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Global Market Report - 05 January

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

The ASX is poised to edge lower after a mixed session on Wall Street, where reopening trades gained and technology slumped as investors bet on growth and higher interest rates.

The Australian SPI 200 futures contract were down 19 points at 7513 as of 8.00 am AEST, suggesting a negative start to trading.

The Dow Jones Industrial Average closed at another record in 2022, while technology stocks weighed on the broad market.

Shares of economically sensitive companies in the energy, financials and industrials sectors advanced Tuesday, helping the blue-chip gauge outpace other major US indexes. A retreat in big tech stocks, meanwhile, helped pull the tech-heavy Nasdaq Composite lower.

The Dow industrials rose 0.6% to eclipse a record set Monday. The S&P 500 retreated less than 0.1% while the Nasdaq Composite fell 1.3%.

Locally, the S&P/ASX 200 advanced 2.0% to 7589.8 on Tuesday, hitting a four-month high in the country's first trading session of 2022. All sectors finished in the green, as the benchmark index achieved its strongest closing level since 13 Aug.

The energy sector was the standout, rising 3.9%. Paladin Energy rose 7.4%, Whitehaven Coal gained 5.8%, while Santos closed 4.8% higher. Gud Holdings rose 3.8% after announcing it had completed its acquisition of AutoPacific Group.

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The ASX 200 snapped a six-session winning streak on Friday, its last trading day of the year, with a 0.9% drop, but still gained 13% for 2021.

Overseas, the pan-continental Stoxx Europe 600 added 0.8% to close at a record. In Asia, major benchmarks were mixed. The Shanghai Composite Index slipped 0.2% and Hong Kong's Hang Seng Index edged up 0.1%. Japan's Nikkei 225 closed up 1.8% as the weaker yen drew investors to the country's stock market.

Turning to commodities, gold futures rose 0.8% to $US1815.00 an ounce; Brent crude added 1.3% to finish at $US80.03 a barrel as OPEC and other oil producers agreed to keep pumping crude in a bet that Omicron won't depress demand like earlier waves; Iron ore rose 0.7% to US$123.12 a tonne.

The selling continued in bond markets, with the yield on the Australian 10-year bond rising to 1.74% while the US 10-year Treasury advanced to 1.65%. Yields move inversely to price.

The Australian dollar was buying 72.38 US cents near 8.00am AEST, up from the previous close of 71.90. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 90.04.

Asia

Chinese stocks ended lower on the first trading day of 2022. Losses were led by electric vehicle-related sectors, offsetting gains in transportation stocks. The weakness in EV shares followed news that the government will cut EV subsidies by 30% this year. Ganfeng Lithium lost 5.3%, EVE Energy slid 5.6% and battery maker CATL shed 3.3%. Airline stocks got a lift following local media reports that a fuel surcharge for domestic routes will be scrapped on Wednesday. Air China, China Eastern Airlines and China Southern Airlines gained 1.9%-3.5%. The Shanghai Composite Index dropped 0.2%, the Shenzhen Composite Index slipped 0.1% and the ChiNext Price Index fell 2.2%.

Hong Kong shares ended slightly higher amid a mixed performance from property developers, with the Hang Seng Index closing up 0.1%. While China Evergrande's poor 2021 sales figures weighed on the property sector, a technical recovery and expectations of a rebound in property sales were supportive. China Overseas Land & Investment rose 5.6%, New World Development gained 0.3% and Henderson Land dropped 0.3%. Tech stocks declined after China passed new cybersecurity and algorithm rules, taking the Hang Seng Tech Index 1.0% lower. NetEase, JD.com and Meituan fell 1.9%, 1.8% and 1.7%, respectively.

Japanese stocks ended the first session of 2022 higher, led by gains in auto and insurance stocks as the yen hit a five-year low. Toyota Motor climbed 6.1% and Dai-ichi Life Holdings advanced 6.0%. The Nikkei Stock Average rose 1.8%. USD/JPY is at 115.72 after earlier touching 115.82—its highest level since January 2017. A weakening Yen is associated with greater risk appetite.

Europe

European markets rise as coronavirus-variant worries ease and rising crude prices boost oil majors. The pan-European Stoxx Europe 600 closed 0.82% higher.

In London, the FTSE 100 finished 1.6% higher in the first day of trading for the year. The FTSE 100 pushed above 7500 for the first time in almost two years, and if the list of gainers is anything to go by investors seem keen to put money to work in dependable, dividend-paying stocks, IG Group's chief market analyst Chris Beauchamp said.

"IAG has surged on hopes air travel might return to normal sooner than feared, but otherwise it is banks, oil stocks and consumer spending that seems to populate the top gainers list today," Beauchamp said.

North America

The Dow Jones Industrial Average closed at another record in 2022, while technology stocks weighed on the broad market.

Shares of economically sensitive companies in the energy, financials and industrials sectors advanced Tuesday, helping the blue-chip gauge outpace other major US indexes. A retreat in big tech stocks, meanwhile, helped pull the tech-heavy Nasdaq Composite lower.

The Dow industrials rose 0.6% to eclipse a record set Monday. The S&P 500 retreated less than 0.1% while the Nasdaq Composite fell 1.3%.

The divergence between different corners of the stock market occurred as investors parsed new data that showed expanding US factory activity and a tight labour market.

A manufacturing sector survey showed signs that supply-chain problems could be improving. Separate data showed the number of times workers quit their jobs rose to a high in November while job openings remained near record levels.

In bond markets, the yield on the benchmark 10-year US Treasury note rose to 1.666% from 1.628% on Monday. Yields rise as bond prices fall.

The rise in yields "probably is a sign that the bond market has more confidence in growth, and is more likely for the Fed to continue down a path of higher rates next year," said Patrick Kaser, portfolio manager at Brandywine Global Investment Management.

Those developments are better for stocks tied to economic recovery and worse for growth stocks that trade at high valuations on expectations of very low rates, he said.

Within the S&P 500, the energy sector advanced 3.4%, the financial sector rose 2.6% and the industrial sector gained 1.9%. The technology group, by contrast, declined 1.1%.

Traders tend to pile into tech stocks when economic concerns mount, betting those shares can deliver growth. When the outlook brightens, they often rotate into companies that can harness themselves to a strong economy.

Investors are also parsing data on the spread of the Omicron variant of Covid-19 as they try to forecast how the pandemic will affect the economy going forward. Cases hit a record in the US and hospitalizations are rising but remain below pandemic peaks, according to data from Johns Hopkins University.

"The mildness of Omicron and therefore, potential for less disruption, less lockdown measures -- all of these should feed directly into earnings expectations," said James Athey, an investment manager at Abrdn.

Money managers are looking ahead to the next earnings season, which kicks off in earnest at the end of next week with reports from big financial companies.

Analysts estimate that profits from companies in the S&P 500 rose 22% in the fourth quarter from a year earlier, according to FactSet. In addition to parsing results, investors will be listening for clues about how the rapidly spreading new Covid-19 variant could affect business.

"We think this quarter will be strong, but we think that guidance into next quarter may be a little murkier from companies just because of concerns about Omicron," said Eric Freedman, chief investment officer at US Bank Wealth Management.

Among individual stocks, Apple shares fell 1.2% after the company on Monday briefly touched $3 trillion in market value before closing below that threshold. Tesla shares dropped 4.2% after jumping 14% on Monday.

A number of travel stocks advanced. Royal Caribbean shares rose 2%, United Airlines shares gained 1.7% and Marriott International shares added 2.7%.

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

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