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Global Market Report - 4 January

Lex Hall  |  04 Jan 2021Text size  Decrease  Increase  |  
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Australia

Australian shares are tipped to fall despite records on Wall Street as local border closures and tighter covid restrictions hurt confidence.

The Australian SPI 200 futures contract was down 80 points, or 1.2 per cent, at 6537 points at 8.30am Sydney time on Monday, suggesting a negative start to trading.

US stocks ended a tumultuous year with the Dow and S&P 500 at records, as the three major US equity indexes notched solid-to-spectacular yearly gains despite an economy upended by the covid-19 virus as investors looked to a post-pandemic world.

For the session the Dow Jones Industrial Average rose 196.92 points, or 0.65 per cent, to 30,606.48, the S&P 500 gained 24.03 points, or 0.64 per cent, to 3,756.07 and the Nasdaq Composite added 18.28 points, or 0.14 per cent, to 12,888.28.

Locally, a second coronavirus cluster has emerged in Sydney’s west, forcing thousands to isolate as health authorities warn that the outbreak may have already spread after an extended exposure period at a suburban bottle shop stretching more than 10 days, The Australian reports.

The S&P/ASX200 benchmark index closed higher by 43.5 points, or 0.66 per cent, to 6643.1 on Wednesday despite a mixed lead from Wall Street.

The index reached a session high of 6661.2.

The All Ordinaries closed up 47.1 points, or 0.69 per cent, to 6892.6.

Gold was up 0.1 per cent to $US1895.10 an ounce; Oil was up 0.3 per cent to $US51.80 a barrel; Iron ore was up 0.4 per cent to $US160.47 a tonne.

Meanwhile, the Australian dollar was buying 77.09 US cents at 8.30am, up from 76.99 US cents at Thursday’s close.

Asia

China stocks rose to multi-year highs on the last trading day of 2020, as investors cheered a Sino-Europe investment deal and Beijing’s policy support for its capital markets.

The blue-chip CSI300 index closed up 1.9 per cent, at 5,211.29, the highest level since 15 June 2015 while the Shanghai Composite Index gained 1.7 per cent to 3,473.07, its highest since 5 February 2018.

In Hong Kong, the Hang Seng index advanced 0.31 per cent to 27,231.13.

Markets in Japan and South Korea were closed on Thursday for a holiday.

Europe

European stocks closed lower on Thursday, ending 2020 in the red as tighter coronavirus restrictions in Britain and higher US tariffs on some EU products dampened spirits on the final trading day of the year.

Volumes were thin, with many traders away and most major European bourses closed, with the exception of London, Madrid and Paris.

The pan-European STOXX 600 index recorded a 3.7 per cent drop in 2020—lagging its Asian and Wall Street peers that traded near record highs—as a surge in coronavirus cases and concerns about a chaotic Brexit weighed on the continent’s markets.

Still, the index is only 7 per cent below its record high after rallying about 50 per cent from March lows and as expectations of more stimulus, the rollout of coronavirus vaccines and a Brexit trade deal sealed last week raised bets on a stronger recovery in 2021.

“Vaccines will inspire a global recovery, central banks will leave rates at zero even if inflation rises to fund exploding government deficits everywhere,” Jeffrey Halley, a senior market analyst at Oanda, wrote in a note.

“The search for yield in a zero percent world flooded with unlimited free money from the world’s central banks, means the K-shaped recovery, asset price inflation scenario seems a certainty.”

At the end of a shortened session, London’s FTSE 100 fell 1.5 per cent and Paris’s CAC 40 dropped 0.9 per cent. Spanish stocks fell 1 per cent.

Among the European stock sectors, energy stocks were the worst annual performers, shedding 25.5 per cent as movement restrictions to contain the virus eroded oil demand.
Technology stocks outperformed their peers with a 14.1 per cent annual gain as the sector proved to be the most resilient to pandemic-related disruptions.

The FTSE 100 marked its worst year since the 2008 financial crisis—with its near-term prospects hit after Prime Minister Boris Johnson ordered millions more people to live under the strictest covid-19 restrictions to counter a new virus variant.

