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 - 23 May

Lewis Jackson  |  23 May 2022Text size  Decrease  Increase  |  
Email to Friend

Australia

Australian shares are set to open lower after US equities fell for a seventh week and the S&P 500 briefly crossed into bear market territory before rallying to end Friday flat. Labor is set to form government after defeating the Coalition on Saturday amid an upwell of independent and minor party candidates.

ASX futures were down 15 points or 0.2% at 7129 as of last trade on Saturday, pointing to a small decline at the open.

US stocks rose at the open, then reversed course, falling throughout most of the turbulent session. At one point, the S&P 500 slid so far it was on track to close at least 20% below its January peak -- what would have been considered a bear market. A comeback in the final hour of the trading day pushed the index higher, with the S&P 500 ending up 0.57 point, or less than 0.1%; at its intraday low, it was down 2.3%.

The Dow Jones Industrial Average finished up 8.77 points, also less than 0.1%. The tech-focused Nasdaq Composite fell 0.3%. The Dow industrials notched their eighth straight weekly loss, their longest such streak since 1932, near the height of the Great Depression.

The driving force behind the selloff, investors say, is growing fears about the health of the US and global economy. Money managers spent the first few months of the year worried that the Federal Reserve's interest-rate increases would take a big toll on the expensive stocks that had fuelled the market's rally over the past several years. This week, the pain spread well beyond the technology sector, alarming many investors. Major retailers reported their profits being hurt by rising costs and supply-chain disruptions, driving a selloff that led to Target and Walmart's worst one-day decline since the Black Monday crash of 1987.

"It's clear that in a very short period of time, we moved from a pandemic to an inflation scare to, now, serious concerns about growth," said Brian Levitt, global market strategist at Invesco.

Locally, the S&P/ASX 200 closed 1.15% higher at 7145.6 on Friday to avoid its longest run of weekly losses since 2016. Mining stocks helped the benchmark index shrug off a negative lead from the US, where the S&P 500 and DJIA both closed at their lowest levels since March 2021.

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

Rio Tinto, BHP and Fortescue added between 1.5% and 3.9% amid higher iron ore prices, while gold and lithium miners rose by even more.

The heavyweight financial sector rose 0.7% as strength among banks offset weakness among insurers.

Tech stocks resumed their rally, with WiseTech, Xero and Block adding 2.8%, 3.4% and 9.9%, respectively.

Crown Resorts gained 0.2% to $12.84 as shareholders overwhelmingly approved its takeover by US private equity group Blackstone for $13.10 a share.

The energy sector had fallen following Woodside shareholders on Thursday approving its $41 billion merger with BHP's petroleum business, which will result in 914 million new Woodside shares being issued to BHP shareholders.

Woodside shares fell 3.8% to $28.77, while Santos dropped 1.6% to $8.08.

The ASX 200 finished 1.0% higher for the week, ending a run of four straight weekly losses.
In commodity markets, Brent crude oil rose 0.5% to US$112.55 a barrel. Iron ore bounded 6.1% to US$134.25. Gold advanced 0.2% to US$1851.20.

Local bonds continued to retreat on Friday. Yield on Australian 2 Year government bonds edged fell to 2.45% while the 10 Year declined to 3.31%. Overseas saw a similar pattern with the yield on US Treasury 2 Year notes down at 2.58%, while the 10 Year slipped to 2.78%. Yields fall as prices rise.

The Australian dollar traded at 70.38 US cents as of last trade on Saturday, down from the previous close of 70.48 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 95.42.

Asia

China stocks ended the session higher, in line with regional Asian equities markets as traders digested the PBOC's cut of a key interest rate. Focus was also on the dollar, which showed signs of weakening from its recent strength after the latest US corporate earnings raised concerns over the country's economic growth. The benchmark Shanghai Composite Index rose 1.6% to settle at 3146.57, while the Shenzhen Composite Index was also added 1.6% to finish at 1983.67. The tech-heavy ChiNext Price Index slightly outperformed with a 1.7% rise to end at 2417.35. Coal miners and companies along the coal supply chain led gains, as China's production activities increasingly pick up, raising power and electricity demand across the country.

Hong Kong's Hang Seng Index closed 3.0% higher at 20717.24, tracking gains in US stock futures. Chinese technology stocks rebounded following gains in the US ADR market on Thursday, KGI Securities analyst Chua Tit Hong said in a note. The Hang Seng Tech index rose 4.7% to 4284.42. Among technology stocks, JD.com climbed 5.9% and Alibaba Group added 5.6%. Other gainers included Wuxi Biologics (Cayman), which rose 7.9%, and China Merchants Bank, up 7.3%. Decliners included Country Garden Services Holdings, which shed 0.8%.

Japanese stocks end higher, led by gains in electronics and tech stocks, as the market rebounds from Thursday's selloff. Hoya Corp. gains 5.3% and SoftBank Group adds 3.5%. Seiko Epson surges 8.8% after it announced a share buyback and a special dividend. The Nikkei Stock Average rises 1.3% to 26739.03 following a 1.9% fall on Thursday. Investors are focusing on movements of crude-oil prices and updates on Covid-19 lockdowns in China.

