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Global Market Report - 01 April

Lewis Jackson  |  01 Apr 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to edge lower after a sharp drop in late-afternoon trading took Wall Street indices into the red, capping a volatile quarter for markets dominated by inflation, war and rising interest rates.

ASX futures were down 42 points or 0.6% at 7437 as of 8.00am AEST, suggesting a negative start to the day.

The S&P fell 1.6%, while the tech-focused Nasdaq Composite Index lost 1.5%. A sharp rally from mid-March helped both indexes to a positive finish for the month amid the worst quarter in over two years. The S&P 500 is down 4.9% this year, while the Nasdaq fell 9.1%. The Dow Jones Industrial Average was down 1.6% on Thursday for a 4.6% decline this quarter.

Oil prices moved lower after US President Biden ordered the largest ever release of oil stocks from the country’s strategic reserves. About 180 million barrels will flow into global oil markets over the next six months in a bid to tamp down on rising fuel costs and give US shale producers time to replace Russian supply. Brent Crude oil fell 4.9% to US$107.91.

Locally the S&P/ASX 200 closed 0.2% lower at 7499.6, ending a seven-session winning streak as early gains evaporated amid worries over inflation and a lack of progress in Russia-Ukraine talks.

The index ended the quarter up 0.7% thanks to a commodity fuelled rally that left the index up 6.4% in March.

The volatile tech sector led losses, falling 2.2% amid declines of between 3.35% and 4.65% for Appen, Xero and Block.

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Banks NAB, ANZ, Westpac and Commonwealth gave up between 0.1% and 1.2%.

The materials sector pared the overall losses, rising 1.5% on strength from iron-ore and gold miners. Rio Tinto, BHP and Fortescue put on between 1.9% and 4.3%, and Evolution, Perseus and Silver Lake added between 0.5% and 1.9%.

Telecoms, industrials and consumer staples also edged higher.

In commodity markets, iron ore rose 10 cents to US$158.30 per tonne; gold futures rose 0.8% to $1954.

Bond markets steadied overnight, with the US 10-Year Treasury Note yield slipping to 2.34%. The yield on the Australian 10-year bond edged up to 2.81%. Yields rise when prices fall.

The Australian dollar edged lower and was buying 74.83 US cents as of 8.00am AEST, down from the previous close of 75.09. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rallied higher to 91.18.

Asia

Chinese stocks closed lower weighed by Shanghai's lockdown as the city enters the fourth day of a two-stage temporary lockdown to curb Covid infections. The Shanghai Composite Index was 0.4% lower, the Shenzhen Composite Index fell 0.9% and the ChiNext Price Index was off 1.4%. China Vanke rose 0.9%, despite a decline in its 2021 net profit. Ganfeng Lithium slipped 3.1% after it posted its 2021 earnings. Security-related developments may be in focus, after the Solomon Islands said Thursday that it had inked a wide-ranging security pact with Beijing. Some analysts reckon that this may pave the way for the first Chinese military foothold in the South Pacific.

Hong Kong's Hang Seng Index fell 1.1%, tracking broad declines in other Asian equities. It appears that Asian markets are following the US and Europe and correcting the knee-jerk rally on Wednesday, Oanda says. China Overseas Land & Investment slipped 1.9% after its 2021 net profit was weighed by mounting margin pressure and lower fair-value gains. Among other property stocks, Henderson Land was off 2.0% and Sun Hung Kai Properties dropped 1.7%. Cosco Shipping Holdings fell 2.4% after it said that port congestion issues and recurring Covid-19 infections could pose uncertainties for the market in 2022.

Japanese stocks ended lower, dragged by falls in financial stocks, as uncertainty persists over the war in Ukraine and its impact on global trade. Nomura Holdings lost 3.2% and Sumitomo Mitsui Trust Holdings dropped 3.1%. The Nikkei Stock Average fell 0.7% to 27821.43. Investors remain focused on the war in Ukraine after Moscow dismissed a diplomatic overture by Ukraine.

Europe

European markets dropped as Opec and partners resisted calls to boost crude production more than expected. The pan-European Stoxx Europe 600 fell 0.9%.

OPEC and allies including Russia backed another modest monthly oil-output boost, defying pressure to ease prices by pumping more. "Opec+ decided against the change in direction that might have helped bring the price of a barrel of Brent crude back under $100 a barrel," AJ Bell analyst Danni Hewson says.

In London, the FTSE 100 finished Thursday down 0.60% in a rough end to a difficult quarter, though it still outperformed peers over the last three months.

"Of the ten main global indices only London's blue-chip FTSE 100 has emerged from the last three months in better shape than it went in, boosted by miners and energy giants cashing in on runaway commodity prices," AJ Bell financial analyst Danni Hewson says.

Energy markets in London and the US were subdued on this last day of March trading, as sanctions against Russia continue to distort supply, and Washington moves to release stored oil to cool markets as a stop-gap, Ms. Hewson says.

North America

Stocks and oil prices dropped Thursday as President Biden prepares a substantial release of oil reserves to staunch soaring energy prices and inflation.

The S&P 500 fell around 1.6%, after closing down 0.6% Wednesday. The Nasdaq Composite Index lost about 1.5%, and the Dow Jones Industrial Average gave up about 550 points, or 1.6%.

President Biden is expected to tap up to 180 million barrels of government oil reserves over the next six months to address the rise in energy prices in the aftermath of Russia's invasion of Ukraine, the White House said Thursday.

That would be the largest release from strategic stocks in history, according to RBC Capital Markets. Global benchmark Brent crude for May delivery retreated 4.9% to $107.91 a barrel.

Stocks wrapped up a volatile first quarter on a mixed note. The S&P 500 staged a rebound in recent days, but the broad index declined for the quarter.

In recent days, investors have managed to stay calm in the face of the continuing Russia-Ukraine crisis, also overlooking fresh Covid-19 lockdowns in China. Instead, they are focusing on declining oil prices in hopes that inflation could ease.

"This seems more like a concerted, more significant effort, one which might have a bit more weight to it. For markets, this means less inflation and less pressure for central banks to be aggressive with interest-rate hikes," said James Athey, an investment manager at Abrdn. "It's about relief, potentially taking away a destabilizing element" that is caused by high oil prices.

The US and allies have sought to bring down prices with strategic reserves previously, but effects have typically been short-lived. Members of the International Energy Agency agreed to release 60 million barrels on March 1, but Brent crude rose more than 7% that day.

The yield on the benchmark 10-year Treasury note ticked down to 2.324% from 2.357%, extending a three-day decline into a fourth day. Yields fall when prices rise. European government debt also rallied, with Germany's 10-year yield falling below 0.6%.

Government bonds typically underperform in times of high inflation because the value of their fixed cash flows are eroded by rising prices.

The bond selloff stabilized in recent days likely due to timing, according to investors. At the end of the quarter, large asset managers commonly rebalance their portfolios.

A closely watched part of the US yield curve, the difference between the two-year yield and the 10-year yield narrowed to about 0.02 percentage point on Thursday, from around 0.9 percentage point in early January. If it goes negative, the yield curve would be inverted.

"For us, that would be a recessionary indicator, but I don't think it's time yet to panic," said Arun Sai, a multiasset strategist at Pictet Asset Management. "We're on the verge of a meaningful signal, but equally things can turn around."

US consumer spending climbed 0.2% in February, fueled in part by higher prices but coming in below forecasts. Jobless claims, a proxy for layoffs, reached 202,000. That is a moderate increase from the previous week, which hit the lowest level since 1969, but still in line with economists' expectations amid a tight labor market.

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

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