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Global Market Report - 07 June

Lewis Jackson  |  07 Jun 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to edge lower after Wall Street retreated from early gains to end modestly higher as investors await fresh US inflation data due Friday.

The Reserve Bank is widely expected to raise rates following its 2.30pm board meeting later today. A majority of economists polled by Bloomberg expect a meaty 0.4% hike.

ASX futures were down 5 points or 0.1% at 7207 as of 8.00am on Monday, pointing to a small fall at the open.

Overnight, the S&P 500 climbed 0.3%, while the technology-focused Nasdaq Composite Index advanced 0.4%. The Dow Jones Industrial Average added less than 0.1%. All three indexes were higher in the morning, with the Nasdaq up nearly 2%.

Investors are still trying to balance the positive signs from Friday's jobs report against more cautious recent economic commentary from executives such as Tesla's Elon Musk and JPMorgan's Jamie Dimon, said AvaTrade chief market analyst Naeem Aslam.

"The conversations we're having with clients, we don't see confidence," he said. The morning rally, he said, was a so-called dead-cat bounce. "The stock market isn't a buy."

Locally, the S&P/ASX 200 closed 0.5% lower at 7206.3 as investors brace for a potential interest rate hike from the Reserve Bank of Australia on Tuesday.

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Still, energy stocks rose 2.1%, with oil-and-gas companies Woodside, Beach Energy and Santos rising 3.2%, 1.4% and 2.0%, respectively.

Technology was the poorest-performing sector, falling 1.6%. Tyro closed down 8.4% and Xero lost 1.5%.

The major banks closed down between 0.3% and 0.8%, while Magellan Financial was the day's biggest loser, finishing down nearly 14.0% after announcing that its funds under management declined.

In commodity markets, Brent crude oil slipped 0.2% to US$119.51 a barrel. Iron ore added 2.2% to US$146.75. Gold was flat at US$1843.50.

Local bond markets were little changed ahead of the Reserve Bank’s interest rate decision today. The yield on Australian 2 Year government bonds edged up to 2.58% while the 10 Year was flat at 3.48%. In the US, the yield on 2 year Treasury notes rose to 2.73% and the yield on the 10 year US Treasury notes advanced to 3.04%.

The Australian dollar traded at 71.93 US cents, down from the previous close of 72.05 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies increased to 95.16.

Asia

Chinese stocks extend their gains midday, as electric car battery suppliers soar amid rising hopes for upbeat EV sales in the country. The benchmark Shanghai Composite Index is up 1.0% at 3228.93, while the Shenzhen Composite Index gains 2.2% to 2071.23 at the midday break. The tech-heavy ChiNext Price Index retains its place as the top performer, jumping 4.0% to 2557.78. EV battery suppliers are leading the gains, as BYD's resilient May sales data boosts investor confidence in the sector. Renewable-energy companies such as solar equipment makers are also higher.

Hong Kong's Hang Seng Index rose 2.7% to 21653.90, its highest closing level in almost two months, thanks to gains by the tech sector and consumer-related shares. Wuxi Biologics was the day's top gainer with a 10% jump. Meituan surged 9.9%, its best one-day performance in a month, after reporting quarterly results late last week. Alibaba Group advanced 5.0% and Tencent Holdings was 2.4% higher. Anta Sports, China Resources Beer and hot-pot chain operator Haidilao each rose more than 7%. Chinese property stocks were among laggards, with China Overseas Land sliding 3.3% and Longfor down 1.5%. Xinyi Glass was the worst performer, shedding 6.1%.

Japanese stocks ended higher as gains in energy and railway companies helped offset losses in tech shares. Idemitsu Kosan gained 5.4% and Eneos Holdings climbed 4.8% thanks partly to higher crude-oil prices. West Japan Railway advances 4.6% and ANA Holdings added 2.9% on hopes for travel demand recovery. The Nikkei Stock Average rose 0.6% to close at 27915.89. Investors are focusing on any signs of further easing of travel restrictions as well as movements of crude-oil prices and the yen.

Europe

European markets gained after an upbeat start to trading on Wall Street. The pan-European Stoxx Europe 600 rose 0.9% and the French CAC 40 and German DAX advanced 1% or more.

"Stocks are displaying their resilience this afternoon, pushing higher even as oil prices pick up once again," IG analyst Chris Beauchamp says. "Such renewed strength after what was ultimately an indecisive end to May will provide some comfort for investors, but with oil surging again, the specter of inflation and rate hikes is never far away. Even with the ECB likely to be more hawkish this week, however, there seems space for a further squeeze to the upside."

