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Global Market Report - 08 June

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

Australian shares are set to climb after Wall Street shrugged off a profit warning from mega retailer Target and finished higher amid broad based gains.

ASX futures were up 45 points or 0.6% at 7146 as of 8.00am on Wednesday, pointing to a jump at the open that could pare Tuesday’s sharp losses following the Reserve Bank’s surprise double rate hike.

Overseas, the S&P 500 rose 1% driven by gains in 10 of the index's 11 sectors. The Nasdaq Composite climbed 0.9%. The Dow Jones Industrial Average increased 0.8%. All three indexes had opened modestly lower after a profit warning from Target cast a pall over the retail sector.

Target shares dropped 2.3% after the retailer issued a warning that its profit would decline because it needs to cancel orders or offer discounts to clear out unwanted goods, a potential sign of lower consumer spending. Shares of other big retailers followed, with Walmart declining 1.2%.

"We're still in this constant push and pull about where inflation is going to be, where growth is going to be, and whether we're going to be in a recession or not," said Fahad Kamal, chief investment officer at Kleinwort Hambros.

Locally, the S&P/ASX 200 closed 1.5% lower at 7095.7 after the RBA delivered a bigger-than-expected rate increase.

The ASX 200 was about 1% lower in mid-afternoon trading before falling further when the RBA raised its cash rate by 50 basis points to 0.85%, compared with the 25 bps expected by most economists.

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Every sector fell, with tech, real-estate, consumer-discretionary and financial stocks worst hit. Block, Xero and WiseTech shed between 2.9% and 5.25%, while property groups Mirvac, Stockland and Goodman gave up between 3.2% and 3.7%.

Banks ANZ, Westpac, Commonwealth and NAB dropped by between 1.5% and 3.25%.
Buy-now-pay-later operator Zip was the worst-performing ASX 200 component, tumbling 14% to a near five-year low.

In commodity markets, Brent crude oil advanced 0.9% to US$120.57 a barrel. Iron ore added 0.3% to US$147.25. Gold increased 0.15% to US$1854.90.

Local bond markets sold off after the Reserve Bank’s surprise interest rate decision and the yield on Australian 2 Year government bonds soared to 2.76% while the 10 Year rose to 3.55%. In the US, the yield on 2 year Treasury notes was flat at 2.73% and the yield on the 10 year US Treasury notes edged down to 2.97%.

The Australian dollar traded at 72.30 US cents, up from the previous close of 71.93 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies slipped to 95.15.

Asia

Chinese shares ended the session mixed. The Shanghai Composite Index rose 0.2% to 3241.76, the Shenzhen Composite Index closed flat at 2072.58 and the ChiNext Price Index was unchanged at 2554.63. Coronavirus-related developments will remain in focus, after Beijing took some steps toward reopening on Monday, including the lifting of restrictions on restaurant dining. However, investors are likely to remain cautiously optimistic, as new Covid-19 outbreaks in the country, coupled with fresh lockdowns in some parts of Shanghai, could weigh on the economy. Auto stocks fell, with SAIC Motor slipping 2.4% and Great Wall Motor declining 3.5%.

Hong Kong's Hang Seng Index fell 0.6% to 21531.67, tracking US stock futures lower. The benchmark reversed the previous day's gains, as consumer-products and auto stocks retreated, while the tech sector was nearly flat. JD.com outperformed peers with a 3.0% rise and Alibaba Group added 1.9%. Sunny Optical was the top loser with a 5.1% decline, while China Resources Beer, China Mengniu Dairy and Nongfu Spring lost 2.7%-3.0%. BYD Co. shed 2.3% to snap a six-session winning streak, and Geely Automobile dropped 2.0%. Among gainers, Hang Lung Properties rose 3.2% and Wuxi Biologics extended yesterday's gains, and was up 2.8%.

Japanese stocks ended slightly higher, led by gains in auto stocks, as the yen weakened to a new 20-year low. Subaru Corp. gained 3.2% and Nissan Motor climbed 2.6%. The Nikkei Stock Average gained 0.1% to close at 27943.95.

Europe

European stocks dipped as concerns about monetary policy tightening by central banks and weak economic data weighed. The pan-European Stoxx Europe 600 dropped 0.3%, the German DAX shed 0.7% and the French CAC 40 slipped 0.7%.

