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Global Market Report - 22 July

Lewis Jackson  |  22 Jul 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to edge higher in line with gains in the US and Europe as investors parsed more positive US earnings reports and the first European Central Bank rate hike in more than a decade.

ASX futures were up 12 points or 0.2% at 6689 as of 8:00am on Friday, pointing to a rise at the open.

Overseas, the S&P 500 added 1%, to close near its high of the day. The technology-focused Nasdaq Composite Index rose 1.4%, with Tesla surging 9.8% after reporting better-than-expected quarterly results. After flipping between small gains and losses for much of the session, the Dow Jones Industrial Average advanced 0.5%.

The benchmarks opened mostly lower and briefly stumbled after the White House said President Joe Biden, who is 79 years old, tested positive for Covid-19 and has "very mild symptoms."

Downtrodden sectors like the consumer discretionary and information technology groups were some of the market's top performers. Those segments have suffered this year as investors worry about the risk of persistent inflation, waning demand and slowing economic growth.

"Markets are on tender notice with respect to volatility from a lot of different sources right now," said George Mateyo, chief investment officer of Key Private Bank.

The European Central Bank boosted rates by 0.5 percentage points, rather than the 0.25-point rise expected, though economists had speculated that it might opt for more than a quarter-point hike.

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Locally, the S&P/ASX 200 rose 0.5% to close at 6794.3 on Thursday, moving higher in afternoon trade after sitting flat for most of the day.

The financial and health sectors made solid gains, offsetting losses among commodity stocks. Tech was the best-performing sector following the Nasdaq Composite's outperformance in the US session.

Banks Macquarie, Westpac, Commonwealth and ANZ added between 0.4% and 2.15%. CSL gained 1.4%, while ResMed rose 2.5% ahead of its 4Q results.

Xero, WiseTech and Block put on between 3.3% and 6.7%, and buy-now-pay-later provider Zip Co. surged 17% after saying it would refocus on core products and regions in the hunt for profitability.

The ASX 200 is up 2.9% so far this week.

Commodity markets rallied after weeks of decline, iron ore slipped 1.8% to US$97.65, Brent crude oil lost 2.9% to $US103.86 a barrel, gold edged up 0.2% to US$1,735.10.

In local bond markets, the yield on Australian 2 Year government bonds edged up to 2.78% while the 10 Year rose to 3.56%. Overseas, the yield on 2 Year US Treasury notes fell to 3.09% and the yield on the 10 Year US Treasury notes dropped to 2.87%.

The Australian dollar hit 69.26 US cents at 7.00am AEST, up from the previous close of 68.88. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies slipped to 98.80.

Asia

China stocks ended lower amid persistent concerns that the country's growing number of Covid-19 cases might lead to fresh lockdowns. The benchmark Shanghai Composite Index fell 1.0% to 3272.00, the Shenzhen Composite Index dropped 0.8% to 2193.81 and the ChiNext Price Index slipped 0.5% to 2751.41. Auto stocks fell as investors worried that the Covid-19 resurgence could weaken demand for cars and hit production. BYD Co. fell 2.2% and SAIC Motor lost 1.5%. China-US relations will likely to be in focus, after President Biden said he expects to speak to China's Xi Jinping "within the next 10 days", which may stoke market hopes for a possible rollback of Trump-era tariffs.

Hong Kong's benchmark Hang Seng Index dropped 1.5% to 20574.63 as losses among property developers and financial companies outweighed some tech gains. News of Chinese homeowners' mortgage boycotts reflect "challenging liquidity conditions for private developers and weak consumer confidence," Morningstar senior equity analyst Iris Tan says in a note. Chinese banks' share prices have fallen recently due to market fears that this could trigger systemic risks in the financial sector, though such concerns appear premature for now, Tan says. Country Garden Holdings slid 6.5% and China Resources Land lost 3.8%, while China Merchants Bank fell 2.3%. Among the gainers, NetEase jumped 6.3% and Sunny Optical rose 3.5%.

Japanese stocks ended higher, led by gains in tech and electronics shares, after the Bank of Japan maintained its easing policy. NTT Data and Fujitsu climbed 2.1% each. The Nikkei Stock Average rose 0.4% to 27803.00. The yield on the 10-year Japanese government bond fell half a basis point to 0.235%. Investors are focusing on the European Central Bank's policy decision, due later in the day, and corporate earnings. USD/JPY was at 138.18, compared with 138.23 as of Wednesday 5 p.m. Eastern Time.

