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Global Market Report - 04 April

Lewis Jackson  |  04 Apr 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are poised to rise after Wall Street edged higher on Friday as investors weighed strong US jobs data against warnings signs from bond markets. Iron ore closed just shy of US$160.

ASX futures were up 19 points or 0.25% at 7488 as of last trade on Saturday, suggesting a positive start to the day.

The Dow Jones Industrial Average rose 0.4%, while the S&P 500 climbed 0.3% and the Nasdaq Composite added 0.3%. All three indexes started the day higher, edged lower in midday trading as yields on government bonds surged, then climbed again to end the day in the green.

US markets took in mixed signals about the economic outlook on Friday. The red-hot labour market continued to tighten, with employers adding 431,000 jobs in March, marking 11 straight monthly gains above 400,000, the longest such stretch of growth in records dating back to 1939. The unemployment rate fell to 3.6% from 3.8%, quickly approaching the February 2020 prepandemic rate of 3.5%, which was a 50-year low.

A key part of the US yield curve inverted in response, as traders calculated a stronger labour market will add to inflationary pressure and force the US Federal Reserve to accelerate rate hikes, potentially causing a recession. Yields on 2-year US Treasury’s rose above the 10-year US Treasury for the first time since 2019. Historically, yield curve inversions have occurred prior to recessions.

"The labour market is really strong. Why is this data not being celebrated more? It's just the fact that inflation swamps everything," said Michael Antonelli, managing director and market strategist at Baird. He added that clients with whom he speaks are taking a pause, having spent much of the first quarter shifting their investments in a wildly swinging stock market.

Locally the S&P/ASX 200 closed less than 0.1% lower at 7493.8 on Friday as strength among commodity stocks largely offset weakness elsewhere. The benchmark rose 1.2% for the week, wrapping up a third straight weekly gain.

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Iron-ore miners Rio Tinto, BHP and Fortescue put on between 1.0% and 1.9% as the materials sector added to its 12% gain across the first quarter of 2022.

Energy explorers Woodside and Santos rose by 1.8% and 2.1%, respectively.

Banks Commonwealth, Westpac and ANZ shed between 1.2% and 1.5% amid global inflation concerns and data suggesting that Australia's house-price boom could be ending.

In commodity markets, iron ore rose 1% to US$159.85 per tonne; gold futures fell 1.6% to $1923.70; Brent Crude lost 0.3% to US$104.39

In bond markets, the US 10-year Treasury Note yield rose to 2.38%, while the US 2-year Treasury Note topped it at 2.46%. The yield on the Australian 10-year bond edged up to 2.82%. Yields rise when prices fall.

The Australian dollar was buying 74.99 US cents as of last trade on Saturday, up from the previous close of 74.83. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rallied again to 91.42.

Asia

Chinese stocks closed higher, supported by gains in auto and bank stocks amid an easing of concerns over the country's recent wave of Covid-19 cases. The Shanghai Composite Index was 0.9% higher, the Shenzhen Composite Index added 0.5% and the ChiNext Price Index rose 0.3%. Auto maker BYD Co. advanced 2.7%, SAIC Motor gained 0.3% and Great Wall Motor rose 1.3%. Bank of China added 0.6% and Bank of Shanghai was 1.5% higher. The market appears to lack any clear near-term catalyst for now, Central China Securities says, noting that investors are likely to remain cautious amid muted turnover in recent sessions.

Hong Kong's Hang Seng Index ended 0.2% higher, supported by gains in consumer stocks amid eased concerns over the city's Covid-19 outbreak. Garment maker Shenzhou International advanced 5.7% and beverage company Nongfu Spring rose 4.4%. Markets will likely remain focused on developments relating China's property market after developers Modern Land and Shimao Group suspended trading today. Both developers said earlier this week that they were unable to publish their 2021 earnings by end-March. Among other property stocks, Country Garden declined 2.8% and China Overseas Land & Investment shed 1.3%.

Japanese stocks finished lower, dragged by falls in electronics stocks, as uncertainty continues about the war in Ukraine and its impact on global trade. Yaskawa Electric dopped 3.0% and Tokyo Electron Ltd. lost 2.5%. Meanwhile, Toshiba Corp. rose 6.5% after Bain Capital said it was examining a possible bid for the company. The Nikkei Stock Average lost 0.6%. Investors remain focused on the war as peace talks between Russia and Ukraine are set to continue.

Europe

European markets rose as US economic data drew investors' attention, though Russia's military assault in Ukraine continued. The pan-European Stoxx Europe 600 gained 0.5%, led higher by shares of oil, gas and auto companies.

Consumer prices in the eurozone rose 7.5% in March from a year earlier -- the highest level since the formation of the currency bloc.

In London, the FTSE 100 finished Friday up 0.3%. For the week the blue-chip index closed 0.7% higher.

North America

US stocks edged higher on Friday, buoyed by a solid employment report that showed the country's jobless rate returning to pre-pandemic levels.

The Dow Jones Industrial Average rose 0.4%, while the S&P 500 climbed 0.3% and the Nasdaq Composite added 0.3%. All three indexes started the day higher, edged lower in midday trading as yields on government bonds surged, then climbed again to end the day in the green.

The wobbly trading session came a day after the S&P 500 closed out its biggest quarterly decline since the start of 2020, falling about 5% for the first three months of the year. The benchmark stocks gauge ended the week up less than 0.1%.

In the bond market, the yield on the two-year Treasury note closed above that of the 10-year note for the first time since 2019. In that situation, the yield curve is said to be inverted, something that is often viewed as a predictor of recessions.

The yield on benchmark 10-year note settled at 2.374% from 2.324% Thursday. They have climbed for five of the past seven quarters as investors prepare for the Federal Reserve to keep raising interest rates to quell inflation.

Two-year yields, which are more sensitive to expectations of short-term interest rates, rose to 2.430%. Yields rise as bond prices fall.

The movement in interest rates, and the nervousness that it may indicate a coming recession, is spooking some investors, even as employment numbers look solid, according to traders.

"The labour market is really strong. Why is this data not being celebrated more? It's just the fact that inflation swamps everything," said Michael Antonelli, managing director and market strategist at Baird. He added that clients with whom he speaks are taking a pause, having spent much of the first quarter shifting their investments in a wildly swinging stock market.

Employers added 431,000 jobs in March, marking 11 straight monthly gains above 400,000, the longest such stretch of growth in records dating back to 1939. The unemployment rate fell to 3.6% from 3.8%, quickly approaching the February 2020 prepandemic rate of 3.5%, which was a 50-year low.

Angst about the economic outlook is one reason why stocks have had a rocky start to 2022. Investors are parsing fast-moving developments on the battlefield in Ukraine and their effects on the world economy and financial system.

Of particular concern to money managers is the rise in commodity prices fueling inflation. The rally in prices for oil, grains and metals has added to expectations that the Fed will end years of easy monetary policy that propelled stocks higher. For the Fed, a key factor in deciding how fast to raise rates is the state of the labor market.

In corporate news, GameStop shares gave up their early gains to end the day down $1.58, or 1%, at $165 after the videogame retailer said late Thursday that it would request shareholder approval to increase its share count to enable a stock split.

Dell Technologies edged down $1.39, or 2.8%, to $48.80 after analysts at Goldman Sachs cut their target price for the stock.

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

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