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Global Market Report - 11 January

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

The ASX is poised to open lower after US technology shares limped to a flat finish in a volatile session marked by concerns over rising interest rates.

The Australian SPI 200 futures contract were down 35 points at 7304 as of 8.00 am AEST, suggesting a negative start to trading.

Technology stocks erased sharp losses on Monday as government bond yields continued to rise, signalling that investors expect the Federal Reserve to move quickly in raising interest rates.

The tech-heavy Nasdaq Composite closed up less than 0.1%. It fell as much as 2.7% earlier on Monday before paring losses in the afternoon. Last week the benchmark posted its biggest one-week percentage decline since February, as rising bond yields punctured tech valuations.

The S&P 500 also pared losses through Monday trading, ending down about 0.1%. It was the fifth consecutive day of losses for the benchmark. The Dow Jones Industrial Average fell 0.45%, or more 164 points.

Locally, the S&P/ASX 200 closed virtually flat, ending the day down 0.1% at 7447.1. Explosives and chemicals maker Incitec Pivot finished 2.1% higher after saying it had agreed a roughly A$142-million deal to buy Explinvest, the holding company of France-based explosives manufacturer Titanobel.

Among the session's other big winners was battery technology company Novonix, which started the process to list its securities on the Nasdaq and closed almost 11% higher.

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Plumbing supplies company Reliance Worldwide and real-estate developer Lifestyle Communities logged the largest losses, both ending 3.4% lower.

Overseas stock markets were mixed. The Stoxx Europe 600 fell 1.5%, weighed down by shares of real estate and tech companies. In Asia, the Shanghai Composite Index added 0.4% and Hong Kong's Hang Seng rose 1.1%. Japanese markets were closed for a public holiday.

Turning to commodities, gold futures rose 0.2% to $US1800.70 an ounce; Brent crude dropped 1.1% to $US80.88 a barrel; Iron ore is down 1.5% to US$125.45 a tonne.

Bond markets continued to selloff amid expectations of forthcoming rate hikes, with the yield on the Australian 10-year bond rising to 1.91%. The US 10-year Treasury peaked above 1.8% in intra-day trading before finishing at 1.76%.

The Australian dollar was buying 71.64 US cents near 8.00am AEST, down from the previous close of 71.77. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, slipped to 89.86.

Asia

Chinese shares closed broadly higher, helped by gains in energy stocks. The Shanghai Composite Index closed 0.4% higher, the Shenzhen Composite Index rose 0.6% and the ChiNext Price Index slipped 1.19 points. Energy stocks were among the best performers amid resilient demand which helped to offset coronavirus-related concerns. Yankuang Energy advanced 2.2%, China Coal Energy was 3.3% higher and PetroChina rose 0.6%. Chinese property stocks will remain in the spotlight, following news that Shimao Group, which defaulted on a loan last week, has allegedly put all its residential and commercial projects up for sale, Oanda says.

Hong Kong stocks ended the session higher, extending gains that started late last week. The benchmark Hang Seng Index rose 1.1%. Online healthcare providers and drug makers led the rise, as the sector continued to tack upward amid expectations for high pandemic treatment demand after the latest Covid-19 outbreaks in China. Alibaba Health jumped 11% and CSPC Pharmaceutical was up by 6.2%. Chinese tech stocks also gained, continuing to rebound from last week's selloff. Kuaishou soared 10% and Tencent rose 2.3%.

Japanese markets were closed for a public holiday.

Europe

European stocks compound earlier losses as investors become more jittery about rising US interest rates. The pan-European Stoxx Europe 600 fell 1.5%.

"Investors picked up where they left off last week, selling stocks across the board as they contemplate the prospect of US rate hikes in coming months," IG analyst Chris Beauchamp says. "The shockwaves from the Fed minutes last week have not yet completely dissipated and with policymakers continuing to reinforce the more hawkish outlook, investors seem, for the moment, to have entirely lost their appetite for stocks.

