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Global Market Report - 1 March

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

Australian shares are set to rise following a US tech-stock rally last week, which occurred despite a rise in bond yields as inflation fears linger.

The Australian SPI 200 futures contract was up 29 points, or 0.4 per cent, at 6,658 points at 8.30am Sydney time on Monday, suggesting a positive start to trading.

The tech-heavy Nasdaq index rallied in choppy trading on Friday, even as sentiment remained fragile after the index’s worst performance in four months the day before as fears of rising inflation kept US bond yields near a one-year high.

The Dow Jones Industrial Average closed 469.64 points lower, or 1.5 per cent, to 30,932.37, the S&P 500 lost 18.19 points, or 0.48 per cent, to 3,811.15 and the Nasdaq Composite added 72.91 points, or 0.56 per cent, to 13,192.34.

Locally, the aged-care royal commission report, to be released on Monday, contains contrasting recommendations for a new model that would mean either higher taxes or greater-user pay contributions to fix funding shortfalls, multiple sources have told The Australian.

Australia's share market had its heaviest percentage fall since early September after investors opted for rising yields in the bond market.

The S&P/ASX200 benchmark index closed lower by 160.7 points, or 2.35 per cent, to 6,673.3 on Friday.

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The All Ordinaries closed lower by 165.1 points, or 2.32 per cent, at 6,940.6.

Gold was down 2.1 per cent at $US1,734.04 an ounce; Brent oil was down 2.6 per cent to $US64.42 a barrel; Iron ore was up 0.9 per cent to $US175.78 a tonne.

Meanwhile, the Australian dollar was buying 77.15 US cents at 8.30am, down from 79.20 US cents at Friday’s close.

Asia

In China, shares fell. The Shanghai Composite index was lower by 2.12 per cent at 3,509.08, while the blue-chip CSI300 index ended 2.43 per cent lower at 5,336.76.

In Hong Kong, the Hang Seng fell 3.64 per cent to close at 28,980.21.       

Japanese shares slumped on Friday, logging their biggest daily decline in nearly a year, after a spike in global bond yields spooked investors already uneasy about the market’s stretched valuation.

The Nikkei average ended down 3.99 per cent at 28,966.01, hitting its lowest level in almost three weeks. The broader Topix fell 3.21 per cent to 1,864.49. Both indexes posted their biggest single-day fall since April last year.

Europe

European stocks closed lower on Friday, ending three weeks of gains as investors booked profits in technology and commodity-linked shares due to concerns over rising inflation and interest rates on the back of a jump in bond yields.

The benchmark European stock index fell 1.6 per cent, and shed 2.4 per cent for the week - its first weekly loss this month - with technology stocks losing the most as they continued to retreat from 20-year highs.

On the day, resource stocks were the softest-performing European sectors, tumbling 4.2 per cent from a near 10-year high in their worst session in five months.

“Equity markets across the US and Europe are quite expensive now and with bond yields constantly rising, the fixed income market is proving to be more attractive than the riskier equity market,” said Roland Kaloyan, a strategist at SocGen.

“Investors are actually looking at the pace at which yields drop and the current speed is quite concerning for equity markets.”

US and euro zone bond yields retreated slightly on Friday, but stayed close to highs hit this week as investors positioned for higher inflation this year. Yields were also set for large monthly gains.

Sectors such as utilities, healthcare and other staples - usually seen as proxies for government debt due to their similar yields - lagged their European peers for the month as investors sought better returns from actual debt.

Still, the benchmark STOXX 600 gained in February, helped by a rotation into energy, banking and mining stocks on expectations of a pickup in business activity following vaccine rollouts.

Travel and leisure was the strongest sector in February as investors bet on an economic reopening boom. Banks also outperformed their peers thanks to higher bond yields.

Better-than-expected fourth-quarter earnings have also reinforced optimism about a quicker corporate rebound this year. Of the 194 companies in the STOXX 600 that have reported quarterly earnings so far, 68 per cent have beaten analysts’ estimates, according to Refinitiv.

“As recovery hopes gain ground with the economy re-opening and vaccines coming up, coupled with earnings being relatively positive, the near-to-mid-term outlook for equities seems positive with yield movements still a part of the equation,” said Keith Temperton, an equity sales trader at Forte Securities.

Among individual movers, Belgian telecom operator Proximus was the worst performer on the STOXX 600 for the day, after it flagged a lower core profit in 2021.

North America

The tech-heavy Nasdaq index rallied in choppy trading on Friday, even as sentiment remained fragile after the index’s worst performance in four months the day before as fears of rising inflation kept US bond yields near a one-year high.

The S&P 500 ended little changed, while the Dow index closed lower after earlier dropping to a three-week low. The Dow still posted gains of nearly 4 per cent for the month, as investors bought into cyclical companies set to benefit from an economic reopening.

Nasdaq, which had its worst week since October, ended the month roughly 1 per cent higher while the S&P 500 posted a monthly gain of about 2.6 per cent.

Shares of Apple Inc, Amazon.com Inc, Microsoft Corp and Alphabet Inc rose between 0.2 per cent to 1.4 per cent on Friday but had their worst week in months due to a sharp rise in US Treasury yields.

The benchmark 10-year US Treasury yield eased to 1.404 per cent after jumping to 1.614 per cent on Thursday, roiling stock markets. Wall Street’s fear gauge hovered at a one-month high.

Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when interest rates go up.

“There’s no question that the path in rates today is higher,” said Andrew Mies, chief investment officer at 6 Meridian.

The Dow Jones Industrial Average closed 469.64 points lower, or 1.5 per cent, to 30,932.37, the S&P 500 lost 18.19 points, or 0.48 per cent, to 3,811.15 and the Nasdaq Composite added 72.91 points, or 0.56 per cent, to 13,192.34.

Financials and energy shares, the best performing S&P sectors this month, slipped 2 per cent and 2.3 per cent on Friday. Technology stocks rose 0.6 per cent and semiconductor stocks advanced 2.3 per cent.

“There are a few tailwinds for stocks that we shouldn’t lose sight of,” Mies said, citing President Joe Biden’s $1.9 trillion economic aid package before Congress.

The S&P 500 value index dropped 1.3 per cent while the growth index rose 0.3 per cent in a reversal of this month’s trend.

An early surge in the shares of GameStop Corp fizzled and left the video game retailer’s stock down 6.4 per cent on Friday, throwing water on a renewed rally this week that has left analysts puzzled.

On the economic front, the latest data showed US consumer spending increased by the most in seven months in January but price pressures remained muted.

Salesforce.com Inc dropped 6.3 per cent as the online software company forecast full-year profit below market expectations.

With Reuters

is senior editor for Morningstar Australia

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