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Global Market Report - 1 February

Lex Hall  |  01 Feb 2021Text size  Decrease  Increase  |  
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Australia

Australian shares are set to fall following losses on Wall Street last week as vaccine data disappointed and the GameStop fallout weighed.

The Australian SPI 200 futures contract was down 34 points, or 0.5 per cent, at 6,507 points at 8.30am Sydney time on Monday, suggesting a negative start to trading.

Stock indexes dropped, closing out the Friday session with the biggest weekly fall since October, as investors gauged the ramifications of Johnson & Johnson’s covid-19 vaccine trial results, while a standoff between Wall Street hedge funds and small, retail investors added to volatility.

The Dow Jones Industrial Average fell 620.74 points, or 2.03 per cent, to 29,982.62, the S&P 500 lost 73.14 points, or 1.93 per cent, to 3,714.24 and the Nasdaq Composite dropped 266.46 points, or 2 per cent, to 13,070.70.

Locally, ahead of the first Reserve Bank board meeting of the year on Tuesday, new Commonwealth Bank analysis has found excluding cigarette prices (which have risen more than 330 per cent over the decade to 2020) means the annual inflation rate has been below 2 per cent for every quarter since 2014, The Australian reports.

The S&P/ASX200 benchmark index closed lower by 42.3 points, or 0.64 per cent, to 6,607.4 on Friday.

The All Ordinaries closed lower by 46.7 points, or 0.68 per cent, at 6,870.9.

Investors collected gains of 0.31 per cent for January on the ASX200, although this was the weakest month since September.

Gold was up 0.2 per cent at $US1,847.65 an ounce; Oil was down 0.1 per cent at $US55.04 a barrel; Iron ore was up 0.7 per cent to $US158.54 a tonne.

Meanwhile, the Australian dollar was buying 76.31 US cents at 8.30am, down from 76.45 US cents at Friday's close.

Asia

In China, the Shanghai Composite is down 22.11 points, or 0.63 per cent, to 3483.07.

In Hong Kong, the Hang Seng is down 267 points, or 0.94 per cent, to 28,283.71.

In Japan, the Nikkei 225 is down 534 points, or 1.89 per cent, to 27,663.39.

Europe

European stocks slid on Friday, recording their worst weekly performance since October as concerns around the slow rollout of covid-19 vaccines mount, while a retail trading frenzy led to volatility on Wall Street.

The benchmark STOXX 600 index closed 1.9 per cent lower, erasing all of January’s gains and ending the week down 3.1 per cent

Germany’s DAX fell 1.7 per cent, the UK’s blue-chip FTSE 100 dropped 1.8 per cent and US stocks fell more than 1 per cent after underwhelming covid-19 vaccine data from Johnson & Johnson.

Concerns around the potential economic damage from a new strain of the coronavirus in Europe and delays to vaccine rollouts have dented sentiment in the past few days.

In the US, where the stock market enjoyed a stimulus-led rally last year, volatility was seen following steep gains in heavily shorted stocks, including Gamestop and AMC Entertainment after retail traders piled in.

Europe’s medicines regulator approved AstraZeneca and Oxford University’s covid-19 vaccine for people over the age of 18 on Friday, the third vaccine to be cleared for use in the European Union.

Europe urgently needs more shots to speed up its inoculation programme, with AstraZeneca, Pfizer and Moderna facing difficulties in delivering the shipments to the bloc.

“We’re postponing the recovery story a little bit because of the lockdown measures and challenges for European growth,” said Joseph Little, global chief strategist at HSBC Global Asset Management, London.

“I’m still optimistic on parts of Europe which have lagged rather badly, economically and in markets. They could begin to perform as the cyclical catch-up becomes more important.”

Economy-linked stocks of banks, insurers, miners and oil & gas companies were among the worst hit this week but Germany and Spain’s economies recorded growth in the fourth quarter, while the French economy contracted by a smaller than expected rate.

On a busy day for earnings, Sweden’s Ericsson jumped 7.6 per cent after reporting fourth-quarter core earnings ahead of market estimates on the back of strong sales of 5G equipment.

