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Global Market Report - 04 March

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

Australian shares are poised to fall after a mixed session on Wall Street as investors parsed the impact of soaring commodity prices and an extended war on inflation and central bank interest rate hikes.

ASX futures were down 58 points or 0.8% at 7163 as of 8.00 am AEST on Friday, suggesting a negative start to trading.

The S&P 500 ticked up 0.1% on Thursday after advancing sharply the day before. The Dow Jones Industrial Average added 0.3%. The tech-focused Nasdaq Composite Index lost 0.6%.

As casualties mount in Ukraine, Russian President Vladimir Putin vowed to continue the war “whatever happens” in a televised address overnight. It came as President Biden expanded US sanctions on Russian oligarchs and consulting giant Accenture joined the corporate flight out of the countrywith the closure of its 2,300-person Russian practice.

Moscow's invasion of Ukraine has injected volatility into financial markets. Investors are trying to calculate how a shunning of Russian commodities, including oil, will feed into already elevated inflation and how aggressively central banks will raise interest rates when faced with additional price pressures and an uncertain economic outlook.

"Beyond the current geopolitical events, the biggest headwind against the stock market is really the interest rates rising in the future," said Jimmy Lee, chief executive of the Wealth Consulting Group.

Locally, S&P/ASX 200 closed 0.5% higher at 7154.4, completing a five-day winning streak for the first time since December.

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Commodity stocks again led gains as the benchmark built on momentum from the US, where Fed Chair Jerome Powell assuaged investor fears over the pace of interest-rate rises.

The energy and materials sectors each added 2.6% as commodity prices remained elevated against the backdrop of the conflict in Ukraine. Energy explorers Santos, Woodside and Beach added between 1.7% and 4.7%.

Iron-ore miners BHP, Rio Tinto and Fortescue put on between 3.5% and 3.7%, while gold miners mostly pared recent gains.

Turning to commodities, gold futures rose 1% to $US1940.60; Brent crude eased 2% to $US110.66 after briefly topping US$117 overnight; Iron ore added 5.5% to US$153 per tonne.

In bond markets, the US 10-Year Treasury Notes slipped to 1.85%. At home, the yield on the Australian 10-year bond advanced to 2.16%. Yields rise when prices fall.

The Australian dollar was buying 73.20 US cents as of 8.00am AEST, up from the previous close of 72.96. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 90.54.

Asia

Turning to Asian markets, Chinese shares closed lower, amid concerns over the escalating Russia-Ukraine war, and the Fed's plans to increase interest-rate. The Shanghai Composite Index closed 0.1% lower, the Shenzhen Composite Index fell 0.8% and the ChiNext Price Index slipped 1.5%. Chinese winemakers led the losses, with Wuliangye Yibin losing 3.8%, Kweichow Moutai slipping 2.4% and Anhui Yingjia Distillery falling 5.7%. Coronavirus-related developments continue to be closely watched. Recent reports have suggested that China is weighing methods to loosen some pandemic-related controls, which could provide some optimism towards further reopening, IG says.

In Hong Kong, the Hang Seng Index rose 0.7%, tracking Wall Street gains overnight. Fed Chair Powell signalled the US central bank will raise rates in a careful manner, which may reduce some uncertainty over its rate-increase cycle, KGI Research says. Among the HSI's best performers, Techtronic Industries jumps 11%, Sands China climbs 5.6% and Haidilao International adds 4.0%. Meanwhile, Shenzhou International Group slides 11% and Xinyi Glass is down 3.1%. The Hang Seng TECH Index edges 0.2% lower to 5007.91, erasing opening gains.

Japanese stocks ended higher, led by gains in energy and financial shares, as the yen weakened despite continued uncertainty over the war in Ukraine. Energy company Idemitsu Kosan jumped 6.2% and trading house Mitsui & Co. rose 4.8%. Dai-ichi Life Holdings gained 4.4% and Mitsubishi UFJ Financial Group added 4.1% as the yield on the 10-year Japanese government bond rose 3.5 basis points to 0.165%. The Nikkei Stock Average climbed 0.7%.

Europe

European stocks drop as uncertainty caused by the conflict in Ukraine continues to spook investors. The pan-European Stoxx Europe 600 fell 2%.