Europe

European markets closed higher after upbeat Asia trading, though Wall Street is on the back foot. The pan-European Stoxx Europe 600 and German DAX gained 0.7%, the French CAC 40 advanced 0.2%.

"China's overnight rate cut boosted sentiment, but investors remain nervous about diving back into stocks after this week's volatility," IG analyst Chris Beauchamp says in a note. "The surge in German factory-gate prices and a slump in UK consumer confidence shows the broader backdrop continues to be quite negative for equities."

London’s FTSE 100 closed up 1.17% Friday as China's overnight rate cut boosted sentiment among European indices, though investors seem to remain nervous.

"It has been another see-saw week in markets, as a rally in the first part of the week turned to dust in the second, but China's rate cut has provided the rationale for a bounce in global stocks to round off the week," Beauchamp says in a research note. However, this might be a short-term rally many will use to get out at a better price, he says. "Next week's Fed minutes will remind markets that there is more to come from Powell and co., even if the BoE faces a trickier balancing act,".

North America

A weekslong stock selloff took on new intensity Friday, nearly ending the bull market that began after the start of the pandemic.

Stocks rose at the open, then reversed course, falling throughout most of the turbulent session. At one point, the S&P 500 slid so far it was on track to close at least 20% below its January peak -- what would have been considered a bear market. A comeback in the final hour of the trading day pushed the index higher, with the S&P 500 ending up 0.57 point, or less than 0.1%; at its intraday low, it was down 2.3%.

The Dow Jones Industrial Average finished up 8.77 points, also less than 0.1%. The tech-focused Nasdaq Composite fell 0.3%.

It has been decades since stocks have fallen for such a prolonged period. The Dow industrials notched their eighth straight weekly loss, their longest such streak since 1932, near the height of the Great Depression. The S&P 500 and Nasdaq had their seventh straight weekly loss, their longest such streak since 2001, after the dot-com bubble burst. All three indexes finished the week down at least 2.9%.

The driving force behind the selloff, investors say, is growing fears about the health of the US and global economy. Money managers spent the first few months of the year worried that the Federal Reserve's interest-rate increases would take a big toll on the expensive stocks that had fuelled the market's rally over the past several years. Investors fled shares of technology companies, pulling billions of dollars out of funds tracking the Nasdaq. Higher interest rates tend to dull the allure of companies that are counting on delivering big profits years down the line.

This week, the pain spread well beyond the technology sector, alarming many investors. Major retailers reported their profits being hurt by rising costs and supply-chain disruptions, driving a selloff that led to Target and Walmart's worst one-day decline since the Black Monday crash of 1987. As investors took stock of how inflationary pressures and slowing growth could weigh on corporate profits in the coming months, shares of everything from banks to real-estate investment trusts to grocery store chains fell, too.

The ferocity of the selling sent investors and analysts a strong message: There are few, if any, safe parts of the stock market this year. On Friday, even shares of energy companies, which have benefited from surging oil prices, fell alongside the broader market.

"It's clear that in a very short period of time, we moved from a pandemic to an inflation scare to, now, serious concerns about growth," said Brian Levitt, global market strategist at Invesco.

Economists at Goldman Sachs estimate there is a 35% probability of the US economy entering a recession sometime in the next two years. Economic slowdowns have historically been bad news for stocks: Going back to World War II, the S&P 500 has fallen an average of 30% from peak to trough during recessions.

Until the Fed convinces investors it can tighten monetary policy and reel in inflation without triggering a downturn, it is unlikely markets will stabilize, analysts said. The central bank's job will be made more difficult by factors outside of its control that have added to inflationary pressures this year, including China's zero-Covid policy and Russia's invasion of Ukraine.

"We still need to build more evidence to convince markets that a soft landing is possible," said Arun Sai, a multiasset strategist at Pictet Asset Management.

Government bonds rallied Friday, benefiting from investors flocking toward assets that tend to perform well in times of economic stress. The yield on the benchmark 10-year US Treasury note fell to 2.785% Friday from 2.854% on Thursday. Bond prices rise when yields fall.

Meanwhile, disappointing earnings results drove outsize moves in some stocks.

Shares of Ross Stores slumped $20.83, or 22%, to $71.87 after it posted a decline in sales and said it expects another drop in sales for the current quarter. The retailer, like many other businesses, said its results were hurt by rising costs for transportation and labor.

Agricultural equipment maker Deere dropped $51.31, or 14%, to $313.31 even though it posted higher sales and profit and raised its profit forecast for the year. The company said supply-chain issues disrupted production levels and deliveries, and that higher costs for materials and freight transportation are squeezing its profit margins.

Most S&P 500 companies have managed to produce earnings this quarter that have beaten expectations, said Kiran Ganesh, a multiasset strategist at UBS.

What's less clear is how companies will fare in the coming months.

"The question is from the next quarter onward, where we will have the full impact of the jump in oil prices and the war in Ukraine," Mr. Ganesh said.

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