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Global Market Report - 03 May

Lewis Jackson  |  03 May 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are poised to edge lower as US stocks bounced off an intra-day dip in a late rally following big losses on Friday.

ASX futures were down 25 points or 0.3% at 7299 as of 8.00am on Tuesday, suggesting a negative start to trading a day after the local bourse slumped 1.2%.

Many expect the Reserve Bank to lift interest rates for the first time since 2010 when it meets this afternoon. Its post-policy meeting statement is due at 2.30pm.

Overseas, the S&P 500 rose 0.6% in a late afternoon rally that reversed a slide as low as 1.7%, its lowest intraday level since May 2021. The Dow Jones Industrial Average added 0.3%. A jump in technology giants Microsoft, Tesla and Alphabet helped the Nasdaq Composite Index up 1.6%, a day after it recorded its worst monthly showing since the Global Financial Crisis.

The S&P 500 fell 8.8% in April and the Dow industrials declined nearly 5%, the worst monthly performance for the indexes since March 2020. The Nasdaq Composite retreated more than 13% last month.

Investors are preparing for the US Federal Reserve to hike rates when it concludes its two-day meeting Wednesday (Thursday AEST), with many expecting a meaty 0.5% rate hike and an accelerated timetable for reducing its holdings of government bonds and other securities as it works to quash inflation.

"It's a market that is jittery and nervous," said Sebastien Galy, a macro strategist at Nordea Asset Management. "It has been fed liquidity for a long time, and this has been built into expectations for stocks," he said, a situation that is now changing as central banks tighten monetary policy.

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The yield on the benchmark 10-year US Treasury briefly touched 3% on Monday, its first time at that level since late 2018.

Locally, S&P/ASX 200 closed 1.2% lower at 7347.0, driven by a technology share sell-off.
All sectors ended the day in the red, with the tech sector leading losses, falling 4.0%. Healthcare stocks also fell 1.5%.

The three largest tech companies by market capitalization, WiseTech, Xero and Computershare, lost between 2.1% and 7.3%.

Travel stocks rose after Australia's biggest airline, Qantas, said it would order dozens of planes from European manufacturer Airbus SE, including new aircraft to fly non-stop between Australia and the US and the U.K. Qantas rose 2.9%, while Flight Centre closed 1.8% higher.

Imugene was the day's biggest loser, diving 14% after it announced the termination of a supply agreement.

The big four banks were mixed, with NAB dropping 1.0 per cent to $32.32 after announcing it had entered into an enforceable undertaking with financial intelligence authority AUSTRAC regarding the bank's compliance with anti-money laundering/counter-terrorism financing laws.

NAB chief executive Ross McEwan said the bank acknowledged the concerns that led to AUSTRAC's investigation and recognised that it took NAB longer to fix them than it should have.

Aussie Broadband plummeted 28.1 per cent to a nearly nine-month low of $4 after a third-quarter trading update disappointed investors.

In commodity markets, gold futures fell 2.5% to $US1863.60 an ounce; Brent crude oil rose 0.5% to $US107.64 a barrel; iron ore markets were closed for Chinese Labor Day.

Bond markets continued to drift lower under the weight of selling. Ahead of the Reserve Bank’s meeting today, the yield on the Australian 2 Year government bond edged up to 2.52% while the 10 Year moved higher to 3.26%. Overseas, yields on US Treasury 2 Years advanced to 2.73%, while the 10 Year rose to 2.98%.

The Australian dollar fell, buying 70.50 US cents as of 7.00am AEST, down from the previous close of 70.60. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged up to 95.89.

Asia

Share markets in China and Hong Kong were closed for the Labor Day holiday.

Japanese stocks ended lower, dragged by falls in electronics stocks, amid continued concerns about higher costs for borrowing and raw materials. Advantest Corp. drops 4.8% and Fanuc Corp. loses 2.3%. The Nikkei Stock Average declines 0.1% to 26818.53 in thin trading in the middle of Japan's spring holiday season. Earnings are in focus.

Europe

European stocks closed sharply lower, with the pan-European Stoxx Europe 600 index down 1.5% at 443.83, as investors anticipated a likely US interest-rate rise on Wednesday.

