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Global Market Report - 01 December

Lewis Jackson  |  01 Dec 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to follow Wall Street lower after Fed Chair Jerome Powell signalled a hawkish turn.

The Australian SPI 200 futures contract was down 47 points or 0.6% at 7184 near 8.00 am AEST on Wednesday, suggesting a negative start to trading.

US stocks and global oil prices posted their second significant decline in three trading days on Tuesday, reflecting growing concerns about the economic impact of a new Covid-19 variant.

Losses intensified as Federal Reserve Chairman Jerome Powell said risks of higher inflation have risen and that it would be appropriate for the central bank to consider wrapping up its tapering of asset purchases more quickly. The Fed wants to end asset purchases before it lifts interest rates, which are near zero.

The S&P 500 and the Dow Jones Industrial Average both fell 1.9%. The tech-heavy Nasdaq Composite slid 1.6%. Major indexes closed higher Monday, rebounding from a sharp selloff last week.

The Australian dollar was buying 71.26 US cents near 8.00am AEST, down from the previous close of 71.40. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, fell to 89.86.

Locally, the S&P/ASX 200 closed 0.2% higher at 7256.0, running out of steam after initially joining a rally by global stocks.

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The benchmark gained 1.3% in early trade, building on positive momentum from US equities amid hopes the impact of the Omicron coronavirus variant will be less serious than initially feared.

Six of 11 sectors finished higher, but the heavyweight financial sector closed flat. Banks NAB and ANZ rose, but Commonwealth slipped 0.6% and Westpac dropped 1.9%, the latter settling multiple legal cases Australia's financial regulator.

Fast-food franchiser Collins Foods was the best performing ASX 200 component, surging 13% after a strong 1H result.

Gold futures edged 0.6% lower to $US1774.30 an ounce; Brent crude fell 3.9% to $US70.57 a barrel; Iron ore was down 0.9% at US$102.39.

The yield on the Australian 10-year bond slipped to 1.68%; The US 10-year Treasury yield dipped to 1.44%.

Asia

Chinese stocks closed mixed on Tuesday, with most benchmarks little changed throughout the day's session. The Shanghai Composite Index edged up 1.19 points to settle at 3563.89, while the Shenzhen Composite Index rose 0.1%. The ChiNext Price Index was the only loser, falling 0.2%. The muted trading pattern was likely a result of cautious sentiment in the market, ahead of the year-end and holiday season, Central China Securities said.

Hong Kong's Hang Seng Index slumped 1.6% to a 14-month low, as sentiment was weakened by the Moderna CEO's prediction that current vaccines may be less effective against the Omicron variant. Meituan declined 2.9% and Alibaba Group slid 2.1% to a new closing low. Developers and casinos led decliners. The benchmark index lost 7.5% for the month.

Japanese stocks closed lower, dragged by falls in auto, retail and pharmaceutical stocks, as the emerging Omicron variant raises concerns about the pace of a global economic recovery. The Nikkei Stock Average fell 1.6%. The index has lost 3.7% in November.

Europe

European stocks closed lower as investors weigh coronavirus-variant concerns against hawkish economic comments from the US Federal Reserve. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies fell 0.9%.

"Jerome Powell has provided a surprisingly hawkish stance, with the Fed chairman stating that he could see the tapering process speeding up if the current Omicron fears prove ill-founded," IG analyst Josh Mahony says. "Meanwhile, eurozone inflation has spiked into multi-year highs, with core CPI finally breaching the 2% target."

In London, the FTSE 100 fell slipped 0.7%.

North America

US stocks and global oil prices posted their second significant decline in three trading days, reflecting growing concerns about the economic impact of a new Covid-19 variant.

Losses intensified as Federal Reserve Chairman Jerome Powell said risks of higher inflation have risen and that it would be appropriate for the central bank to consider wrapping up its tapering of asset purchases more quickly. The Fed wants to end asset purchases before it lifts interest rates, which are near zero.

The S&P 500 and the Dow Jones Industrial Average both fell 1.9%. The tech-heavy Nasdaq Composite slid 1.6%. Major indexes closed higher Monday, rebounding from a sharp selloff last week.

"What's happening today is volatility in the context of what is confirmation from Fed that they're going to go a little bit quicker combined with a lot of uncertainty around the omicron variant and what that might mean as far as travel restrictions or potentially lockdowns," said Nick Frelinghuysen, an equities portfolio manager at Chilton Trust.

Investors are trying to parse the risk posed by the new strain. Drugmakers have said existing vaccines might be less potent against Omicron. The lack of concrete information so far is driving uncertainty, and with it, volatility in stock markets. Moderna's chief executive told the Financial Times in an interview published Tuesday that he was skeptical existing vaccines would be as effective against the new variant.

Investors said the dual sources of uncertainty had added to volatility in the market.

"We really don't know in regards to the new variant what we're dealing with," said Victoria Fernandez, chief market strategist at Crossmark Global Investments.

Trading in individual stocks reflected the focus on pandemic news. Moderna shares fell 4.4%. Travel stocks also declined, with Expedia shares falling 3.3% and Carnival shares sliding 3%.

Investors are also focused on potential changes to monetary policy, which has supported the stock market rally of the past year and a half. Investors watched testimony from Mr. Powell on Tuesday for clues on how the new variant might affect the outlook for inflation and interest-rate rises.

Mr. Powell lent support to comments from Fed officials calling for a potential acceleration of the central bank's bond-buying taper process.

"The economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner," he said.

The emergence of the Omicron variant has scrambled how investors view inflation. Oil prices and other commodities dropped sharply on the prospect for slower growth, which should feed through to softer inflation figures. Lower bond yields also reflect waning bets on runaway price rises.

Yet inflation may only come down slowly, with supply-chain problems made worse by travel restrictions. This could complicate how the Fed and other central banks, which were preparing to raise interest rates, react in the months ahead.

"We had been starting to see this glimmer of hope that some of the supply-side constraints were starting to ease," said Seema Shah, chief strategist at Principal Global Investors. "If we go back into fear mode, you would be looking at those supply-side bottlenecks being exacerbated."

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

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