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Global Market Report - 05 April

Lewis Jackson  |  05 Apr 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to open higher as technology stocks led gains on Wall Street and Twitter shares had their best day ever following news Elon Musk bought a minority stake in the social media company.

ASX futures were up 50 points or 0.7% at 7528 as of 8.00am on Tuesday, suggesting a positive start to the day. Overnight, the tech-focused Nasdaq Composite Index gained 1.9%. The S&P 500 added 0.8%. The Dow Jones Industrial Average rose 0.3%.

Twitter drove gains among US technology stocks as Tesla founder Elon Musk took a 9.2% position in the social media company. Shares climbed as high as 31% in intra-day trading before closing up 27.2%. In a late-March Twitter poll he asked followers to vote on whether the platform was upholding free speech. Users voted 'no' by a large majority.

Beaten down US technology stocks have rallied sharply in the weeks since the Federal Reserve raised interest rates in mid-March, the first such move since 2018. The Nasdaq Composite is up 12.2% since the 16 March announcement, narrowing the index’s losses this year to 7.1%.

Investors are also watching developments in the Russia-Ukraine war, where the US and its European allies are considering new sanctions in response to alleged war crimes, including the killing of civilians. Brent Crude added 3.0% to US$107.53.

"Given all the uncertainty that's still out there, I'm a bit surprised at how strong the equity market is," said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors. "The long-term consequences of the conflict will be higher inflation over the long term."

Locally, the S&P/ASX 200 closed 0.3% higher at 7513.7, with resources stocks helping drive some of the gain.

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Utilities and materials stocks were stand out sectors, closing up 1.1% and 1.0% respectively. Iluka Resources finished 6.1% higher after announcing that its board had approved construction of a rare-earth refinery at its Eneabba mine site in Western Australia.

Pendal finished 18% higher after it said it had received a non-binding, indicative takeover proposal from Perpetual which valued Pendal at around A$2.4 billion. Perpetual finished the day 6.6% lower, while other Australian fund managers Magellan and Platinum closed 9.7% and 2.4% higher respectively.

The Reserve Bank board meets today. Market participants are watching the post-meeting statement, due at 2.30pm, for any signs of the Bank could be considering accelerating the timeline of interest rate hikes.

In commodity markets, iron ore rose 0.6% to US$160.80 per tonne; gold futures rose 0.2% to $1937.20.

Bond markets opened the week with small movements following weeks of sharp selling. The US 10-Year Treasury Note yield rose to 2.40%. The yield on the Australian 10-year bond edged up to 2.83%. Yields rise when prices fall.

The Australian dollar was buying 75.41 US cents as of 8.00am on Tuesday, down from the previous close of 75.42. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 91.49.

Asia

Chinese share markets were closed for a public holiday.

Hong Kong stocks ended sharply higher as Chinese tech giants rebounded on Beijing's proposed rule change that could allow the country's internet companies to keep their ADR listings. The benchmark Hang Seng Index rose 2.1% and the Hang Seng TECH Index jumped 5.4%. Drug makers offered the market further support following progress on Covid-19 vaccine development. Among the index's top performers, CSPC Pharmaceutical jumped 5.2% and Meituan advanced 7.4%.

Japanese stocks closed higher, led by gains in electronics and pharmaceutical stocks, thanks to the prospects of a strong US economic recovery and an easing of the recent trend higher in commodity prices. Olympus Corp. gained 4.3% and Shionogi & Co. climbed 3.9%. The Nikkei Stock Average rose 0.3%. Investors remain focused on the war in Ukraine and its impact on global trade.

Europe

European stocks rose in closing trade even as western nations consider further sanctions against Russia for its invasion of Ukraine. The pan-European Stoxx Europe 600 gained 0.8%, led higher by shares of oil, gas and auto companies.

Talk of fresh sanctions against Russia doesn't appear to be having much impact on equities as the market learns to look past the immediate hit to earnings, IG says. "The strength of Friday's [US nonfarm] payrolls report remains a motivating factor too, even if it has also emboldened Federal Reserve policy makers to think more seriously about a 50 basis point [interest rate] hike next time they meet."

In London, the FTSE 100 rose 0.1% as gains for utilities and insurers offset losses for oil majors, travel-related shares and Asia-focused financial stocks.

Centrica, Severn Trent, Legal & General and Admiral were among the biggest risers, though IAG, InterContinental Hotels Group, Burberry, Standard Chartered and HSBC led the fallers. BP and Shell drop, though Brent crude advanced 0.6% to $105 a barrel. Fresnillo and Polymetal International climbed as gold and silver prices increased.