Daimler edged up 0.9 per cent after it said a strong fourth quarter helped it post better-than-expected 2020 group operating profit and that it was optimistic for 2021.

Swedish fashion retailer H&M fell 5.0 per cent as it braced for a loss in the first quarter after full-year profits plummeted due to covid-19.

Europe’s earnings season has been largely positive so far. Of the 8 per cent of STOXX 600 companies that have reported, 78 per cent have topped profit estimates, according to Refinitiv IBES data.

North America

Stock indexes dropped, closing out the Friday session with the biggest weekly fall since October, as investors gauged the ramifications of Johnson & Johnson’s covid-19 vaccine trial results, while a standoff between Wall Street hedge funds and small, retail investors added to volatility.

Johnson & Johnson fell 3.56 per cent as one of the biggest weights on both the Dow and S&P500 after the drugmaker said its single-dose vaccine was 72 per cent effective in preventing covid-19 in the United States, with a lower rate of 66 per cent observed globally.

The results compare to the high bar set by two authorized vaccines from Pfizer Inc/BioNTech SE and Moderna Inc, which were around 95 per cent effective in preventing symptomatic illness in key trials when given in two doses. Moderna shares climbed 8.53 per cent while Pfizer shares edged up 0.11 per cent.

Worries of a short squeeze that began earlier in the week resurfaced after an army of retail investors returned to trade shares in stocks such as GameStop Corp and Koss Corp, which shot higher after brokers including Robinhood eased some of the restrictions they had placed on trading.

“The overall picture is that if there is any bad news that suggests or indicates there could be a longer hibernation period for us to be indoors and not consuming or spending that tends to set the market back and a lot of people sit on the sidelines, particularly with that news,” said Sylvia Jablonski, chief investment officer at Defiance ETFs in New York.

“And then what is going on with (Gamestop) and all that stuff, people are a little afraid to trade.”

The surge in volatility has led to a huge increase in volume, totaling over 20 billion shares in each of the past two sessions across US exchanges for the most active trading days on record going back to 2014, according to Refinitiv data.

Volume across US exchanges on Friday was 17.13 billion shares, compared with the 15.26 billion average for the full session over the last 20 trading days.

The US Securities and Exchange Commission said it was closely monitoring any potential wrongdoing, to both brokerages and social media traders.

The Dow Jones Industrial Average fell 620.74 points, or 2.03 per cent, to 29,982.62, the S&P 500 lost 73.14 points, or 1.93 per cent, to 3,714.24 and the Nasdaq Composite dropped 266.46 points, or 2 per cent, to 13,070.70.

All three main indexes suffered their biggest weekly fall since the end of October, as the Dow lost 3.28 per cent, the S&P fell 3.31 per cent and the Nasdaq declined 3.49 per cent. For the month, the Dow dipped 2.04 per cent, the S&P shed 1.12 per cent and the Nasdaq gained 1.42 per cent.

Both the S&P and Dow closed below their 50-day moving average, seen as a technical support level.

Market participants have speculated that volatility caused by the short squeezes have led to investor favorites including Apple Inc coming under pressure as hedge funds sell to cover billions of dollars in losses.

Apple shares declined 3.74 per cent while Microsoft fell 2.92 per cent.

Still, while concerns about rising covid-19 cases and bumpy vaccine rollouts kept investors leery about a pullback and an increase in volatility in the near-term, the start to quarterly earnings has eased some concern about stretched stock valuations.

Of the 184 companies in the S&P 500 that have reported earnings through Friday morning, 84.2 per cent have topped analyst expectations, well above the 75.5 per cent beat rate for the past four quarters, according to Refinitiv data.

Honeywell International lost 3.68 per cent after it posted a 13 per cent fall in quarterly profit.

The first known US cases of the South African covid-19 variant, found to be partly resistant to current vaccines and antibody treatments, was detected in South Carolina on Thursday.

Data showed US labor costs rose more than expected in the fourth quarter amid a jump in wages, supporting views that inflation could accelerate this year, while another report showed US consumer spending fell for a second straight month in December.

With Reuters

is content editor for Morningstar Australia

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