"Stock markets are back in the red again Thursday as we await further talks between delegations from Ukraine and Russia," OANDA analyst Craig Erlam says. "Wednesday's rebound was predictably short-lived against the backdrop of reports of intensifying attacks by Russian troops. The sanctions levelled at Russia since the invasion started have been far more severe than many expected."

In London, the FTSE 100 fell 2.6%, with losses accelerating in afternoon trade. The London Stock Exchange Group has suspended trading in more than 50 Russian stocks. Index providers MSCI Inc. and FTSE Russell have said they would cut Russian equities from their benchmarks next week and S&P Dow Jones Indices is considering doing the same.

Russian stock markets remained closed for the fourth consecutive day as the government seeks to limit a fire sale, having also imposed capital controls on the ruble.

The ruble dropped 3.8% Thursday against the greenback, according to FactSet. Traders say investors' and brokers' unwillingness to touch the currency has limited the ease with which they can trade it. Currencies of nearby countries have fallen against the dollar as well, as investors worry about economic spillover. The Polish zloty fell 0.9%, and the Hungarian forint declined 0.6%.

North America

US stocks swung between small gains and losses and oil prices slipped Thursday as investors assessed how a recent jump in commodities prices is likely to affect inflation and the Federal Reserve's monetary policy.

The S&P 500 ticked up 0.1% after advancing sharply Wednesday, and the Dow Jones Industrial Average added 0.3%. The tech-focused Nasdaq Composite Index lost 0.6%.

Moscow's invasion of Ukraine has injected volatility into financial markets. Investors are trying to calculate how a shunning of Russian commodities, including oil, will feed into already elevated inflation and how aggressively central banks will raise interest rates when faced with additional price pressures and an uncertain economic outlook.

"Beyond the current geopolitical events, the biggest headwind against the stock market is really the interest rates rising in the future," said Jimmy Lee, chief executive of the Wealth Consulting Group.

US crude prices briefly surged over $116 a barrel for the first time since 2008, before turning lower to trade around $110.

The reversal came as representatives from the US, Britain, France, Germany, Russia, China and Iran engage in round-the-clock meetings in Vienna in a bid to restore a 2015 deal that lifted most international sanctions on Iran in exchange for tight but temporary restrictions on its nuclear program. The US left the pact in 2018 and Iran has since expanded its nuclear program.

If the deal were restored, Iranian oil exports would help make up for the Russian barrels that global buyers have shunned since it invaded Ukraine. Investors are worried that a prolonged elevation in oil prices could herald a combination of slowing growth and higher inflation -- also known as stagflation.

European natural-gas prices fell 11%, reversing this week's surge. Investors are worried that supply of natural gas could be disrupted to Europe as a result of the war. About a third of Russian gas exports to Europe flow through Ukraine.

Meanwhile, Federal Reserve Chair Jerome Powell's testimony continued Thursday, this time before the Senate Banking Committee. Analysts say his remarks on the US economy and heightened inflation in light of the latest geopolitical developments could be buoying markets.

"It's going to be pretty rocky here for the next couple of weeks," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. "It's almost unbelievable to think that 2021 was such a rewarding and low volatility year and this year we've had anything but."

Shares of energy companies that are likely to benefit from higher oil prices wobbled in conjunction with prices. ConocoPhillips declined 0.4% and and Occidental Petroleum gained 0.3%, respectively.

Snowflake shares dropped 17% after the company issued weaker-than-expected sales guidance, on pace for a record percentage drop. Best Buy gained 9.6%, on pace for the largest one-day percentage increase since May 2020. Okta shares fell 8.2% after the software business provided guidance that suggested aggressive investment would spur greater-than-expected near-term losses to the bottom line. Kroger added 12% after it reported that its sales and profit had grown.

In US bond markets, the yield on the benchmark 10-year Treasury note ticked down to 1.859% from 1.862% Wednesday. Yields and prices move inversely.

"We expect rates to be volatile because you've got two powerful forces pulling in opposite directions right now," said David Grecsek, managing director at Aspiriant. While investors rush to bonds during times of turmoil, real rates remaining negative could deter interest, Mr. Grecsek said.

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

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