In London, the FTSE 100 finished down 0.5% higher thanks to support from banking and mining stocks. Miners Anglo American and BHP Group posted strong gains as metal prices rose. London's blue-chip index appears to be holding up a little better than its peers, helped by outperformance in financials and consumer staples, Michael Hewson from CMC Markets says.

North America

Technology stocks erased sharp losses on Monday as government bond yields continued to rise, signalling that investors expect the Federal Reserve to move quickly in raising interest rates.

The tech-heavy Nasdaq Composite closed up less than 0.1%. It fell as much as 2.7% earlier on Monday before paring losses in the afternoon. Last week the benchmark posted its biggest one-week percentage decline since February, as rising bond yields punctured tech valuations.

The S&P 500 also pared losses through Monday trading, ending down about 0.1%. It was the fifth consecutive day of losses for the benchmark. The Dow Jones Industrial Average fell 0.45%, or more 164 points.

Facebook parent Meta Platforms dropped more than 1%. Apple, Nvidia and Microsoft reversed losses to finish the day with gains.

The early tech declines came as the yield on 10-year Treasury notes rose to 1.779%—its highest closing level since January 2020, according to Tradeweb—from 1.769% on Friday. The benchmark yield briefly hit 1.807% at one point before retreating. Bond yields move in the opposite direction from prices.

Surging yields since the start of 2022 have sent a shudder through tech stocks. By selling bonds and sending yields higher, investors are indicating that they believe the Fed could raise short-term interest rates in March and begin to shrink its holdings of bonds and other assets soon afterward.

Low rates helped fuel a huge rally in tech stocks last year, making bonds less attractive and spurring investors to buy risky assets. But as the Fed has pivoted to fighting inflation, tech stocks have lost some of their luster. The prospect of higher rates also reduces the value that investors see in the future cash flows of fast-growing tech companies, hurting their share price.

"Clearly, tech was overdue for a correction," said Eric Mintz, co-portfolio manager at Eagle Asset Management. "With this pullback, we're seeing valuations move into more reasonable territory."

US inflation data due Wednesday will be keenly watched as investors seek to predict when the Fed will begin to raise borrowing costs. Monthly consumer prices are expected to have risen more than 7% from a year earlier for the first time since 1982.

Futures markets reflect a more than 75% probability that the Fed will hike rates at its March meeting, according to data from exchange operator CME Group.

Investors are also looking ahead to corporate earnings season, which kicks off this week with results from US financial firms such as JPMorgan Chase, Citigroup, Wells Fargo and BlackRock. Many investors have been pushing money into bank stocks, figuring they stand to profit from a rise in interest rates.

Among them is Hani Redha, a multiasset fund manager at PineBridge Investments. He said the New York-based investment firm has cut its ownership of tech stocks and Treasurys while boosting cash holdings and exposure to financial companies.

"Equities are down and bonds are down too," Mr. Redha said. "At least for a while, even cash is better than owning risk assets."

Markets have also been shaken in recent weeks by the fast-spreading Omicron variant of Covid-19. The seven-day average for newly reported coronavirus cases in the US topped 700,000 for the first time over the weekend, according to data from Johns Hopkins University. Even as evidence suggests that Omicron is relatively mild, the rising caseload has caused staffing shortages at airlines, retailers, factories and other businesses.

Lululemon said Monday that its fourth-quarter earnings would fall toward the low end of forecasts, after Omicron caused staffing and capacity constraints during the holiday-shopping season. The news sent the apparel maker's shares down 2.2%.

In other corporate news, Take-Two Interactive shares tumbled 13% after the videogame maker agreed to buy Zynga in an $11 billion deal. Zynga shares soared 41%.

Shares of GameStop, a favourite among individual traders, lost 6.7%, having jumped last week on news that the videogame retailer plans to enter the nonfungible tokens and cryptocurrency markets.

Bitcoin briefly dropped below $40,000 for the first time since September. It was recently trading at about $41,500, according to CoinDesk, down 2% from its price at 5pm New York on Sunday.

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

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