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Global Market Report - 29 July

Lewis Jackson  |  29 Jul 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to rise strongly after Wall Street extended yesterday’s rally despite data showing the US economy contracted in the second quarter.

ASX futures were up 70 points or 1 % at 6861 as of 8.00am on Friday, pointing to a jump at the open.

Overseas, the S&P 500 added 1.2%, building on its strong gains from the prior session. The broad market index closed sharply higher Wednesday after the Federal Reserve raised interest rates and Chairman Jerome Powell hinted that the pace of rate rises would eventually slow.

The Dow Jones Industrial Average added 1% while the technology-heavy Nasdaq Composite Index gained 1.1%.

The US economy shrank at a 0.9% annual rate last quarter, marking a second straight quarterly decline in gross domestic product, the Commerce Department said Thursday. The data intensified debate among analysts and investors about whether the economy is in a recession.

In commodity markets, Iron ore rose 4.4% to US$117.35, Brent crude oil rose 1.1% to US$107.84, while gold edged up 1.8% to US$1769.20.

Local bonds rose again on Thursday, with the yield on Australian 2 Year government bonds falling to 2.54% while the 10 Year dropped to 3.20%. Overseas, the yield on 2 Year US Treasury declined to 2.86% and the yield on the 10 Year US Treasury notes fell to 2.68%.

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The Australian dollar rose to 69.89 US cents, up from 69.87 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies declined again to 97.97.

Asia

Chinese stocks finished the day mixed, as electronics gains were offset by losses among airlines and pharma companies. Following the Fed's rate decision, the market could resume an upward course as there is less uncertainty, Guosheng Securities said in a note. Luxshare Precision jumped 8.7% and StarPower Semiconductor advanced 7.8%, while Shenzhen Mindray Bio-Medical lost 2.8%. Airlines were also laggards. Air China, China Eastern Airlines and China Southern Airlines lost between 1.8% and 3.5%. The Shanghai Composite Index added 0.2% to 3282.58 and the Shenzhen Composite Index climbed 0.4%, though the ChiNext Price Index closed 0.3% lower.

Hong Kong stocks reversed early gains, weighed by bank stocks, with the Hang Seng Index ending 0.2% lower at 20622.68. Lenders' shares were lower after the US Fed raised its funds rate by 75 bps. China Merchants Bank shed 2.0%, Hang Seng Bank dropped 0.9% and BOC Hong Kong declined 0.7%. Hang Lung Properties added 1.8% after saying market sentiment in Hong Kong has rebounded solidly since mid-April. Conglomerate CK Asset rose 0.4% after it made a bid for China Evergrande's Hong Kong headquarters. The near-term focus will be on US President Biden's upcoming call with Chinese leader Xi Jinping, and any hints of progress on the lifting of US tariffs on Chinese goods, IG's market strategist Yeap Jun Rong says in a note.

The Nikkei Stock Average ended 0.4% higher at 27815.48, tracking broad gains among Asian equities following the US Fed's rate increase. Energy stocks rose, in line with oil prices, which extended gains after settling at a one-week high overnight. Idemitsu Kosan gained 1.9%, Eneos Holdings added 0.7% and Cosmo Energy advanced 2.5%. Mitsubishi Electric fell 5.7% after its 1Q net profit missed consensus. Toyota Motor slipped 2.0% after its group worldwide sales in June declined on year. Corporate earnings will likely remain in focus.

Europe

European stocks were mostly higher in closing trade as investors assessed corporate earnings and the Federal Reserve's latest interest rate decision. The pan-European Stoxx Europe 600 gained 1.1%, the German DAX rose 0.9%, the French CAC 40 advanced 1.3%.
Ipsen shares jump 15.6% after the French pharmaceuticals group raised its full-year guidance. Scor slumps 18.9% after the French life insurer swung to a first-half net loss. Meanwhile, data showed the US economy unexpectedly contracted in the second quarter, which came after the Fed said future rate decisions will be data-dependent. "Markets appear to be pricing out Fed rate rises beyond the end of this year," CMC Markets analyst Michael Hewson writes.

London’s FTSE 100 closed Thursday down 0.04% following poor performance from the healthcare, telecoms and banking sectors. On the downside, Smith & Nephew PLC shares plunged after reporting a modest decline in trading profits due to a fall in margins, while BT Group PLC was also lower as a 7% fall in enterprise operation revenue prompted concerns over more weakness to come, chief market analyst at CMC Markets U.K. Michael Hewson, says.

On the other end of the spectrum, it has been a good day for Shell PLC, who reported another record quarter of profits, though this inevitably raises questions about whether this level can be sustained in the second half, Mr. Hewson says in a research note.

North America

Stocks climbed Thursday, despite fresh data showing the US economy contracted for a second straight quarter.

The S&P 500 added 1.2%, building on its strong gains from the prior session. The broad market index closed sharply higher Wednesday after the Federal Reserve raised interest rates and Chairman Jerome Powell hinted that the pace of rate rises would eventually slow.

The Dow Jones Industrial Average added 1% while the technology-heavy Nasdaq Composite Index gained 1.1%.

The US economy shrank at a 0.9% annual rate last quarter, marking a second straight quarterly decline in gross domestic product, the Commerce Department said Thursday. The data intensified debate among analysts and investors about whether the economy is in a recession.

Stocks have started the third quarter in better form after the declines suffered in the first half of the year. Corporate earnings haven't been as bad as investors had feared, suggesting that soaring inflation and signs of flagging economic growth aren't weighing too heavily on companies' balance sheets.

All three major indexes have risen at least 8% from their 2022 lows in mid-June and are headed toward strong monthly gains.

The Federal Reserve has signalled it is serious about bringing inflation down. On Wednesday it raised its federal-funds rate by 0.75 percentage point to a range between 2.25% and 2.5%. Some traders have ramped up bets on a slower pace of interest rate increases in coming months after the meeting, helping propel the stock-market rally.

In bond markets, the yield on the benchmark 10-Year US Treasury note fell for the third consecutive session to 2.680% from 2.731% on Wednesday. The yield on the 2-year note dropped to 2.874% from 2.968%.

Despite recent gains for the major stock indexes, some investors remain concerned about stretched valuations and the pace of Fed rate rises.

"The rally we have seen looks like a classic bear market rally, rather than the launch of a new bull market," said David Donabedian, chief investment officer of CIBC Private Wealth US. "We are still going to have a period where inflation is uncomfortably high and growth is uncomfortably low, and that is not a good backdrop."

Investors have been looking to earnings results from major blue-chip and technology companies for further guidance about the state of the economy.

After markets closed, Amazon.com reported another quarterly loss but said it is making progress controlling costs, pushing its shares up 12% in late trading. Apple shares rose 2.8% after the company reported iPhone sales continued to grow despite the economic headwinds. But Intel slumped 8.9% after posting a surprise quarterly loss and cutting its outlook amid a slump in personal-computer purchases and product delays.

In other corporate news, shares of Facebook parent Meta Platforms fell $8.86, or 5.2%, to $160.72 after reporting its first-ever decline in quarterly revenue. Qualcomm dropped $6.97, or 4.5%, to $146.45 after issuing a muted sales outlook. Ford jumped 81 cents, or 6.1%, to $14 after reporting a 50% rise in revenue.

Spirit Airlines climbed $1.36, or 5.6%, to $25.66 after JetBlue Airways agreed to buy the carrier. The deal came after The Wall Street Journal reported that the two sides were close to sealing an agreement following a monthslong bidding war between JetBlue and Frontier Group Holdings. JetBlue dropped 3 cents, or 0.4%, to $8.37.

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

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