A 50 basis-point increase is widely expected, with market pricing suggesting a risk of an even bigger rise, Deutsche Bank analysts said in a note.

Tech and industrial stocks were among the biggest fallers as Monday's eurozone confidence surveys and final April manufacturing PMI survey added to concerns about a weakening economy.

Vestas Wind Systems fell nearly 8% after cutting full-year guidance following 1Q results. Germany's DAX lost 1.1% and France's CAC 40 declined 1.7%.

UK markets were closed for a bank holiday.

North America

US stocks bounced higher Monday after the S&P 500 touched a new intraday low for the year and the yield on the US 10-year Treasury note hit 3% for the first time in more than three years.

The S&P 500 rose 0.6%. The Dow Jones Industrial Average added 0.3%. The Nasdaq Composite Index jumped 1.6%.

The indexes traded lower for much of the session but turned higher in the last hour. The S&P 500 fell as low as 4062.51, its lowest intraday level since May 2021. That seemed to be enough to spur on value buyers, Instinet executive director Frank Cappelleri said.

"Buying weakness...has been one of the few long strategies that has proven to be successful so far this year," he said.

The afternoon rally was a welcome respite for equities investors in what has been a rough year. The S&P 500 fell 8.8% in April and the Dow industrials declined nearly 5%, the worst monthly performance for the indexes since March 2020. The Nasdaq Composite retreated more than 13% last month, its worst showing since October 2008. Tech stocks are particularly sensitive to higher interest rates.

With four months in the books, the stock market is putting in its worst performance in decades. The S&P 500, down 13% so far this year, has had its worst start to a year since 1939, according to Dow Jones Market Data.

"It's a market that is jittery and nervous," said Sebastien Galy, a macro strategist at Nordea Asset Management. "It has been fed liquidity for a long time, and this has been built into expectations for stocks," he said, a situation that is now changing as central banks tighten monetary policy.

Investors are awaiting the Federal Reserve's policy meeting Wednesday for more signals on the pace of monetary tightening, with markets anticipating a rate increase of half a percentage point to counter the highest inflation in decades. The war in Ukraine and a Covid-19 outbreak in China threaten to further snarl supply chains and boost prices.

Changing Fed policy is altering the market math for investors, said Merk Investments analyst Nick Reece. For the first time in a long time, rising yields and falling bond prices are putting them on a more competitive footing with equities in investors' eyes in terms of returns, he said.

"It's reducing some of the 'TINA' effect that's underpinned the bull market since 2009," Mr. Reece said. "TINA" is an acronym for "there is no alternative," an argument that in a world of low interest rates, investors could only find acceptable returns in stocks.

The yield on the benchmark 10-year Treasury briefly touched 3% Monday, its first time at that level since late 2018. It settled at 2.995%, up from 2.885% on Friday. The US dollar held on to its recent gains, with the WSJ Dollar Index rising 0.4% after its biggest monthly jump in a decade in April.

Among individual stocks, shares of Spirit Airlines fell $2.21, or 9.4%, to $21.40 after the company rejected an acquisition offer from JetBlue Airways, sticking with an existing plan to merge with Frontier Group. JetBlue shares added 29 cents, or 2.6%, to $11.30 while Frontier fell 40 cents, or 3.8%, to $10.21.

Shares of Moody's slid $15.35, or 4.9%, to $301.13 after the credit rating company said its profit fell by about one-third as costs rose.

Earnings season continues this week. Expedia and Clorox were scheduled to post results on Monday after markets close, followed by Pfizer, KKR, Airbnb, Starbucks and Lyft on Tuesday.

Earnings season has been reasonably strong so far, with more than 80% of companies that have reported to date beating analysts' expectations, according to Refinitiv. Stocks fell last month despite the robust reports, due to nerves about the months ahead, investors said.

Oil prices slid early but recovered their losses and then some, with US crude up 0.5% at $105.17 a barrel. European Union officials are working on a proposal to sanction Russian energy. Some observers are skeptical it will pass since it requires unanimous support from EU members, many of whom rely on Russian energy, according to analysts at Nordic bank SEB.

Traders also are monitoring lockdowns in China and looking ahead to a meeting of the OPEC+ alliance later this week, where members are set to discuss its supply agreement.

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

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