Europe

European stocks traded mixed after the European Central Bank increased interest rates by more than expected. The ECB boosted rates by 0.5 percentage points, rather than the 0.25-point rise expected, though economists had speculated that it might opt for more than a quarter-point hike.

The pan-European Stoxx Europe 600 gained 0.4%, the French CAC 40 advanced 0.3% and the German DAX dropped 0.3%. Italy's FTSE MIB fell 0.7% after Italian premier Mario Draghi resigned.

"Volatility has been the name of the game this afternoon, with Christine Lagarde announcing an unexpected 50 basis-point rate hike to stabilize the euro and stave off inflation," IG analyst Joshua Mahony writes.

London’s FTSE 100 closed Thursday slightly on green, up 0.1%, as investors braced a bigger-than-expected 50 basis-point rate increase by the ECB while commodity prices continued under pressure over slowing growth worries, CMC Markets UK chief market analyst Michael Hewson says in a note.

The resumption of Nord Stream 1 gasflow has given way to concerns over the political uncertainty in Italy, he adds.

Howden Joinery lead the gains with a 4.2% after reporting a robust performance in the first half of 2022. Veterinary products Dechra Pharmaceuticals was the top faller, down 3%, after the firm completed a discounted share placing

North America

US stocks climbed Thursday, with investors picking up beaten-down growth shares after another batch of earnings reports from bellwhether companies including Tesla.

The S&P 500 added 1%, to close near its high of the day. The technology-focused Nasdaq Composite Index rose 1.4%, with Tesla surging 9.8% after reporting better-than-expected quarterly results. After flipping between small gains and losses for much of the session, the Dow Jones Industrial Average advanced 0.5%.

The benchmarks opened mostly lower and briefly stumbled after the White House said President Joe Biden, who is 79 years old, tested positive for Covid-19 and has "very mild symptoms."

"Markets are on tender notice with respect to volatility from a lot of different sources right now," said George Mateyo, chief investment officer of Key Private Bank.

Downtrodden sectors like the consumer discretionary and information technology groups were some of the market's top performers. Those segments have suffered this year as investors worry about the risk of persistent inflation, waning demand and slowing economic growth.

Leading the S&P 500, Tesla shares jumped $72.62, or 9.8%, to $815.12 after the company reported better-than-expected quarterly results. The electric vehicle maker, however, reported its first decline in quarterly profit in more than a year.

Stocks have steadied recently after a challenging first half of 2022, with the three major averages on pace for gains this week and for July. Earnings reports from companies like Netflix and Tesla have given investors greater confidence to buy up previously discarded stocks.

"There's a bit more optimism around the growth sector than there was a couple of months ago," said Edward Park, chief investment officer at Brooks Macdonald.

Nonetheless, many money managers say they expect more volatility ahead. "The key question is whether we have a big earnings recession heading into 2023," Mr. Park added.

Thursday also brought a slew of disappointing corporate dispatches.

AT&T shares fell $1.56, or 7.6%, to $18.92 after the company lowered its 2022 target for free cash flow. Verizon Communications fell $1.41, or 2.9%, to $47.66, the blue-chip Dow's worst-performing stock.

Airline stocks retreated as well. United Airlines, which cautioned about the effects of higher fuel prices, fell $4.24, or 10%, to $37.44. American Airlines declined $1.13, or 7.4%, to $14.08 after it posted a profit that fell short of analysts' expectations.

Shares of cruise lines dropped after Carnival said it would sell $1 billion of new stock. Carnival fell $1.24, or 11%, to $9.85 and was the biggest laggard on the S&P 500. Royal Caribbean Group and Norwegian Cruise Line Holdings were also among the index's top decliners.

The US currency has been on a run this year. The WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, is up 1.7% this month and 10% this year.

The strength of the dollar has dented earnings at some companies of late. When the dollar rises against other currencies, it makes US products less affordable abroad, cutting into international sales.

It has also weighed on commodities prices, recently curbing the bull run in oil and metals and easing inflationary pressures.

"You're seeing some of the conversations in the earnings season about the strength of the dollar and where the consumer is, but that's been offset," said Jeff Kilburg, chief investment officer of Sanctuary Wealth. "We see the strength of the dollar really offset inflation."

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

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