"Markets continued their cautious grind higher, as investors took solace from a US economy showing increasing signs of being able to withstand the likely onslaught of interest rate rises to come," Interactive Investor says.

Russia's benchmark MOEX index edged up 0.2%. Foreigners remain barred from selling shares, staving off an anticipated fire sale of Russian assets.

North America

US stocks climbed Monday as investors scooped up some of the technology stocks that came under pressure to start the year.

The tech-focused Nasdaq Composite Index gained 1.9%, while the S&P 500 added 0.8%. The Dow Jones Industrial Average rose 0.3%.

The indexes have rallied over the past three weeks after the Federal Reserve raised interest rates for the first time since 2018 in a bid to curb inflation. The S&P 500 and the Dow industrials are about 5% below their January highs, while the Nasdaq is off about 10% from November's record.

Twitter shares led the S&P 500, surging $10.66, or 27%, to $49.97, after Tesla Chief Executive Elon Musk reported that he held a stake of 9.2% in the social-media company as of March 14. Twitter added $8.53 billion in market value, its largest one-day gain on record.

Mr. Musk asked his followers last month whether they believe Twitter upholds free speech, adding "The consequences of this poll will be important. Please vote carefully."

Meanwhile, Tesla shares gained $60.86, or 5.6%, to $1,145.45.

Other technology shares also climbed. Meta Platforms added $9.04, or 4%, to $233.89. Netflix gained $18.03, or 4.8%, to $391.50, and Alphabet rose $56.42, or 2%, to $2,859.43. All three stocks are still in the red for 2022.

Tech and other growth stocks have lost some of their allure as the Fed raises rates. Higher rates place a premium on corporate earnings now, which tends to make shares of firms whose profits may lie in the future less attractive.

Investor sentiment continues to track the war in Ukraine, with many watching whether new reports of war crimes will add to pressure on the Biden administration and European allies to tighten sanctions on Russia. Analysts say pressure on the West to ban Russian oil is gathering steam. The reports come amid peace talks currently under way between Kyiv and Moscow and could complicate those discussions.

"Given all the uncertainty that's still out there, I'm a bit surprised at how strong the equity market is," said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors. "The long-term consequences of the conflict will be higher inflation over the long term."

Oil prices rose amid questions about whether European nations may shift away faster from Russian energy and if Russian President Vladimir Putin will halt gas deliveries to Europe over demands for payment in rubles. Meanwhile, plans by Western nations to release oil from their reserves and lockdowns in Chinese cities have pulled back energy prices from recent highs. Brent-crude futures, the international benchmark, added $3.14 a barrel, or 3%, to $107.53.

A surge in oil and other raw materials prices has contributed to the Fed's plans to raise rates. However, as the Fed embarks on its lifting campaign, investors are worried that the removal of monetary stimulus and ultralow interest rates could threaten the rally in equities.

"The market is looking at: Where will economic growth be? What will it do to corporate earnings and then how much leeway does the Fed have to deal with inflation?" said James Ragan, director of wealth management research at financial services firm D.A. Davidson Co.

In other corporate news, shares of Starbucks fell $3.4, or 3.7% , to $88.09 after the company said it is suspending billions of dollars in share repurchases, a move that interim CEO Howard Schultz said would free up cash to invest in cafes and employees. Lifestyle and culture company Hypebeast is bringing its stock to the US through a merger with blank-check company Iron Spark I, whose shares were up $0.17, or 1.7%, to $10.17.

Hertz agreed to purchase up to 65,000 electric vehicles over five years from the Swedish auto maker Polestar, part of the rental-car company's goal of expanding its plug-in offerings. Hertz shares rose $2.26, or 11%, to $23.38.

In the bond market, the yield on the two-year Treasury note remained above that of the 10-year note Monday. In that situation, the yield curve is said to be inverted, something that is often viewed as a predictor of recessions.

The yield on the benchmark 10-year Treasury note edged up to 2.409%, the highest yield in about a week. Two-year yields, which are more sensitive to expectations of short-term interest rates, stood at 2.426%. Yields rise as bond prices fall.

"We want to start thinking about where the puck is going and potentially looking at more defensive positioning, but again we're not there [recession] yet because of this unusual environment," said Emily Roland, co-chief investment strategist at John Hancock Investment Management. Ms. Roland said the backdrop of elevated inflation, economic reopening and possibly decelerating global growth could still lead to gains in stocks.

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

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