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Global Market Report - 11 April

Lewis Jackson  |  11 Apr 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to start the week higher, shrugging off Wall Street’s slip on Friday as investors continue to weigh how by the war in Ukraine and rising interest rates will impact growth and inflation.

ASX futures were up 27 points or 0.4% at 7480 as of last trade on Saturday, suggesting a positive start to the day.

In the US, the broad-market S&P 500 lost 0.3% on Friday. The tech-heavy Nasdaq Composite declined 1.3%. The blue-chip Dow Jones Industrial Average reversed early losses to close up 0.4%. All three major indexes ended the week with losses. The S&P 500 snapped a three-week winning streak that had sent it toward its best performance since November 2020, losing 1.3%. The Dow and Nasdaq lost 0.3% and 3.9%, respectively.

Uncertainty over the pace and extent of monetary policy tightening hit stocks and bonds last week after a string of US Federal Reserve officials signalled the bank would act more aggressively to curb inflation. Governor Lael Brainard, who warned last year against the risks of raising rates prematurely, said on Tuesday reducing inflation pressures was “paramount”. Her colleague, St. Louis President James Bullard, said Thursday that the central bank was behind on its mission to tame inflation.

Minutes from the Fed’s March meeting also revealed the bank was preparing to reduce the size of its balance sheet at a pace faster than the most recent round, which ran from 2017 to 2019.

"The Fed has been the number-one story and that continues," said James Athey, an investment manager at Abrdn. "The effect of the sort of tightening that has been discussed, that has a history of being very destabilizing."

Locally, S&P/ASX 200 closed 0.5% higher at 7478.0, boosted by strong performances from resources companies.

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At the same time, the Reserve Bank of Australia's latest financial stability review said household and business balance sheets had strengthened over the past six months.

Materials was Friday's standout sector, closing 1.25% higher, while the technology sector proved to be a drag, finishing the day down 0.2%. Gold Road Resources was one of the top performers, rising 4.7%, while Iluka Resources rose 2.2%.

Meanwhile buy-now-pay-later company Zip fell 2.7% and Square lost 1.4%.

Platinum was the session's worst performer after it said Thursday that its monthly funds under management had fallen, closing 15.0% lower after earlier hitting an all-time low. Fellow fund manager Magellan lost 1.6%.

Australia's benchmark index fell 0.2% for the week.

In commodity markets, iron ore lost US40c to US154.65 per tonne; gold futures gained 0.4% to $1,945.60; Brent Crude oil added 2.2% to US$102.78 a barrel.

Bond markets continued to sell off, with the Australian 10-year briefly moving above 3% on Friday as investors prepared for higher interest rates. The US 10-Year Treasury Note yield rose to 2.70%. The yield on the Australian 10-year bond rose to 2.96%. Yields rise when prices fall.

The Australian dollar was buying 74.58 US cents as of last trade on Saturday, down from the previous close of 74.77. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, slipped to 92.15.

Asia

Chinese stocks ended mixed, extending a rangebound trading pattern this week. The benchmark Shanghai Composite Index rose 0.5%, the sole gainer among the three major indexes. The Shenzhen Composite Index was 0.3% lower and the tech-heavy ChiNext Price Index fell 0.3%. Media companies, including digital news outlets, cinema operators and broadcasters and advertisers, led losses. Gains were concentrated in the engineering sector and infrastructure companies, as strong new order data from some leading industry players boosted investor sentiment, while Beijing's promise of more policy stimuli stoked buying interest.

Property companies led Hong Kong shares higher after two sessions of declines, with the benchmark Hang Seng Index rising 0.3%. The property sector resumed its recovery from recent steep losses, as investor sentiment turned more favourable on the industry's 2Q sales outlook. Tech stocks fell after Tencent said it will shut its game streaming service. The videogame developer lost 1.3% and Alibaba shed 1.3%.

Japanese stocks ended higher, led by gains in electronics and tech stocks, as the recent rising trend in crude-oil prices eased somewhat, alleviating concerns about higher costs of raw materials. Mitsubishi Electric added 2.1% and medical-information platform operator M3 gained 4.0%. The Nikkei Stock Average rose 0.4%. The war in Ukraine and commodity prices remain in focus.

Europe

European stocks rallied in closing trade as the euro and sterling weakened against a stronger dollar, boosting exporters and multinational shares. The pan-European Stoxx Europe 600 rose 1.3%, the German DAX gained 1.5%, the French CAC 40 added 1.3%.

"Today's positive session for European markets appears to have more to do with the fact that the strength of the US dollar has pushed both the pound and the euro lower," CMC Markets analyst Michael Hewson says in a note.

GBP/USD drops 0.4% to 1.3026, having reached a 17-month low of 1.2982 earlier, according to FactSet. EUR/USD falls 0.1% to 1.0873 after hitting a one-month low of 1.0836 earlier.

