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Global Market Report - 08 July

Lewis Jackson  |  08 Jul 2022Text size  Decrease  Increase  |  
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Australia

Australian shares look ready to rise at the open after Wall Street rallied for a fourth day amid tentative signs the overheating US labour market could be cooling.

ASX futures were up 49 points or 0.7% at 6603 as of 8.00am on Friday, pointing to a positive open.

Overseas, the S&P 500 rose 1.5%, notching its longest winning streak since March with 10 of 11 sectors ending in the green. The tech-heavy Nasdaq Composite Index gained 2.3% and also ended Thursday with its longest winning streak since March. The Dow Jones Industrial Average climbed 1.1%.

A report Thursday showed the number of new applications for US unemployment benefits rose to a six-month high last week, a sign that growth in the labour market is slowing down.

Investors widely expect economic data to weaken as the Federal Reserve continues raising interest rates in an effort to rein in inflation. What will be key, analysts say, is how quickly or slowly the data worsen. Many are hoping that central bank policy will pull inflation back from multidecade highs without tipping the US into recession.

"What the market is wanting to see is that there is some cooling in the labour market, but it's not going to want to see a crash," said Kiran Ganesh, a multiasset strategist at UBS.

Locally, the S&P/ASX 200 closed 0.8% higher at 6648.0, lifted by its financials and rallying mining stocks.

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The materials sector rebounded 2.5% from a 5.0% fall a day earlier as the benchmark index followed US stocks higher.

Iron-ore miners BHP, Rio Tinto and Fortescue were among the strongest components, adding between 3.1% and 4.4%.

Shares of banks and wealth managers also rose, with Westpac, Commonwealth and ANZ adding between 0.8% and 1.8%.

That tilt toward the financials and materials sectors--which comprise almost 50% of the ASX 200 by market capitalization--meant that an index of the top 20 largest stocks rose 1.1%, outperforming the broader market.

In commodity markets, iron ore rose 2.2% to US$114.85, Brent crude oil rebounded 3.9% to US$104.65, while gold stayed broadly flat at US$1739.40.

In local bond markets, the yield on Australian 2 Year government bonds reversed course after days of decline and advanced to 2.46% while the 10 Year gained to 3.46%. Overseas, the yield on 2 Year US Treasury notes edged up to 3.01% and the yield on the 10 Year US Treasury notes slipped to 2.99%.

The Australian dollar rose to 68.38 US cents, up from 67.80 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies fell slightly to 98.87.

Asia

China stocks ended the session higher. Investors continue to weigh the benefits of stimulus measures from Beijing over the Fed's restrictive policy stance, rising risk of a US recession and increasing worries over new Covid-19 infections in several cities in China. The benchmark Shanghai Composite Index rose 0.3% to settle at 3364.40, while the Shenzhen Composite Index was 0.9% higher at 2227.66. The tech-heavy ChiNext Price Index led the pack with a 1.7% rise to end at 2849.71. Auto makers including both passenger car companies and commercial vehicle manufacturers were among the top gainers, as the auto sector remains a key beneficiary of China's consumption stimulus policies.

Hong Kong stocks closed higher, with the benchmark Hang Seng Index rising 0.3% to 21643.58, as lower oil prices boosted sentiment. Falling oil prices are supporting equities as cheaper energy costs spur hope that Asian inflation could ease, Oanda senior market analyst Jeffrey Halley said in a note. Gains were broad-based, led by Geely Automobile advancing 6.7%. Li Ning rose 3.8%, Galaxy Entertainment gained 3.1% and Anta Sports added 2.6%. However, the tech sector declined, with the Hang Seng Tech Index down 0.5% at 4780.04.

The Nikkei Stock Average extended early gains to end 1.5% higher at 26490.53, helped by concerns over fuel costs easing slightly. "One part of the world absolutely loving the price slump in oil is Asia's Caligula's of energy importing. Japan, China, South Korea, and Taiwan," Oanda's senior market analyst Jeffrey Halley says in a note. Toyota Motor advanced 2.3%, Honda Motor rose 1.5% and Nissan Motor gained 1.8%. Aeon Co. rose 11% after its 1Q net profit more than tripled on-year. Sumitomo Mitsui Trust ended 1.3% higher after it said it was investing in Apollo Global Management's alternative assets portfolio.

