Global Market Report - 25 February

Australia

Australian shares are set to follow Wall Street higher after Jerome Powell dampened inflation fears and a tech sell-off eased.

The Australian SPI 200 futures contract was up 55 points, or 0.8 per cent, at 6,782 points at 8.30am Sydney time on Thursday, suggesting a positive start to trading.

Shares on Wall Street ended higher on Wednesday, as a selloff in technology-related stocks eased and a rotation into cyclical shares continued after Federal Reserve Chair Jerome Powell’s comments calmed inflation worries.

The Dow Jones Industrial Average rose 424.51 points, or 1.35 per cent, to 31,961.86, the S&P 500 gained 43.98 points, or 1.13 per cent, to 3,925.35 and the Nasdaq Composite added 132.77 points, or 0.99 per cent, to 13,597.97. All three main indexes were on track to post strong monthly gains, with the Dow and the S&P 500 set for their best month since November.

Locally, Scott Morrison faces a blow to public confidence in the national vaccine rollout after an investigation was called into how a Brisbane doctor injected two aged-care residents with four times the recommended dose of the Pfizer jab without completing his mandatory training, The Australian reports.

Australia's share market closed lower and was down for the week, while the Aussie dollar nudged closer to buying 80 US cents.

The S&P/ASX200 benchmark index closed lower by 61.4 points, or 0.9 per cent, to 6,777.8 on Wednesday.

The All Ordinaries closed lower by 61.4 points, or 0.86 per cent, at 7,049.4.

There were losses of more than two per cent for the materials, information technology and telecommunications sectors.

The Aussie dollar rose to buy 79.45 US cents, its highest level in about three years.

Spot gold was down 0.5 per cent to $US1,797.54 an ounce; Brent crude was up 2.5 per cent to $US67.03 a barrel; Iron ore -0.2 per cent to $US172.71 a tonne.

Meanwhile, the Australian dollar was buying 79.42 US cents at 8.30am, up from 79.10 US cents at Wednesday’s close.

Asia

Chinese shares closed lower on Wednesday, with the benchmark stock index witnessing its biggest daily drop in seven months, as investors worried about high valuations amid growing concerns of tightening in policies.

The benchmark Shanghai Composite Index sank 2 per cent to 3,564.08, in its biggest daily percentage loss since July 24. The blue-chip CSI300 index slid 2.6 per cent.

In Hong Kong, the Hang Seng suffered its biggest daily drop since May last year amid Hong Kong's first trading tax hike since 1993. The index fell 2.99 per cent to 29.718.24.

In Japan, the Nikkei 225 fell 1.61 per cent to 29,671.60.

Europe

European shares rose on Wednesday as sectors primed to benefit from economic recovery were supported by strong German growth data, although concerns over a possible rise in inflation and lofty equity valuations kept gains in check.

The pan-European STOXX 600 ended 0.5 per cent higher, with Germany’s DAX adding 0.8 per cent as data showed bullish exports and solid construction activity helped Europe’s biggest economy to grow by a stronger-than-expected 0.3 per cent in the fourth quarter.

Travel stocks jumped 1.9 per cent to near one-year highs, leading European sector gains on optimism around major countries lifting coronavirus-induced lockdowns.

Still, global airline industry body IATA flagged further headwinds for airlines in 2021.

“The market has fallen recently due to lofty valuations, but investors are becoming more accepting of the fact that as European economies slowly reopen and earnings improve, the current equity valuations could be justified,” said Chris Beauchamp, chief market analyst at IG Group.

The benchmark STOXX 600 has rebounded nearly 50 per cent from its March 2020 lows, also led by historic stimulus measures, but it has still far underperformed a 75 per cent jump in the US S&P 500.

US Federal Reserve Chair Jerome Powell reiterated on Tuesday that interest rates will remain low despite indications of rising inflation, assuaging some fears of a sudden tapering in monetary stimulus.

“While another stimulus package will certainly be welcomed by market participants, inflation fears are still present, despite those concerns being downplayed by officials,” said Milan Cutkovic, market analyst at Axi.

“As more countries are planning the reopening of their economies, the focus could slowly shift back to value stocks.”

The rotation out growth-driven stocks was apparent, with the technology sector losing nearly 4 per cent this week, lagging all of its regional peers.

In company news, AstraZeneca dipped 0.2 per cent after it told the European Union that it expects to deliver less than half the covid-19 vaccines it was contracted to supply in the second quarter.

Norwegian salmon farmer Bakkafrost was the biggest percentage loser on the STOXX 600 for a second session after it posted a fourth-quarter loss due to the pandemic.

German sportswear company Puma dropped 2.1 per cent after saying it expects a heavy impact on its results from lockdowns through the end of the second quarter.

Telecom Italia surged 9.2 per cent after it said profit and sales should stabilise this year.

North America

The Nasdaq index, which traded as much as 1.3 per cent lower earlier in the session, regained its footing by early afternoon and closed higher. The Dow hit a record high earlier in the session.

GameStop Corp stock, which was at the center of volatile moves in late January by shares talked about on a Reddit forum, rose sharply in late trading. Volume was more than two times the 10-day moving average, and shares were halted by the New York Stock Exchange. AMC Entertainment Holdings also jumped.

Powell told lawmakers on Wednesday it may take more than three years to reach the central bank’s inflation goals, a sign the Fed plans to look beyond any post-pandemic spike in prices and leave interest rates unchanged for a long time to come.

“What’s driving the stock market is the fiscal stimulus, the dovish Fed, the real strong, strong earnings that we’re seeing, as well as the fact that we’re going to have a third vaccine,” said Richard Saperstein, chief investment officer at Treasury Partners.

The US Food and Drug Administration said on Wednesday Johnson & Johnson’s one-dose covid-19 vaccine appeared safe and effective in trials, paving the way for its approval for emergency use as soon as this week.

Johnson & Johnson rose following the news.

Investors have focused on rising US yields and their potential impact on growth stocks. Saperstein said higher yields could pressure stocks but would not derail the upward trend.

“I don’t believe that the 10-year yield going from 1 per cent to 1.5 per cent is going to alter the calculus of owning large technology stocks,” said Saperstein.

Value-oriented stocks have enjoyed a bit of a bounce recently, and the S&P 500 Value index rose for a fourth straight day.

The S&P 500 financial sector hit an all-time peak, while other cyclical stocks including industrials, energy and materials also rose.

The S&P 500 Growth index, which includes most of the high-flying technology-related stocks, has come under pressure in the last few days due to valuation concerns, elevated Treasury yields and an investment shift into more economy-sensitive parts of the market.

Microsoft Corp, Amazon.com Inc and Apple Inc were down, while Facebook, Netflix Inc and Alphabet Inc reversed earlier declines.

Growth-oriented stocks are particularly sensitive to rising yields as their value rests heavily on future earnings, which are discounted more deeply when bond returns go up.

Tesla Inc gained after star investor Cathie Wood’s Ark Invest fund bought a further US$171 million ($214 milllion) worth of the company’s shares in the wake of a sharp fall in the electric-car maker’s stock.

Lowe’s Cos Inc slid as it stuck by its 2021 outlook of a US$4 billion to US$8 billion drop in revenue, even after reporting blow-out fourth quarter results.

With Reuters