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Global Market Report - 10 June

Lewis Jackson  |  10 Jun 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to fall in line with a sharp decline on Wall Street as the European Central Bank signalled an end to more than a decade of easy monetary policy.

ASX futures were down 55 points or 0.8% at 6964 as of 8.00am on Friday, pointing to a steep decline at the open for a second day in a row.

The S&P 500 closed down 2.4%, while the Dow Jones Industrial Average lost 1.9%. The technology-focused Nasdaq Composite Index retreated 2.7%. The major indexes notched minor declines for much of the day before falling more significantly in the final hour of trading.

The European Central Bank unveiled plans on Thursday to raise rates for the first time in more than a decade come July followed by another possible hike in September. European shares tumbled with the hawkish pivot as President Lagarde said risks to the inflation outlook were now “primarily on the upside”.

US traders are waiting for the latest batch of inflation data, due out Friday (Saturday AEST), that could heavily influence the next stretch of trading for markets, and help shape the Federal Reserve's interest-rate decisions for later this year. The Fed's June meeting will occur next week, and the central bank is widely expected to raise its key interest rate by a half-percentage point -- a move it is expected to replicate in July.

"Once we get a few more data points on inflation, hopefully they confirm that things are coming off the boil and the Fed, after June and July, can be a little less hawkish into the fall," said Tim Holland, chief investment officer at Orion Advisor Solutions. "That's what the markets are hoping for."

Locally, the S&P/ASX 200 closed 1.4% lower at 7019.7, weighed by mining, financial and real-estate stocks. The benchmark index declined steadily through the first 90 minutes of trade, following a weak lead from US equities, and stayed lower.

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Lithium miners Allkem, Liontown, Pilbara Minerals and Lynas lost between 4.2% and 6.2%, while iron-ore heavyweights Fortescue, Rio Tinto and BHP shed between 0.3% and 2.4%.

Banks ANZ, NAB, Commonwealth and Westpac gave up between 2.3% and 3.7% amid concerns about the impact of higher rates on a cooling housing market, while the property-trusts sector slipped 1.55%.

Shares of energy producers rose again amid escalating wholesale prices. The ASX 200 is 3.0% lower so far this week.

Magellan rebounded a bit from Monday's sharp sell-off, gaining 2.2% to $12.82, announcing that co-founder Hamish Douglass would resume working with the wealth manager in a consulting role.

In commodity markets, Brent crude oil lost 0.5% to US$122.91 a barrel. Iron ore fell 2.1% to US$143.85. Gold declined 0.1% to US$1850.70.

In local bond markets the yield on Australian 2 Year government bonds slipped to 2.69% while the 10 Year moved up to 3.60%. In the US, the yield on 2 year Treasury notes jumped to 2.81% and the yield on 10 year US Treasury notes edged up to 3.04%.

The Australian dollar traded at 70.95 US cents, down from the previous close of 71.90 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies rose to 96.06.

Asia

Chinese shares ended the day lower, despite data showing the country's exports rebounded strongly in May. Sentiment was weighed by worries that authorities have begun to impose new lockdown restrictions in some parts of Shanghai. Shanghai's Minhang district will start a new round of Covid-19 testing on Saturday and authorities have ordered residents to stay home during the period. The Shanghai Composite Index shed 0.8% to 3238.95, the Shenzhen Composite Index declined 1.8% to 2045.70 and the ChiNext Price Index fell 3.0% to 2500.21. Chinese liquor stocks closed lower, with Kweichow Moutai slipping 0.7% and Wuliangye Yibin dropping 1.2%.

Hong Kong's benchmark Hang Seng Index fell 0.7% to 21869.05, dragged by consumer-related and electronics stocks, while the property sector strengthened. China Resources Beer shed 5.1% and Haidilao was down 5.0%, while Sunny Optical and AAC Technologies slid 5.8% and 1.6%, respectively. Shipping companies weakened amid falling freight rates and concerns over demand prospects. Cosco Shipping Holdings lost 7.7% and Orient Overseas slumped 11%. Tech shares were mixed after strong gains Wednesday. Alibaba Group rose 2.3% but Meituan fell 3.1%. Property was a bright spot, with China Resources Land, Longfor Group and Country Garden adding 2.0%-2.4%.

The Nikkei Stock Average closes flat at 28246.53 as gains in auto and energy stocks help offset losses in tech and shipping shares. Nissan Motor gains 1.9% and Subaru Corp. climbs 2.1% as the yen's recent weakening raises hopes for an earnings growth. Broader market index Topix also ends flat at 1969.05. Investors are focusing on the European Central Bank's policy decision later in the global day and its impact on bonds and currencies.

Europe

European stocks closed lower after the European Central Bank announced it intended to start raising interest rates in July. The pan-European Stoxx Europe 600 fell 1.4%, the German DAX slipped 1.7% and the French CAC 40 shed 1.4%.