"After such a positive session yesterday, European markets have slipped back on a trifecta of concerns over higher prices, higher rates and shrinking margins, after the Reserve Bank of Australia surprised consensus by hiking its headline rate by more than expected," CMC Markets analyst Michael Hewson says in a note. Sentiment was also hit by disappointing economic data including German factory orders and UK retail sales figures from the British Retail Consortium, he says.

London’s FTSE 100 Index fell 0.1% to 7,598.9 as broad declines offset gains of miners and the oil sector. Melrose Industries led the index with an increase of 3.1%, followed by Rio Tinto, up 2.3%. Among the top fallers, JD Sports Fashion fell 3.9% after the U.K. regulator provisionally found that it broke competition laws.

"A cut to the World Bank's growth forecasts has reminded investors of the broader problems, even as some of the gloomiest predictions are reined in," IG chief market analyst Chris Beauchamp says. Beauchamp notes that the immediate impact seems to be already priced in, but says optimistic valuations might be under pressure by August as the next US reporting season gets underway.

North America

US stock indexes climbed in a volatile session Tuesday as investors continued to assess the outlook for inflation and economic growth.

The S&P 500 rose 1% driven by gains in 10 of the index's 11 sectors. The Nasdaq Composite climbed 0.9%. The Dow Jones Industrial Average increased 0.8%. All three indexes had opened modestly lower after a profit warning from Target cast a pall over the retail sector.

Stocks have swung in recent days, buffeted by shifts in views about the strength of the economy and the likely path for central banks and interest rates. A big concern is that central banks could act too aggressively as they combat inflation and trigger a slowdown in economic growth, or even a recession.

"We're still in this constant push and pull about where inflation is going to be, where growth is going to be, and whether we're going to be in a recession or not," said Fahad Kamal, chief investment officer at Kleinwort Hambros.

Target shares dropped $3.69, or 2.3%, to $155.98 after the retailer issued a warning that its profit would decline because it needs to cancel orders or offer discounts to clear out unwanted goods, a potential sign of lower consumer spending. Shares of other big retailers followed, with Walmart declining $1.50, or 1.2%, to $123.37.

A significant increase in retail inventories and diminishing demand could cause prices to moderate across most consumer goods in the second half of the year, according to Peter Essele, head of portfolio management at Commonwealth Financial Network.

"That would be a good thing for inflation overall and would help buoy markets higher as inflation continues to decline," Mr. Essele said.

The trade gap in the US for April narrowed to $87.1 billion, shrinking more than economists had forecast, after reaching a record deficit the prior month. A key release this week will be the consumer-price index on Friday, which will be closely watched for signals on whether inflation is weakening or not.

Treasury Secretary Janet Yellen said in a Tuesday Senate testimony that she expects inflation to remain elevated. Some investors expect inflation to have already peaked but remain uncertain about the pace at which higher prices come down.

"As long as inflation remains elevated and continues to come down very slowly, the Fed is going to increase interest rates in order to combat these high inflation rates," said Ayako Yoshioka, a senior portfolio manager at Wealth Enhancement Group. "It's a very difficult thing for the Fed to engineer a soft landing."

The yield on the benchmark 10-year Treasury note eased to 2.969% from 3.037% on Monday. Yields fall when prices rise.

"With yields at 3%, it shows that the market hasn't decided if we're going to have a recession or if we have one, how severe it's going to be, " said Julien Lafargue, chief market strategist at Barclays Private Bank. "That is what you would want to own if you expect a recession."

In other corporate news, Kohl's shares jumped $3.97, or 9.5%, to $45.59 after The Wall Street Journal reported the department-store chain is in exclusive talks to be sold to retail holding company Franchise Group. The deal may value the company at about $8 billion.

Arcade company Dave & Buster's Entertainment rose $1.81, or 4.9%, to $39.06 after reporting a jump in sales growth.

Shares of BuzzFeed climbed 6 cents, or 2.7%, to $2.29, recovering some ground after plunging 41% on Monday after a ban that prevented executives and major investors from selling shares was lifted.

Twitter shares rose 57 cents, or 1.4%, to $40.13 after Elon Musk threatened Monday to end his acquisition of the social-media platform, saying the company didn't comply with requests for data about spam accounts.

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

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