In London, closed up 1.6% on Friday with strong performances from the mining, energy, healthcare and financial sectors despite rising inflation and expectations of higher interest rates. Miner Anglo American was the day's biggest riser closing up 4.8%, followed by Shell and BP which closed up 3.9% and 3.7%, respectively.

"The index has bounced back from Thursday's ex-dividend driven fall, and with mining stocks leading the way it is back on course for the recent highs," IG says.

North America

Uncertainty about Federal Reserve policy and the war in Ukraine pushed the S&P 500 toward weekly losses and stoked a selloff in the government bond market.

The broad stock-market gauge lost 0.3% on Friday. The tech-heavy Nasdaq Composite declined 1.3%. The blue-chip Dow Jones Industrial Average reversed early losses to close up 0.4%.

All three major indexes ended the week with losses. The S&P 500 snapped a three-week winning streak that had sent it toward its best performance since November 2020, losing 1.3%. The Dow and Nasdaq lost 0.3% and 3.9%, respectively.

Meanwhile, the yield on the benchmark 10-year Treasury note jumped to the highest level since March 2019 as bond prices tumbled.

Throughout the week, investors remained preoccupied with commentary from Federal Reserve officials as well as the minutes from the central bank's March policy meeting. Those minutes showed that policy makers had considered raising interest rates and unwinding its balance sheet faster, driving stocks lower.

Federal Reserve Bank of St. Louis President James Bullard said Thursday that the central bank is behind on its mission to tame inflation and will likely have to act fairly forcefully to get price pressures under control.

The swings in assets across the market highlight how murky the path of the economy remains for many investors, who are trying to pick the winners and losers of the rising interest-rate regime and grappling with surging commodity prices world-wide.

"The Fed has been the number-one story and that continues," said James Athey, an investment manager at Abrdn. "The effect of the sort of tightening that has been discussed, that has a history of being very destabilizing."

A rapid jump in bond yields has led some investors and analysts to wonder whether the rise in yields will chip away at stock returns, and at what point investors will opt to ditch stocks in favour of bonds. Some investors have grown worried that the central bank's interest rate hikes will drive a recession just two years after the US exited the last downturn.

The yield on the benchmark 10-year Treasury note rose for a sixth consecutive day to 2.713%. Shorter-dated bond yields also advanced, with the two-year yield rising to 2.518% and notching a fifth consecutive week of gains. The two-year yield recorded its biggest five-week gain since May 1987.

"Although yield levels are still fairly low, if they rise fast enough, can equities withstand such a monetary shock?" wrote Jim Paulsen, chief investment strategist at the Leuthold Group, in a note to clients on Thursday.

Mr. Paulsen said that in the last three months, yields have risen faster than nearly 97% of all three-month periods since 1950. Still, he said, stocks have typically done well when the 10-year Treasury yield has been below 3% and until it rises to around 4%.

Some tech heavyweights that had rebounded lately pulled back in recent sessions. Amazon.com shares lost 5.6% this week, while Google-parent Alphabet shed 4.9%. The tech-heavy Nasdaq badly underperformed its peers, continuing a trend from earlier in the year.

Investors have also had to analyze mixed signals stemming from different parts of the market. The bond market, for example, was recently flashing a signal that a recession may be on the horizon. And transportation stocks, which are often viewed as an indicator of the health of the economy, have been tumbling.

The Dow Jones Transportation Average, which tracks 20 large US companies ranging from delivery giant United Parcel Service to railroad operator Union Pacific, has fallen 11% to start the month, while the Dow industrials broadly are down about 0.1%. Companies that operate things like trains and planes tend to see higher demand when consumers are ramping up spending on travel and other goods and the economic outlook is brighter.

The war in Ukraine has also continued to weigh on markets. Allegations of war crimes by Russian troops against civilians prompted a new round of sanctions from the US and the European Union this week. The United Nations General Assembly on Thursday voted to suspend Russia from its Human Rights Council.

Despite the recent volatility and signals from the bond market, major indexes have rapidly ascended from their lows in March. The S&P 500 has gained 7.6% since its March low in a broad-based rally. Some investors have said that stocks remain attractive even though Treasury yields have jumped.

"If you want to grow your buying power over the next 10 years, I can't think of a better place to do it than equities," said Dev Kantesaria, founder of Valley Forge Capital. "We have been buying more of the companies that are in our portfolio. We are close to 0% cash."

In commodities, prices for palladium and platinum jumped after the body that oversees London's market for the metals said it would bar metal produced by two major refining companies owned by the Russian government. Meanwhile, the United Nations on Friday said global food prices hit a record high in March.

Oil prices edged lower, with global benchmark Brent crude dropping for the second consecutive week to trade at $102.78 after losing 1.5%. Traders are assessing the impact of sanctions and self-sanctioning measures by energy companies on Russian oil exports and the release of strategic reserves by member nations of the International Energy Agency.

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

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