Investors in Europe will be watching the European Central Bank's policy meeting on Thursday, where it is expected to lay out its plans for unwinding bond purchases and raising interest rates. The ECB is expected to raise rates for the first time in 11 years in July as it seeks to contain surging inflation.

London’s FTSE 100 closed up 1% with broad-based gains as mining and oil sectors drove the index higher after Saudi Arabia increased the oil price and amid expectations for a demand rebound as China eases its Covid-19-related restrictions.

Engineering company Rolls-Royce led the day's top risers, with a 4.72% increase, while Ocado Group rose 4.71%. AstraZeneca shares fell 3.5% after reporting expected positive data on breast-cancer treatment Enhertu.

North America

US stocks finished modestly higher Monday as investors sifted through data and comments about the jobs market and inflation.

The S&P 500 climbed 0.3%, while the technology-focused Nasdaq Composite Index advanced 0.4%. The Dow Jones Industrial Average added less than 0.1%. All three indexes were higher in the morning, with the Nasdaq up nearly 2%.

Investors are still trying to balance the positive signs from Friday's jobs report against more cautious recent economic commentary from executives such as Tesla's Elon Musk and JPMorgan's Jamie Dimon, said AvaTrade chief market analyst Naeem Aslam.

"The conversations we're having with clients, we don't see confidence," he said. The morning rally, he said, was a so-called dead-cat bounce. "The stock market isn't a buy."

On top of the jobs market, investors are also watching economic data closely for clues about the Federal Reserve's path for raising interest rates. Fears that the Fed could aggressively raise rates and potentially drive the economy into recession have stoked volatility in global markets this year.

While traders and consumers alike are looking for signs that inflation has peaked, the real issue is when inflation will come down to a more neutral rate and how much the Fed and other central banks will have to raise interest rates to get it there, said Siddharth Singhai, chief investment officer at IronHold Capital.

A key test for markets will be Friday's US consumer-price index. The closely watched inflation gauge is expected to register a rise of 8.2% in May from a year earlier, according to economists surveyed by The Wall Street Journal. Excluding food and energy, price growth is expected to come in at 5.9% in May from 6.2% the previous month.

Fed officials have indicated they plan to raise interest rates by half a percentage point at next week's policy meeting, and by the same amount again in July. If they need to do more, Mr. Singhai said, he believes they will, no matter the market reaction.

"Until that is resolved, not much is going to change for the market fundamentally," he said.

Trading has been quieter in recent weeks as investors gear up for coming central bank decisions and crucial economic data. The Dow industrials fell 0.9% last week, the smallest weekly change for that index in about a month. The S&P 500 lost 1.2% last week while the Nasdaq ended down 1%.

"We seem to be in a kind of wait-and-see mode," said Craig Erlam, senior market analyst at Oanda in London. "We've entered a phase where a lot of interest-rate increases are priced in. A lot of growth slowdown is priced in. We are still seeing intraday volatility, but it does seem to have stabilized."

Amazon.com shares rose 2.2% to $124.98. Monday marks the first day of trading since the company executed a 20-for-1 stock split. Before the split, Amazon shares were at $2,447.

Tesla shares climbed 1.6%, partially recovering from a 9.2% fall on Friday after Mr. Musk, its chief executive, said the electric-vehicle maker would cut 10% of its salaried workforce, citing concerns about the global economy. Mr. Musk on Monday threatened to terminate his deal to buy Twitter Inc., shares of which fell 1.5%.

Shares of Spirit Airlines rose 7.1% after JetBlue Airways sweetened its offer to buy the company. JetBlue in May launched a hostile takeover of Spirit, which had already agreed to a merger with Frontier Airlines. Spirit's shareholders are set to vote on the Frontier merger proposal on Friday. Shares of JetBlue rose 2.1%, while Frontier Group shares added 4.5%.

Shares of Keurig Dr Pepper climbed 5.1%, while VICI Properties advanced 3.4% and ON Semiconductor increased 4.9%. S&P Dow Jones Indices said the three companies will join the benchmark S&P 500 index this month.

US crude oil slid 0.3% to $118.50 a barrel. Prices for oil have surged this year as Russia's war in Ukraine has disrupted global commodity markets. The average price of regular gas in the US rose to $4.86 a gallon over the weekend, according to AAA.

In the bond market, the yield on 10-year US Treasurys jumped to 3.037% from 2.940% Friday, as investors sold government bonds. Yields and bond prices move inversely. Bond yields have been on the rise in recent weeks but remain below their recent high of 3.124% set in early May.

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

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