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Global Market Report - 23 September

Lewis Jackson  |  23 Sep 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to rise after Wall Street closed higher and the US Federal Reserve suggested it’s bond buying program could be fully wound down by mid-next year.

The Australian SPI 200 futures contract was up 14 points or 0.2 per cent at 7,290 near 8.00 am Sydney time on Thursday, suggesting a positive start to trading.

US stocks staged a comeback after the Federal Reserve signalled that it could begin to reduce its bond purchases soon and raise interest rates as early as next year.

Major US indexes soared to intraday highs following the central bank's statement, and the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all finished about 1% higher.

The gains mark a sharp turnaround from earlier this week, when major stock indexes tumbled due to fears of a default at by highly indebted developer China Evergrande Group.

However, some of the fears started to subside as investors turned their attention to the Fed following the conclusion of its two-day September meeting. In a statement issued after its meeting, the Fed said that if economic progress continues broadly as expected, "the Committee judges that a moderation in the pace of asset purchases may soon be warranted."

The Australian dollar was buying 72.41 US cents near 7.00am AEST, up from the previous close of 72.30. The WSJ Dollar Index, which measures the US dollar relative to 16 foreign currencies, rose to 87.79.

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Locally, the S&P/ASX 200 closed 0.3% higher at 7296.9 driven by strong performance from energy stocks, which finished up 2.3%. Worley gained 5.6%, while Beach Energy put on 5.1%.

The materials sector was also a strong performer, with iron-ore miners BHP, Rio Tinto and Fortescue closing up 2.4%, 2.7% and 4.2% respectively.

General insurers were lower as a magnitude 5.9 earthquake hit regional Victoria. Suncorp, IAG and QBE finished down 2.1%, 3.0%, 0.6% respectively.

Zip finished 4.3% higher after it said it would take a minority stake in Indian BNPL company ZestMoney. Premier Investments was the day's biggest loser, closing down 4.5%.

Risks to financial stability could be building in Australia as household debt rises in the wake of surging house prices, Reserve Bank Assistant Gov. Michele Bullock said in a speech Wednesday. These macro-financial risks warrant close watching, she added.

Brookfield Asset Management faces a tricky task convincing Australia's foreign-investment watchdog to support its bid for AusNet Services, says UBS. If the Foreign Investment Review Board approves Brookfield's buy of AusNet, and a KKR-led consortium's bid for Spark Infrastructure, then all of Victoria state's power distribution and transmission infrastructure would be foreign owned.

Gold futures rose 0.03% to $US1767.40 an ounce; Brent crude was up 2.5% at $US76.19 a barrel; Iron ore was up 17% to $US108.70.

The yield on the Australian 10-year bond fell to 1.25%; The yield on the US 10-year note fell to 1.30%.

Asia

Chinese stocks ended Wednesday mixed as the market resumed trading after a two-day holiday. The benchmark Shanghai Composite Index rose 0.4%. The Shenzhen Composite Index and the ChiNext Price Index, however, both fell, dropping 0.2% and 0.9% respectively.

The property sector was among the top risers, after a China Evergrande unit said it would pay coupon for a bond on time on Thursday, a sign that the developer is making progress to resolve its liquidity crisis. Consumer firms led losses.

Markets in Hong Kong were closed for a holiday.

Japanese stocks ended lower, dragged by declines in trading companies, as concerns about troubles in the Chinese property sector linger. The Nikkei Stock Average fell 0.7%.

Europe

London's FTSE 100 closed Wednesday 1.5% higher, extending Tuesday’s rebound.

In Europe, markets rose too. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies, was up 1.5%. Mining, oil, financial and automotive stocks are among the biggest pan-European risers.

"Dip-buyers have thrown caution to the wind this afternoon, it seems, discarding any pre-Fed nerves and plunging back into stocks," IG analyst Chris Beauchamp says, adding that markets will be looking for any commentary on tapering, inflation and stagflation.

North America

US stocks staged a comeback from their September rout Wednesday after the Federal Reserve signalled that it could begin to reduce its bond purchases soon and raise interest rates as early as next year.

Major US indexes soared to intraday highs following the central bank's statement, with the Dow Jones Industrial Average adding as many as 520.58 points at its peak. The blue-chip index was up about 330 points, or 1%, as of the 4 p.m. close of trading in New York.

The S&P 500 added 0.9%, while the Nasdaq Composite gained 1%.

The gains mark a sharp turnaround from earlier this week, when major stock indexes tumbled due to fears that a default by highly indebted real-estate developer China Evergrande Group could ripple, causing a widespread pullback in riskier assets across markets.

On Monday, indexes in Asia, Europe and the US sank, with the S&P 500 and Nasdaq suffering their worst one-day falls since May. Indexes in the US finished mixed Tuesday after a choppy trading session marked by frequent swings between gains and losses.

On Wednesday, however, some of the fears spurred by Evergrande started to subside, and investors instead turned their attention to the Fed following the conclusion of its two-day September meeting. In a statement issued after its meeting, the Fed said that if economic progress continues broadly as expected, "the Committee judges that a moderation in the pace of asset purchases may soon be warranted."

Chairman Jerome Powell added during a news conference Wednesday that officials generally agreed that "a gradual tapering process that concludes around the middle of next year is likely to be appropriate."

The US central bank slashed its short-term benchmark rate to near zero during the early stages of the Covid-19 pandemic last year. It also has been purchasing $120 billion in bonds each month. The central bank on Wednesday left interest rates unchanged, though new projections released showed half of it 18 officials expect to raise interest rates by the end of next year, compared with seven officials in June.

The Fed's stimulus programs have been credited for helping keep the stock market churning higher, which has pushed the S&P 500 to 54 records this year. But investors have been increasingly nervous in recent weeks about the Delta variant of the coronavirus, stretched valuations and signs that the US economy's growth is slowing. A chorus of analysts recently warned that the US stock market was ripe for a pullback.

For much of this month, US stocks have edged lower. And this week, Evergrande became a largely unexpected catalyst that sent stocks sliding. Evergrande, a giant real-estate developer in China, is on the brink of collapse after years of rapid expansion and aggressive borrowing. Many investors fear its crisis could spread financial pain far and wide.

Evergrande's problems are seen as a high-stakes test of whether the Chinese government will step in to stave off ripple effects that could affect the country's growth and weigh on the global economic recovery.

Some money managers said investors found relief Wednesday after Evergrande's flagship property business said it would make an interest payment on an onshore bond. However, another test will come Thursday when an interest payment on a bond denominated in dollars is due.

"I think the ability for Evergrande specifically to cause a major financial contagion...is small and that those fears were overblown," said Michael Arone, chief investment strategist for State Street Global Advisors. "However, I do think that what's been occurring in China for really the last year is resulting in an economic slowdown within China that will have implications for the global economy."

Gains in the S&P 500 on Wednesday were led by energy shares, extending the sector's recent outperformance. Occidental Petroleum, Diamondback Energy and Marathon Oil each gained more than 5%. Financials stocks also rallied.

FedEx shares fell 8.6% after the delivery giant spent an additional $450 million due to problems attracting workers in its latest quarter, contributing to an 11% drop in profit. Shares of Adobe declined 3.4%, despite the software company reporting higher profit and record revenue in the latest period.

Shares of Facebook slid 3.8%, weighing on the S&P 500's communication services sector.

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

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