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Global Market Report - 24 September

Lewis Jackson  |  24 Sep 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to follow Wall Street higher after US markets reacted positively to the Fed's taper timeline and fears of contagion from troubled Chinese developer Evergrande abate. 

The Australian SPI 200 futures contract was up 8 points or 0.1 per cent at 7,356 near 8.00 am AEST on Friday, suggesting a positive start to trading.

US stocks rose sharply, notching a second-consecutive day of gains as investors remained upbeat that trouble with property giant China Evergrande Group can be contained.

The S&P 500 gained 1.2%, a day after a Federal Reserve policy update sent the stocks gauge to its biggest one-day gain since July. The Dow Jones Industrial Average was up 1.5%. The technology-focused Nasdaq Composite Index added 1%.

All three indexes are now up for the week. Markets have been consumed this week with questions surrounding Evergrande, a giant real-estate developer in China. Many fear its collapse could spread economic pain through the world's second-largest economy, with spillovers into global financial markets. However, fears around its possible collapse appear to have ebbed—at least temporarily.

The Australian dollar was buying 72.93 US cents near 8.00am AEST, up from the previous close of 72.39. The WSJ Dollar Index, which measures the US dollar relative to 16 foreign currencies, fell to 87.67.

Locally, the Australia's S&P/ASX 200 closed 1.0% higher at 7370.2, with strong performance in the technology and energy sectors driving the result.

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All sectors ended the day up, with technology stocks leading the market, up 3.0%, driven by Afterpay which rose 4.2%, and Computershare which added 3.7%.

Energy stocks rose 2.8% amid an oil price uptick. Whitehaven Coal jumped 7.2% and Oil Search rose 3.4%. After reporting FY results Washington H. Soul Pattinson rose 6.0%, Premier Investments gained 3.1% and Brickworks lifted 2.4%. The major banks were up between 0.6% and 1.2%.

The impact of the earthquake in Victoria state on the Australian insurance industry looks to be "quite limited," says JPMorgan, a bank. Industry estimates are that the economic loss is likely $1.5 million- $14 million, though insured losses should be lower, JPM says.

The current downturn should be "v-shaped" for share prices of Australian miners as even a modest policy response by China will likely be a positive catalyst, Jefferies, a broker, says. "This should be followed by rising demand and prices for copper, aluminum, nickel, and platinum group metals," says Jefferies. The iron-ore price is an exception: Jefferies doesn't see it recovering strongly.

Gold futures fell 1.6% to $US1747.90 an ounce; Brent crude was up 1.4% at $US77.25 a barrel; Iron ore was flat at $US108.67.

The yield on the Australian 10-year bond rose to 1.26%; The yield on the US 10-year note rose to 1.42%.

Asia

Chinese stocks ended the session higher, as the property sector continued to recover after China Evergrande pulled off plans to pay the coupon on an onshore bond.

The benchmark Shanghai Composite Index rose 0.4%, while the Shenzhen Composite Index was up by 0.5%. The ChiNext Price Index, a measure for emerging industries and startups, rose 0.6%. In addition to recovering developer stocks, renewable energy and utilities firms lent further support to the market.

Hong Kong shares ended higher, as Chinese property developers rebounded after signs that China Evergrande is making progress toward resolving its liquidity crisis.

The benchmark Hang Seng Index rose 1.2%, its largest one-day gain in nearly two weeks. Country Garden Services jumped 13% and Longfor rose 9.7%.

China Evergrande ended 18% higher after surging as much as 32% during the session. The company on Wednesday said it negotiated a resolution to pay the coupon on an onshore bond.

The Japan Stock Exchange was closed for holiday.

Europe

The FTSE 100 snapped a two day streak to close Thursday 0.1% lower.

In Europe, markets rose as well. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies, was up 0.93%.

North America

The US stock market rose sharply Thursday, notching a second consecutive day of gains as investors remained upbeat that trouble with property giant China Evergrande Group can be contained.

The S&P 500 gained 1.2% in 4 pm trading, a day after a Federal Reserve policy update sent the stocks gauge to its biggest one-day gain since July. The Dow Jones Industrial Average was up 1.5%, or more than 500 points. The technology-focused Nasdaq Composite Index added 1%. All three indexes are now up for the week.

On the economic front, jobless claims climbed slightly last week, as demand for workers keeps a lid on layoffs. Initial unemployment claims, a proxy for layoffs, rose to a seasonally adjusted 351,000, from a revised 335,000 the week before.

Markets have been consumed this week with questions surrounding Evergrande, a giant real-estate developer in China. Many fear its collapse could spread economic pain through the world's second-largest economy, with spillovers into global financial markets. The heavily indebted company has issued billions of dollars of bonds to international investors, with many trading for a fraction of their face value.

However, fears around its possible collapse appear to have ebbed—at least temporarily. Evergrande has an $83.5 million coupon payment due Thursday on its US dollar bonds and hadn't given an indication of whether it will miss the payment. Chinese authorities are asking local governments to prepare for the potential downfall of Evergrande, The Wall Street Journal reported, signaling Beijing's reluctance to bail it out.

"There is some confidence that the government is standing by to make sure that this doesn't become more widespread," said Stephanie Lang, chief investment officer at Homrich Berg. "There is no clear indication that they are going to prop up Evergrande, but they will make sure that this won't spillover more broadly."

Hong Kong-listed shares of Evergrande jumped nearly 18%, though remained down more than 80% for the year.

In the US, shares of News Corp rose 3.7%. The company, which owns The Wall Street Journal, said Wednesday that its board of directors had authorized a $1 billion stock-buyback plan.

AMC Entertainment, Plug Power and other stocks that are favorites of retail investors gained ground. BlackBerry added 12%.

Salesforce.com Inc. boosted its full-year sales forecast as workplaces continue to spend money on cloud-based business software. Shares of the California-based company rose 7.3%.

Surveys of purchasing managers from a number of large economies were scrutinized for signs of further slowdown. IHS Markit figures for the US services and manufacturing sectors fell in September compared with August. A parallel report for the eurozone showed business activity slowed in September, adding to signs the global economy is experiencing a soft patch amid an uneven recovery. Supply-chain difficulties and high prices for raw materials hurt factory output.
Investors also were digesting the Federal Reserve's decision to tee up a reversal of its pandemic stimulus measures in November. New projections released at the end of the Fed's two-day policy meeting Wednesday showed half of 18 officials expect to raise interest rates by the end of 2022.

That has given money managers confidence the Fed won't allow the current bout of inflation to become entrenched.

Negotiations in Washington are also on investors' radar. Companies are concerned that higher taxes, which might be used to finance President Biden's $3.5 trillion spending proposal, will impact cash flows and their ability to return cash to shareholders. Democratic lawmakers are having trouble reaching a consensus because of sharp intraparty differences.

"It [the spending proposal] is crucial for the market, economy and individuals," said Jon Ekoniak, managing partner at Bordeaux Wealth Advisors. "These are just proposals and nothing is set in stone and nothing has passed but a lot of concern about what might happen."

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

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