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Global Market Report - 03 November

Lewis Jackson  |  03 Nov 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to follow Wall Street higher as the RBA hinted at an earlier rate rise.

The Australian SPI 200 futures contract was up 71 points or 0.97 per cent higher at 7,360 near 8.00 am AEST on Wednesday, suggesting a positive start to trading.

US market's autumn rally continued Tuesday, with stock indexes hitting more records and the Dow Jones Industrial Average closing above 36,000 for the first time. The latest batch of earnings reports appeared to aid the market's advance, with Pfizer, Under Armour and others rising after solid quarterly disclosures.

The Dow added 0.4%, the S&P 500 rose 0.4% and the Nasdaq gained 0.3%. With all three indexes ending the day higher, it is the third trading session in a row where they all set closing records.

The Australian dollar was buying 74.27 US cents near 8.00am AEST, down from the previous close of 75.23. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 88.53.

Locally, the S&P/ASX 200 closed 0.6% lower at 7324.3 after the Reserve Bank of Australia said it would stop using yield caps and signalled an earlier start to interest-rate increases.

Where the bank had previous said the conditions for a rate hike would not be in place until 2024, it hinted those conditions could be met earlier, in 2023.

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The materials sector was the session's biggest loser, down 2.1%, followed by financials, which finished 1.3% lower. IGO fell 8.4% and Brickworks lost 3.7%. IAG was a drag, closing 7.0% lower after it increased its expectation for FY 2022 net natural perils claim costs in the wake of recent storm events.

Fellow general insurers QBE and Suncorp lost 2.4% and 4.2%, respectively. Major banks closed between 0.5% and 2.7% lower, while Beach Energy dropped 3.9% after announcing its CEO Matt Kay had resigned.

Gold futures fell 0.4% to $US1789.40 an ounce; Brent crude slipped 0.7% to $US84.13 a barrel; Iron ore was down 7.4% at US$95.77.

The yield on the Australian 10-year bond slipped to 1.88%; The US 10-year Treasury note fell to 1.54.

Asia

Chinese stocks finished the session mixed, dragged by lenders, power producers and property developers. The Shanghai Composite Index fell 1.1%, the Shenzhen Composite Index slipped 0.8% and the ChiNext Price Index was 0.2% higher.

Hong Kong stocks tracked Wall Street higher in the morning but turned negative in the afternoon, extending their losing streak to a sixth session. Losses were led by mainland property stocks and financial companies, while tech shares eked out small gains. Alibaba Group and Meituan each gained 1.3%. Auto maker BYD Co. rebounded 3.6% from Monday's decline. The Hang Seng Index shed 0.2%

Japan's Nikkei Stock Average fell 0.4% as the yen strengthened and investors turned cautious before the FOMC's two-day meeting that starts later today.

Europe

European markets were flat. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies, rose 0.1%.

In London, the FTSE 100 slipped 0.2% with a string of disappointing earnings numbers weighing on sentiment.

North America

The market's autumn rally continued Tuesday, with stock indexes hitting more records and the Dow Jones Industrial Average closing above 36,000 for the first time.

The Dow, S&P 500 and Nasdaq Composite all picked up traction as Tuesday's session wore on, breaking out of a lifeless trading pattern that had kept the benchmarks close to the flatline earlier in the day. The latest batch of earnings reports appeared to aid the market's advance, with Pfizer, Under Armour and others rising after solid quarterly disclosures.

The Dow added 138.79 points, or 0.4%, to 36052.63. It was the index's sixth 1,000-point milestone of the year, the most in a single year on record. In January, the Dow closed above 31000 for the first time.

The S&P 500 rose 16.98 points, or 0.4%, to 4630.65. The Nasdaq gained 53.69 points, or 0.3%, to 15649.60. With all three indexes ending the day higher, it is the third trading session in a row where they all set closing records.

The three benchmarks are all up at least 6.5% this quarter thanks to a strong October performance, and chatter of a year-end stock rally has started taking root.

"The stock market is remarkably resilient right now and has melted up despite supply chain issues, inflation concerns, rising rates and a more hawkish Federal Reserve," said Greg Marcus, managing director at UBS Private Wealth Management.

Investors will look to get more clarity on the Federal Reserve's thinking once it wraps up its two-day policy meeting on Wednesday. At heart is whether a period of rising prices could last longer and weigh more on the economy than central bank officials have suggested. Major central banks elsewhere in the world, concerned about stubbornly high inflation, have been moving forward plans to raise rates.

On Tuesday, the Reserve Bank of Australia signalled it would raise interest rates sooner than expected. The Bank of England is expected to increase rates when it meets on Thursday, while Canada's central bank suggested last week that it could do so as soon as April.

"Virtually every policy taken has been inflationary in nature and the market has been very blasé about it all," said Tim Courtney, chief investment officer at Exencial Wealth Advisors. "The market will disagree, but I think the biggest risk is that the Fed doesn't move fast enough" in raising rates, he said.

Economists expected the Fed on Wednesday to begin winding down its asset-buying program but leave interest rates unchanged. Officials are unlikely to suggest any major changes to their pathway for interest-rate increases, said Mr. Courtney.

While inflation concerns have dragged on investor sentiment, strong earnings for the third quarter have had the opposite effect and helped lift indexes to their record levels. Strong earnings were particularly important to justify a jump in company valuations, Mr. Courtney said.

"The market had run up so much from the bottom but we had no earnings to show for it," he said. "The earnings had to come in to backfill those price moves."

On Tuesday, Arista Networks led the S&P 500. The networking-hardware company gained $83.30, or 20%, to $491.87 after it posted better-than-expected results Monday afternoon, announced a four-for-one stock split and revealed plans for a $1 billion stock buyback plan.

Under Armour shares added $3.62, or 16%, to $25.60 after the clothing maker posted third-quarter sales and earnings that beat Wall Street's projections. Pfizer rose $1.81, or 4.1%, to $45.45 after reporting earnings that beat analysts' forecasts thanks to sales of its Covid-19 vaccine.

DuPont rose $6.26, or 8.8%, to $77.49 after its quarterly results surprised to the upside. Avis Budget Group shares more than doubled after the company beat analysts' quarterly estimates, putting pressure on short sellers.

Meanwhile, Tesla shares slipped $36.59, or 3%, to $1,172 after Chief Executive Elon Musk said on Twitter that the electric car maker hasn't yet signed a deal for Hertz to buy its vehicles. Tesla's shares surged last week after Hertz said it had ordered 100,000 cars.

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

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