmingly approved the company's $41 billion merger with BHP Petroleum at Woodside's annual general meeting in Perth. They also backed a name change to Woodside Energy.

The ASX 200, which had been on a four-session winning run, is now 0.15% lower so far this week.

In commodity markets, Brent crude oil rose 2.7% to US$112.04 a barrel. Iron ore added 0.9% to US$126.35. Gold slipped $1 to US$1846.60.

Bonds rallied as markets risk appetite waned. Yields on Australian 2 Year government bonds dropped to 2.50% while the 10 Year declined to 3.38%. Overseas, the yield on US Treasury 2 Years ended lower at 2.61%, and the 10 Year slipped to 2.84%. Yields fall as prices rise.

The Australian dollar strengthened on signs China’s lockdown could soon ease, trading at 70.46 US cents as of 7.00am on Friday, up from the previous close of 69.52 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged down to 95.36.

Asia

China stocks ended higher, extending their range-bound trading pattern so far this week. The benchmark Shanghai Composite Index edged up 0.4% to settle at 3096.96, while the Shenzhen Composite Index ended 0.6% higher at 1952.70. The ChiNext Price Index rose 0.5% to 2377.13. The market was supported by soaring momentum in the renewable-energy sector, after the European Union overnight unveiled a new plan to accelerate the region's green-energy transition. Chinese solar-power equipment makers, wind turbine suppliers and renewable-energy materials producers led gains.

Hong Kong's Hang Seng Index fell 2.5% to 20120.68 amid declines in technology stocks. Profit-taking pressure likely weighed on Hong Kong-listed shares after Chinese technology stocks fell sharply in the US ADR market last night, KGI Research analysts wrote in a commentary. The Hang Seng Tech Index closed 3.98% lower at 4090.72. Declines in the technology sector were led by Alibaba Group, which slid 7.4%, while Tencent Holdings shed 6.5% after the company posted its worst quarterly profit drop since its listing in Hong Kong. Among gainers was Xinyi Solar Holdings, up 1.7%.

Japanese stocks end lower, dragged by weakness in electronics and tech stocks, as concerns persist about higher costs of materials and operations. Medical-equipment maker Sysmex drops 6.0% and NTT Data loses 4.3%. The Nikkei Stock Average falls 1.9% to 26402.84. Investors are focusing on movements of yen, crude-oil prices and updates on Covid-19 lockdowns in China.

Europe

European markets dropped after downbeat early trading in New York as economic-growth fears sparked a selloff. The pan-European Stoxx Europe 600 fell 1.4%, the French CAC 40 dropped 1.3%, the German DAX declined 0.9%.

"The sea of red is getting deeper by the day, as the reversal that started so dramatically yesterday picks up the pace," IG analyst Chris Beauchamp says. "The bounce of the first half of the week is a distant memory. Growth worries are back to the fore and investors are back to selling every bounce as they fret about a recession in the US and elsewhere."

London’s FTSE 100 closed down 1.8% on Thursday, with retail companies enduring a tough day and Royal Mail--the biggest faller--closing down 12% after it posted a pretax profit decline for fiscal 2022.

"A lot of today's pain is being felt by UK retailers after the downgrades this week by US retail giants Target and Walmart, while today US department store Kohl's followed suit by warning of the effects of higher costs on their margins, and their profits," says Michael Hewson, chief market analyst at CMC Markets UK Weakness is also being seen at Unilever and Reckitt Benckiser as worries over margins linger as consumers are squeezed by a cost of living crisis, Hewson adds.

North America

US stocks and bond yields fell, with the S&P 500 flirting with a bear market, as continued investor concerns about the health of the economy extended the recent selloff.

The major indexes dipped early in Thursday's session, a day after tumbling 4%, before recovering ground. They ultimately finished lower, with all three on track for weekly losses of at least 2.9%. Concerns about consumer spending, which helped lift the market out of pandemic lows, have weighed on stocks and bond yields.

The S&P 500 lost 0.6%, coming close to bear market territory -- market shorthand for a 20% fall from a recent high. The Dow Jones Industrial Average fell 0.8%. Both indexes closed at their lowest level since March 2021. The Nasdaq Composite Index, which entered bear-market territory earlier this year, retreated 0.3%, weighed by a 2.5% at Apple.

