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Global Market Report - 4 February

Lex Hall  |  04 Feb 2020Text size  Decrease  Increase  |  
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Australia

Australian stocks are poised for a flat open despite a rally in US stocks overnight, including strong gains among tech stocks, and surprise strength in US manufacturing. 

The SPI200 futures contract was down three points, or 0.01 per cent, at 6856 at 8am Sydney time on Tuesday.

The Australian benchmark S&P/ASX200 index finished Monday down 93.9 points, or 1.34 per cent, at 6923.3 amid continued uncertainty about the economic impact of the coronavirus.

The broader All Ordinaries index fell 101.3 points, or 1.42 per cent, to 7,019.9.

Gold and oil both fell overnight but equities were higher in Europe and in the US.

Coronavirus concerns that have shaken share markets appeared to abate slightly overnight after China responded with stimulatory measures, Westpac economics and research says.

On Wall Street, the Dow Jones Industrial Average rose 0.51 per cent, to 28,398.73, the S&P 500 gained 0.72 per cent, and the Nasdaq Composite added 1.34 per cent.

IG markets analyst Kyle Rodda says the day ahead for local markets will generally be focused on the RBA's first policy meeting for 2020.

"On balance, the market thinks that the RBA will keep interest rates on hold today, with only a 20 per cent chance of a cut implied in market pricing," he said in a note.

"The primary focus will likely be on the RBA's commentary about its updated economic forecasts, ahead of its quarterly monetary policy statement on Friday."

At 8am Sydney time, the Aussie was buying 66.88 US cents, from 67.02 US cents at the market close on Monday.

Asia

Asian shares have been dragged to near two-month lows by Chinese markets, which plunged on their first trading day after a long break on fears the coronavirus epidemic would hit demand in the world's second-largest economy.

Aiming to head off any panic, the Chinese government took steps to shore up an economy hit by travel curbs and business shut-downs because of the virus.

Despite the support, Chinese shares were deep in red, with the blue-chip index stumbling 7.8 per cent to a 4½-month trough. The benchmark Shanghai Composite index lost $379 billion of its value while the yuan opened at its weakest level in 2020, sliding past the symbolic seven-per-dollar level.

While China's losses were heavy, they were mostly a product of selling pressure that had built up over the Lunar New Year break, not a reflection of new market fears.

Yet, Asian markets, more broadly, remained in a sell-off mode with MSCI's broadest index of Asia-Pacific shares outside Japan down for an eighth straight day to be off 0.9 per cent at 527.39 points, its lowest since early December.

Japan's Nikkei dived 1 per cent to the lowest since November.

Europe

European shares inched up on Monday, recovering from their worst week in nearly seven months as jitters remained over the economic fallout from a virus outbreak in China.

The pan-European STOXX 600 index rose 0.1 per cent by 0912 GMT, taking some support from optimism over the UK finally leaving the EU bloc.

Blue-chip British stocks added about 0.3 per cent after Britain officially left the EU on Friday, ending years of financial and political turmoil over the exit.

British Prime Minister Boris Johnson is now set to negotiate a trade deal with the EU, with sources suggesting he will consider a looser agreement, rather than follow EU rules.

However, investors are likely to stick to cautious plays in the near-term, with the death toll for the Chinese coronavirus still rising and multiple countries setting travel bans on China.

Further souring the mood, Chinese stock markets crashed upon opening after a long holiday on Monday. European travel and leisure stocks, which have been among the worst hit by uncertainty over China, rebounded 0.6 per cent. Budget airline Ryanair led gains in the sector after its quarterly revenue beat estimates.

Technology stocks added about 1 per cent. French payments services provider Ingenico Group surged to the top of the sector, as well as the STOXX 600 after peer Worldline agreed to buy the company.

Oil and gas stocks were among the worst performers for the day as worries over demand in China continued to erode oil prices.

Basic resources stocks, which consist of several China-focused miners, also dropped. Mining heavyweights BHP Group and Glencore shed about 0.2 per cent and 0.4 per cent, respectively.

German medical technology firm Siemens Healthineers plunged to the bottom of the STOXX 600 after it reported disappointing first-quarter results.

Meanwhile, data showed that manufacturing activity in the euro zone improved slightly better than expected in January.

North America

US stocks rallied on Monday, boosted by heavyweight technology shares and on surprise strength in US manufacturing activity, following a sharp selloff last week on concerns about the economic impact from the fast-spreading coronavirus out of China.

US factory activity rebounded in January after contracting for five straight months amid a surge in new orders, according to the Institute for Supply Management (ISM).

The Dow Jones Industrial Average rose 143.78 points, or 0.51 per cent, to 28,399.81, the S&P 500 gained 23.4 points, or 0.73 per cent, to 3248.92, and the Nasdaq Composite added 122.47 points, or 1.34 per cent, to 9273.40.

Microsoft shares rose 2.4 per cent, leading a 1.3 per cent rise for the S&P 500 technology sector.

Shares of Google parent Alphabet Inc gained 3.5 per cent ahead of the company’s quarterly results. But the shares fell in after-market trading, wiping out the day’s gains, following the release of the results.

The energy sector slumped 1.3 per cent as crude prices dropped.

Investors were eyeing a busy US political week. Democrats in Iowa kick off the party’s nominating process on Monday with the state caucuses.

The US Senate was due to vote on Wednesday on whether to remove President Donald Trump from office following the impeachment process, with the Republican-controlled body widely expected to acquit him.

In company news, Tesla Inc shares soared 19.9 per cent as Panasonic Corp reported the first quarterly profit in its US battery business with the electric vehicle maker.

Gilead Sciences Inc shares gained 5.0 per cent after the drugmaker said it has provided its experimental Ebola therapy for use in a small number of patients with the coronavirus.

Nike Inc shares rose 3.1 per cent after JP Morgan added the stock to its focus list.

The fourth-quarter earnings season is about halfway done. About 228 S&P 500 companies have reported so far, and earnings are expected to have climbed 1.1 per cent in the period, according to IBES data from Refinitiv.

is content editor for Morningstar Australia

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