The European Central Bank unveiled plans to raise rates for the first time in more than a decade in July followed by another possible hike in September, catching investors off guard with the sudden hawkishness. President Lagarde said risks to the inflation outlook were now “primarily on the upside”.

The ECB may be "late to the party" but looks committed to lifting rates, which has given "fresh impetus to the rush to sell stocks," IG analyst Chris Beauchamp writes. "Investors can look at today's oil prices and realize that high CPI [consumer price index] readings aren't going away, so hopes of a cooling in the pace of central bank tightening are likely to remain unfulfilled."

London’s FTSE 100 closed down 1.5% on Thursday, with global markets downbeat despite gains for oil. High inflation concerns and weaker economic sentiment drove the retail sector into negative terrain, with online grocer Ocado falling 3.9% and retailer Kingfisher down 3.6%.

"It's been another weak session for European markets as the early week optimism over the dropping of restrictions in China gives way to the reality [of] China's zero-covid strategy," Chief Market Analyst at CMC Markets UK Michael Hewson says in a note. On the brighter side, Melrose Industries rose 4.2%, continuing its rally for the week.

North America

US stock benchmarks posted their biggest declines in more than three weeks Thursday as investors awaited inflation data that will help determine the pace of the Federal Reserve's interest-rate hikes this year.

The S&P 500 closed down 2.4%, while the Dow Jones Industrial Average lost 1.9%. The technology-focused Nasdaq Composite Index retreated 2.7%. The major indexes notched minor declines for much of the day before falling more significantly in the final hour of trading.

Traders and strategists say the inflation data could heavily influence the next stretch of trading for markets, and help shape the Federal Reserve's interest-rate decisions for later this year. The Fed's June meeting will occur next week, and the central bank is widely expected to raise its key interest rate by a half-percentage point -- a move it is expected to replicate in July.

"Once we get a few more data points on inflation, hopefully they confirm that things are coming off the boil and the Fed, after June and July, can be a little less hawkish into the fall," said Tim Holland, chief investment officer at Orion Advisor Solutions. "That's what the markets are hoping for."

For much of this year, investors have been positioning their portfolios to account for the end of easy-money conditions in the US But now, traders must account for tighter policy in the eurozone as well.

The ECB said Thursday it would increase its key interest rate from minus 0.5% to zero or higher by September, and probably further after that. The central bank indicated that it plans to start with a quarter-percentage point increase in July . It also said it would end its large-scale bond-buying program on July 1.

In both the US and Europe, the announcement sent stocks falling. The pan-continental Stoxx Europe 600 closed down almost 1.4%.

The moves by central banks in the US and Europe come as inflation around the world continues to weigh on households. On Friday, investors will get a fresh picture of inflation in the US when consumer-price index data for May are released. Economists surveyed by The Wall Street Journal expect the reading to show that inflation in the US held steady at 8.3% in May, the same annual rate notched for April.

"The concern here in the US is the Fed tightening into an economy that is already showing signs of a slowdown," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. "The ECB is tightening into an even more pronounced slowdown; that could impact global growth, which in turn could be another headwind for company earnings."

Much of the debate in markets has shifted to what the Fed might do at its meeting in September. Until a more clear picture emerges, some traders have been unwilling to make big bets in the market, investors and strategists say.

Some strategists say that has led to more choppy trading in recent sessions as they try to determine whether this year's market selloff has bottomed, or if more pain could be ahead. Many are also factoring in the possibility of an eventual US recession.

"People are not having any conviction one way or another and are taking chips off the table," said Viraj Patel, global macro strategist at Vanda Research. "They are not wanting to get caught offside in either direction."

The S&P's communications and technology sectors both closed down about 2.8%, leading the index's declines. The consumer staples sector saw the smallest decline, down 1.5%.

"People need deodorant, paper towels and cereal even when they might have to cut spending," said Ryan Belanger, managing principal at Claro Advisors, a Boston-based wealth-management firm.

Shares of Tesla reversed earlier gains to close down 0.9%, or $6.48, at $719.12. A US auto regulator said it was expanding a probe into crashes of Tesla vehicles and first-responder vehicles at emergency scenes. The electric-vehicle maker is still on pace to extend its rally into a fourth day.

Tesla shares have been battered this year, falling 32% through Thursday, as investors dumped shares of growth companies. The stock has also been affected by Chief Executive Elon Musk's plan to purchase Twitter.

Shares of Five Below fell about 1.4%, or $1.86, to $133.51 after the discount retailer reported a decline in first-quarter profits as operating costs climbed.

In the Treasury market, the yield on the benchmark 10-year Treasury advanced to 3.041%, from 3.028% Wednesday. Yields and bond prices move inversely.

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

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