Europe

European markets rose as investors digested the potential economic and political implications of the resignation of UK Prime Minister Boris Johnson. The pan-European Stoxx Europe 600, French CAC 40 and German DAX were all up more than 1%, driven by automotive, mining and energy stocks.

"The pound strengthened markedly on news that Johnson resigned as Conservative Party leader," Royal London Asset Management's Head of Multi Asset, Trevor Greetham, writes. "An uncertain leadership election with no clear front-runner ought to be a source of uncertainty for financial markets, but a continuation of the chaotic scenes of recent weeks was arguably worse."

London’s FTSE 100 rose again on Thursday, building upon Wednesday's gains. On the day when UK Prime Minister Boris Johnson announced his resignation, the pound rallied and London's blue-chip index rose 1.1%, boosted by mining companies.

While currencies can be sensitive to shifts in politics, analysts see British shares as relatively insulated from the UK's political turmoil, since FTSE 100 companies generate about 75% of their revenues outside Britain.

"A strong rebound in copper prices from 18-month lows in the last 24 hours, is helping the basic resource sector... after reports out of China suggested that the Ministry of Finance was considering allowing local governments to bring forward about $220 billion of infrastructure spending," Michael Hewson from CMC Markets UK said.

Anglo American gained 7.1%, Glencore rose 6.1%, Antofagasta jumped 7.4% and Rio Tinto closed 3.7% higher.

North America

US stocks posted their fourth straight session of gains Thursday, lifted by shares of everything from banks to consumer-focused companies.

Major indexes have mostly risen this week, despite investors getting some mixed economic data. A report Thursday showed the number of new applications for US unemployment benefits rose to a six-month high last week, a sign that growth in the labour market is slowing down.

Investors widely expect economic data to weaken as the Federal Reserve continues raising interest rates in an effort to rein in inflation. What will be key, analysts say, is how quickly or slowly the data worsen. Many are hoping that central bank policy will pull inflation back from multidecade highs without tipping the US into recession.

"What the market is wanting to see is that there is some cooling in the labour market, but it's not going to want to see a crash," said Kiran Ganesh, a multiasset strategist at UBS.

The S&P 500 rose 1.5%, notching its longest winning streak since March with 10 of 11 sectors ending in the green. The tech-heavy Nasdaq Composite Index gained 2.3% and also ended Thursday with its longest winning streak since March. The Dow Jones Industrial Average climbed 1.1%.

Investors will next watch for Friday's employment report. Economists polled by The Wall Street Journal expect US employers to have added 250,000 jobs in June, down from a rate of 390,000 in May.

GameStop jumped $17.69, or 15%, to $135.12 after the retailer on Wednesday declared a 4-for-1 stock split.

Bed Bath & Beyond rose 97 cents, or 22%, to $5.44 after Interim Chief Executive Sue Gove disclosed the acquisition of 50,000 shares of the company's stock in a Securities and Exchange Commission filing.

Shares of Seagen rose $2.82, or 1.6%, to $177.95 after The Wall Street Journal reported Merck & Co. is in advanced talks to buy the cancer biotech in a deal that could be worth roughly $40 billion or more.

In bond markets, the yield on the benchmark 10-year Treasury note rose to 3.007% from 2.911% on Wednesday, while the yield on the two-year note settled at 3.039% from 2.961%. When the latter exceeds the former, investors have what is called a yield curve inversion: a market signal that has often preceded recessions in the past.

Bond yields rise when prices fall.

In commodity markets, oil prices rebounded after dropping below $100 a barrel earlier in the week on fears that a looming recession will reduce demand for crude. US crude oil jumped $4.20, or 4.3%, to $102.73 a barrel, notching its biggest one-day percentage gain since May.

Natural-gas futures shot up 14% to $6.297 per million British thermal units after the US Energy Information Administration said that domestic stockpiles were more than 12% lower than normal for this time of year after a weekly build that was significantly smaller than analysts and traders had expected.

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

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