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Global Market Report - 05 July

Lewis Jackson  |  05 Jul 2021Text size  Decrease  Increase  |  
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Australia

Australian shares set to open sideways. Wall Street closed the week at another high after June labour market data beat analyst expectations.

The Australian SPI 200 futures contract was unchanged at 7,230 near 7.30 am Sydney time on Monday.

The S&P 500 and Nasdaq have scaled new highs, with the S&P closing up for a seventh straight day, after US jobs data for June showed robust hiring yet persistent weakness in the labour market that will keep the Federal Reserve from raising interest rates any time soon.

The Dow Jones Industrial Average rose 154.4 points, or 0.45 per cent, to 34,787.93, the S&P 500 gained 32.51 points, or 0.75 per cent, to 4,352.45 and the Nasdaq Composite added 116.95 points, or 0.81 per cent, to 14,639.33.

The Australian dollar was buying 75.24 US cents near 7.15am AEST, up from 74.57 at Friday’s close.

Locally, Investors are looking to a key Reserve Bank meeting and US earnings reports next week after shares defied a lockdown-plagued week across Australia.

While the RBA is not expected to adjust the cash rate from a record low 0.1 per cent, the central bank will make a decision on its three-year bond target and quantitative easing program on Tuesday.

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The RBA has been buying the April 2024 bond to keep its yield, or interest rate, at 0.1 per cent.

A switch to buying the November 2024 bond could signal officials expect lower rates for longer.

However most analysts do not expect them to do so, given the surging Australian economy.
Low rates have continued to help the share market stay close to record highs.

The ASX closed little changed for the week despite about half Australia's population being in coronavirus lockdown.

The benchmark S&P/ASX200 index on Friday closed up by 43 points, or 0.59 per cent, to 7308.6.

The All Ordinaries closed higher by 45.6 points, or 0.6 per cent, to 7587.1.

Deep Data Analytics chief executive Mathan Somasundaram was interested in the US earnings reports due next week.

He expected plenty of good "top line" results given the US economy's resurgence from the pandemic.

Yet Mr Somasundaram was wary of what the rising cost of commodities such as oil could mean in future.

"The biggest worry will be `are costs rising too fast'," he said.

Inflation has been a chief concern for investors in the global economy's recovery from COVID-19.

Limited migration during the pandemic has caused worker shortages for many countries.
This could result in higher wages and greater costs for companies.

Mr Somasundaram said the findings from US earnings season could indicate what is in store for Australia's equivalent in August.

On the Aussie market, Westpac said potential fraud had been found in equipment leases for its customers.

The bank is taking Forum Finance to court after the latter arranged the leases.

Westpac said the fraud could cost about $200 million and police and regulators were investigating.

Shares in the bank closed lower by 0.04 per cent to $25.64.

Other banks had a much better day. Bendigo gained 2.52 per cent to $10.56. ANZ was best of the big four and higher by 1.03 per cent to $28.32.

Energy shares were the best category and rose 1.76 per cent after OPEC talks to increase oil supply broke down.

Woodside closed higher by 3.01 per cent to $22.95.

There were also gains of more than one per cent for shares in consumer discretionaries and industrials.

Travel stocks regained some favour after being heavily sold at the start of the week.

Webjet rose 4.92 per cent to $5.12. Flight Centre gained 4.53 per cent to $15.46.

A group of companies including a gym operator are taking QBE Insurance to court for being denied cover during the pandemic.

The group claim their losses should be covered by business interruption circumstances.
QBE says it will defend the action.

Shares closed down by 0.56 per cent to $10.66.

Big miners were mixed. BHP rose 0.68 per cent to $48.55. Fortescue was little changed. Rio Tinto shed 0.22 per cent to $125.71.

Spot Gold was up 0.6 per cent at $US1787.30 an ounce; Brent crude was up 0.2 per cent at $US75.97 a barrel, Iron ore was down 0.6 per cent at $US 217.98 a tonne.

The yield on the Australian 10-year bond closed at 1.47 per cent.

Asia

At the close, China's Shanghai Composite index was down 1.95 per cent at 3,518.76.

The Hang Seng index, used to record and monitor daily changes of the largest companies of the Hong Kong stock market, closed down 1.8 per cent at 28,310.42

Japan's Nikkei 225 Index was up 0.27 per cent at 28,783.28.

Europe

The pan-European STOXX 600 index, which tracks the return of the largest listed companies across 17 European countries, was up 0.26 per cent at 456.81.

The German DAX rose 0.30 per cent to 15,650.09.

North America

The S&P 500 and Nasdaq have scaled new highs, with the S&P closing up for a seventh straight day, after US jobs data for June showed robust hiring yet persistent weakness in the labour market that will keep the Federal Reserve from raising interest rates any time soon.

The Dow Jones Industrial Average rose 154.4 points, or 0.45 per cent, to 34,787.93, the S&P 500 gained 32.51 points, or 0.75 per cent, to 4,352.45 and the Nasdaq Composite added 116.95 points, or 0.81 per cent, to 14,639.33.

The S&P's winning streak was its longest since August 2020.

The Labor Department's employment report showed non-farm payrolls increased by 850,000 jobs last month but the total is 6.8 million below its peak in February 2020.

The better than expected data was a tentative sign that a labour shortage overhanging the US economy was starting to ease but was not enough to force the Fed to raise rates.

Big tech led stocks on Wall Street higher while the yield on the benchmark 10-year US Treasury note slid to 1.432 per cent.

"For capital markets, equities and bonds, this was a goldilocks report," said Darrell Cronk, chief investment officer at Wells Fargo Wealth & Investment Management.

"There were enough jobs that you'd want to see, but not so much that it concerns people that the Fed may have to act sooner."

Investors have feared a stronger than expected recovery and the prospect of surging inflation that could force the Fed to pare its support and raise rates, hurting technology shares whose growth and cash flow is further in the future.

Microsoft Corp added the most to the S&P's broad advance, followed by Apple Inc, Amazon.com Inc and Google parent Alphabet Inc.

Financial stocks, which earn less on lower rates, fell as did utilities.

Headwinds that have weighed on hiring, including jobless benefits and vaccine concerns, are likely to diminish in the northern hemisphere autumn and might help jobs growth accelerate, said David Joy, chief market strategist at Ameriprise Financial.

"But for now, the recovery in the labour market is not so robust as to bring forward any further the Fed's eventual tightening," Joy said.

The report served as evidence of the economy's ongoing recovery, said Bill Northey, senior investment director at US Bank Wealth Management.

"Some of the most impaired corners of the US economy, namely retail, leisure and hospitality, showed some of the strongest improvements," Northey said.

Focus now shifts towards the second-quarter earnings season and progress on US President Joe Biden's infrastructure bill that could help the equity market keep the momentum.

Investors will look to minutes from the Fed's June meeting next week for the latest view on inflation, bond tapering and rates at a time when the easy monetary stance appears to be at an inflection point amid a booming US economy.

Trading volumes were light heading into the long weekend, with US markets shut on Monday in observance of Independence Day.

Tesla Inc slid after it posted record vehicle deliveries for the second quarter that also beat Wall Street estimates.

Virgin Galactic Holdings rose after the space tourism firm said billionaire entrepreneur Richard Branson would travel to the edge of space on the company's test flight on July 11, beating out fellow aspiring billionaire astronaut Jeff Bezos.

Didi Global Inc fell after China's cyberspace administration said it would conduct a new investigation into the Chinese ride-hailing giant to protect national security and the public interest.

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

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