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Global Market Report - 04 August

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

Australian shares are set to rise in line with Wall Street as US stocks rallied on better-than-expected economic data.

ASX futures were up 32 points or 0.5% at 6910 as of 8:00am on Thursday, pointing to a rise at the open.

Overseas, the S&P 500 rose 63.98 points, or 1.6%, to 4155.17, recouping some losses after falling Monday and Tuesday. The Dow Jones Industrial Average added 416.33 points, or 1.3%, to 32812.50. The technology-heavy Nasdaq Composite gained 319.40 points, or 2.6%, to 12668.16.

Stocks had come under renewed pressure in recent days from geopolitical tensions as US House Speaker Nancy Pelosi met with Taiwan's president despite warnings from China.

Meanwhile, Federal Reserve officials said the central bank is likely to continue raising interest rates at coming meetings, damping hopes in markets that slowing economic growth could mean a change in policy.

So far Ms. Pelosi's trip hasn't had any tangible ramifications, and some better-than-expected earnings reports amid low liquidity in August are lifting sentiment, investors say.

A key economic report also helped spur the market's gains. The US services sector continued to expand in July, according to a report from the Institute for Supply Management. The ISM's index of conditions for businesses such as restaurants, hotels and retailers hit a three-month high in July.

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In commodity markets, iron ore dropped 4.6% to US$108.10, Brent crude oil slipped 3.4% to $US97.10 a barrel, gold declined 0.7% to US$1,776.40.

In local bond markets, the yield on Australian 2 Year government bonds rose to 2.56% while the 10 Year fell to 3.07%. Overseas, the yield on 2 Year US Treasury notes edged up to 3.05% and the yield on the 10 Year US Treasury notes declined to 2.70%.

The Australian dollar hit 69.49 US cents rose from the previous close of 69.17. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 98.12.

Asia

Chinese shares reversed early gains to end lower, amid concerns over growing tensions between the US and China over US House Speaker Nancy Pelosi's visit to Taiwan. The benchmark Shanghai Composite Index slipped 0.7% to 3163.67, the Shenzhen Composite fell 1.0% to 2117.19 and the ChiNext Price Index declined 1.9% to 2628.82. "Now, markets will be watching if the in-person meeting between US President Joe Biden and Chinese President Xi Jinping will still be in discussion, or if there will be any retaliatory economic moves such as targeting Taiwan's economy," IG market strategist Yeap Jun Rong said in a note. Aviation stocks declined, with China Eastern Airlines off 1.4% and China Southern Airlines down 3.0%.

Hong Kong's Hang Seng Index rose 0.4% to 19767.09, recouping some losses from Tuesday's selloff, after China's Caixin services PMI improved further in July. Technology gains helped offset further losses among property developers. Alibaba Group added 3.8%, snapping a five-session losing streak, while Tencent Holdings climbed 2.6%. Defense-related stocks got a lift amid heightened geopolitical tensions as US House Speaker Nancy Pelosi visited Taiwan. CSSC Offshore & Marine was up 4.7% and AviChina Industry jumped 6.5%. Among laggards, Country Garden Services lost 3.7%, China Resources Land declined 1.9% and Longfor Group dropped 1.2%.

Japanese stocks end higher, led by gains in electronics stocks, as hopes continue for earnings growth despite rising geopolitical uncertainty over Taiwan. Renesas Electronics climbs 2.9% and Mitsubishi Electric adds 2.9%. Daikin Industries gains 4.0% after raising its fiscal-year revenue and net-profit views. The Nikkei Stock Average rises 0.5% to close at 27741.90. Investors are focusing on earnings and US-China tensions over Taiwan.

Europe

European markets rose as worries caused by political tensions eased following US House Speaker Nancy Pelosi's trip to Taiwan. The pan-European Stoxx Europe 600 gained 0.5% and the German DAX and French CAC 40 advanced 1%, driven by tech, banking and property stocks.