The German DAX ended 2020 with a 3.5 per cent gain—just below all-time highs—helped by strong demand for technology stocks and better growth prospects for major trading partner China.

Lender-heavy Italy’s FTSE MIB was down 5.4 per cent for the year, while Spain’s IBEX—among the worst performers in the region—marked its worst year since 2010, shedding more than 15 per cent.

The tourism-reliant economy was hit by pandemic restrictions, while a consolidation in Spain’s banking sector—that brought the number of banks to 10, down from 55 prior to the 2008 economic crisis—failed to impress investors.

France’s Airbus, Safran and liquor makers Pernod Ricard and Remy Cointreau fell between 1.5 per cent to 4 per cent after the US government said it would raise tariffs on EU products including aircraft components and wines from France and Germany.

The move was the latest twist in a 16-year battle over aircraft subsidies between Washington and Brussels.

European markets were closed on Friday for New Year’s Day.

North America

US stocks ended a tumultuous year with the Dow and S&P 500 at records, as the three major US equity indexes notched solid-to-spectacular yearly gains despite an economy upended by the covid-19 virus as investors looked to a post-pandemic world.

In a year that marked the end of the longest bull market on record as pandemic-induced government lockdowns battered the global economy, equities stormed back, with the S&P 500 climbing more than 66 per cent from its March 23 low, resulting in the shortest bear market in history.

The gains, which sent the Dow and S&P to record highs to close out the year and the Nasdaq to a record earlier this week, were fuelled in part by massive fiscal and monetary stimulus put in place to buttress the economy reeling from the coronavirus fallout, as well as progress on a vaccine.

For the year, the S&P 500 gained 16.3 per cent, the Dow 7.2 per cent and the Nasdaq 43.6 per cent, which marked the biggest yearly gain for the tech-heavy index since 2009.

“For broad indexes, this is a bullish year despite the craziness in the real world,” said Mike Zigmont, head of research and trading at Harvest Volatility Management.

“It feels very much to me like investors have decided the world has changed forever, the coronavirus pandemic was the catalyst and now investors have decided who the winners are and who the losers are and are moving forward.”

Still, data on Thursday was a reminder the economy still has a lengthy recovery ahead as weekly initial jobless claims, while declining for a second straight week to 787,000, remained well above the peak of the 2007-2009 Great Recession.

Tech and consumer discretionary were the best performing sectors on the year, while energy, a laggard for the past decade, was once again the weakest of the 11 major S&P sectors on the year en route to its worst yearly performance ever.

Mega-cap companies such as Amazon and Apple helped lift the broad S&P 500 and the Nasdaq, as well as gains in names that have benefited from the “stay-at-home” environment, such as online retailer ETSY Inc and digital payment platform PayPal.

Shares of Tesla added to the benchmark S&P index on December 21, rose an astounding 743 per cent on the year.

For the session the Dow Jones Industrial Average rose 196.92 points, or 0.65 per cent, to 30,606.48, the S&P 500 gained 24.03 points, or 0.64 per cent, to 3,756.07 and the Nasdaq Composite added 18.28 points, or 0.14 per cent, to 12,888.28.

All three major indexes gained ground, with the Dow and S&P 500 picking up steam in the session’s final minutes to secure record highs.

Near-term expectations of bigger stimulus checks dimmed after Senate Majority Leader Mitch McConnell blocked a quick vote on Wednesday to back President Donald Trump’s call to increase covid-19 relief checks to US$2000 ($2565) from US$600.

Risk assets were able to build on the rally off the March low, adding to gains in November following a US election that investors viewed as likely to result in political gridlock and optimism around vaccines approvals grew, but the momentum stalled on worries over fresh fiscal stimulus and a new, highly infectious covid-19 variant spreading globally.

All eyes are on two US Senate races in Georgia next week that will determine control of the chamber and influence Democratic President-elect Joe Biden’s ability to enact his agenda.

is content editor for Morningstar Australia

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