Investors bought government bonds, perceived as a haven asset in times of economic uncertainty. The yield on 10-year Treasury notes fell to 2.854% from 2.884% on Wednesday, losing ground for seven of the past nine trading days. Bond yields and prices move in opposite directions.

Earnings reports from some of America's biggest retailers in recent days have added to concern that the highest rate of inflation in four decades is catching up with US consumers and pitching the economy toward a recession. Investors were already grappling with the end of an era of loose monetary policy that stoked big gains for stocks and other riskier assets. The combination of factors has recently fed into steep losses for stocks and some corporate bonds, and many investors expect the volatility to continue.

"The price action suggests it isn't over," said Philip Saunders, a portfolio manager at Ninety One, an asset manager based in the UK and South Africa.

Kohl's shares gained $1.91, or 4.4%, to $45.04, after executives said suitors remained interested in buying the company, said sales weakened in April, making it the latest retailer to point to inflationary pressures on demand. Walmart and Target this week said higher costs ate into profits in the latest quarter, leading to a selloff of their shares that rippled through the broader market.

Cisco Systems tumbled $6.64, or 14%, to $41.72 after the communication-equipment firm missed analyst expectations for its quarterly results. BJ's Wholesale Club said gasoline sales boosted revenue and profit in its first quarter, sending shares more than $3.97, or 7.4%, to $57.39 higher.

In economic news, the Labor Department said new applications for unemployment benefits rose for the third week in a row. Initial jobless claims, a proxy for layoffs, remain historically low. Separately, US home prices reached a high in April, according to fresh data, while the number of sales fell.

Anthony Saglimbene, global markets strategist at Ameriprise Financial, said economic data points to healthy consumer spending, allaying fears of a recession.

"For consumers to really retrench spending, they have to fear that they're going to lose their jobs and that's just not the environment we're in," said Mr. Saglimbene.

Some analysts, however, say a slowdown in consumer spending could mean the Federal Reserve wouldn't have to raise interest rates as aggressively to lower consumer demand.

"Some amount of slowdown in discretionary spending will help organically or naturally ease the supply-chain constraints," said Seth Wunder, Acorns' chief investment officer. "At the end of the day, that is one of the largest inputs to the inflationary issues we're facing."

The war in Ukraine is adding to the inflationary pressures prompting the Fed to embark on a series of interest-rate rises and to reduce its bondholdings. And Covid-19 shutdowns in China have led to a sharp slowdown in the world's second-biggest economy. Some investors say that higher interest rates ahead will normalize return expectations among investors.

"We're going through a recalibration process and that's a good thing," said Todd Lowenstein, chief equity strategist of The Private Bank at Union Bank. "In the short run it will be painful, but sometimes you need short-term pain to recondition behavior."

The last time the S&P 500 fell into a bear market was during the pandemic panic in March 2020. It was short-lived, and the market quickly embarked on a two-year rally that peaked this Jan. 3. The Dow industrials, which are more weighted to old-line industrial companies and banking stocks, have performed less badly and are still some way from bear market territory.

"Throw monetary policy tightening into the mix, we've got a recipe for volatility and investor jitteriness," said Clara Cheong, a global market strategist at J.P. Morgan Asset Management.

In cryptocurrency markets, bitcoin added 3.2% from its 5 pm New York level on Wednesday to trade at $30,138.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

AAP logo

© 2022 Australian Associated Press Pty Limited (AAP) or its Licensors. This is the Morningstar service with content provided by AAP where indicated. AAP reserves all rights, including copyright, in services provided by it. The information in the service is for personal use only, does not constitute financial product advice (whether general or personal) and may not be re-written, copied, re-sold or re-distributed, framed, linked or otherwise used whether for compensation of any kind or not, without the prior written permission of AAP. You should seek advice from a professional financial adviser before making decision to acquire or dispose of a financial product.

This service is published for general information purposes only without assuming a duty of care. AAP is not in the business of providing financial product advice (whether personal or general advice), and gives no warranty, guarantee or other representation about the accuracy of the information or images contained in this service. AAP is not liable for errors, omissions in, delays or interruptions to or cessation of the services through negligence or otherwise. The globe symbol and "AAP" are registered trademarks.

Email To Friend