"It's a more positive afternoon for stocks after the difficult opening days of the week, as Taiwan and recession concerns ease," IG analyst Chris Beauchamp writes.

London’s FTSE 100 closed up 0.5% as US House Speaker Nancy Pelosi left Taiwan for South Korea, "leaving the heightened tensions of the last few days behind her, and the risk of a confrontation much diminished," Michael Hewson at CMC Markets said.

Avast was the day's biggest riser, closing up 44% after the CMA provisionally approved its $8.6 billion takeover by NortonLifeLock, followed by Talor Wimpey which rose 5.5%. Fresnillo was the session's biggest faller, closing down 35.8% after reporting a fall in pretax profit and revenue for the first half of 2022, followed by Croda International and Centrica, down 4.1% and 3.3%, respectively.

North America

US stocks rose Wednesday, the major indexes' first winning session in August, on the strength of fresh earnings reports and a key reading on the services sector.

The S&P 500 rose 63.98 points, or 1.6%, to 4155.17, recouping some losses after falling Monday and Tuesday. The Dow Jones Industrial Average added 416.33 points, or 1.3%, to 32812.50. The technology-heavy Nasdaq Composite gained 319.40 points, or 2.6%, to 12668.16.

Stocks had come under renewed pressure in recent days from geopolitical tensions as US House Speaker Nancy Pelosi met with Taiwan's president despite warnings from China. Meanwhile, Federal Reserve officials said the central bank is likely to continue raising interest rates at coming meetings, damping hopes in markets that slowing economic growth could mean a change in policy.

So far Ms. Pelosi's trip hasn't had any tangible ramifications, and some better-than-expected earnings reports amid low liquidity in August are lifting sentiment, investors say.

A key economic report also helped spur the market's gains. The US services sector continued to expand in July, according to a report from the Institute for Supply Management. The ISM's index of conditions for businesses such as restaurants, hotels and retailers hit a three-month high in July.

After opening August with two straight losing sessions, stocks gained on "generally upbeat risk sentiment," said StoneX Financial analyst Matt Weller. The earnings and ISM report have mitigated fears of an imminent recession, he said.

Earnings have been pretty good in terms of beating expectations, said Olivier Marciot, global macro portfolio manager at Unigestion, but the market has bigger problems as well. "There is still a lot of inflation, central banks are keeping that hawkish rhetoric and we get some geopolitics on top of that," he said.

The yield on the benchmark 10-year Treasury note inched up to 2.747% from 2.740% Tuesday. Weak economic data have weighed on yields in recent days, according to Michael Hewson, markets analyst at CMC Markets. There are "raised concerns that the US economy could well be slowing sharply, " he said.

Whether or not the economy is technically in recession, inflation and the pressure it puts on the Fed to raise rates is resulting in an environment for investors that is fundamentally different from anything they have seen over the past several decades, said Eaton Vance portfolio manager Aaron Dunn. That won't end soon, he said.

There has been a bounceback recently in some of the more beaten-up stocks, he said, but those hoping the growth trade returns may be disappointed. "Equities returns are going to be a grind," he added.

In corporate news, PayPal shares jumped $8.29, or 9.3%, to $97.92 after hedge fund Elliott Management confirmed it has a $2 billion stake in the payments company. Starbucks rose $3.56, or 4.3%, to $87.27 after it said demand is still strong and raising prices partially offset higher labor costs.

Vaccine maker Moderna rose $25.68, or 16%, to $186.49 after it posted earnings above analysts' estimates and said it would begin a new $3 billion share-repurchase program.

Airbnb declined $1.32, or 1.1%, $115.02 after it said it swung back to profit but its outlook disappointed investors. Online dating group Match tumbled $13.47, or 18%, to $63.24 after posting results that missed estimates and said the CEO of its Tinder platform is leaving the firm.

Chip maker Advanced Micro Devices fell $1.20, or 1.2%, to $98.09 after it reported a drop in profit and issued guidance for the current period that was below Wall Street's expectations.

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

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