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Global Market Report - 11 July

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

Australian shares are set to nudge higher after Wall Street posted strong weekly gains led by technology stocks. US investors are waiting on fresh inflation numbers due out this week after data on Friday showed the economy continued to add jobs at a rapid pace.

ASX futures were up 20 points or 0.3% at 6597 as of 8.00am on Monday, pointing to a positive open.

Overseas, the S&P 500 slipped shortly after the opening bell on Friday before recovering later in the session, only to give up those gains to end the day down 0.1%. The Dow Jones Industrial Average slipped 0.1%. The tech-heavy Nasdaq Composite added 0.1%, continuing its outperformance for the week.

The S&P 500 rose 1.9% this week, while the Dow Jones Industrial Average added 0.8%. The tech-heavy Nasdaq Composite jumped 4.6%, and on Friday rose for the fifth consecutive session, notching its longest winning streak of the year.

On Friday, the Labor Department's June jobs report showed that rising interest rates and high inflation are so far not crimping hiring. The US economy added 372,000 jobs in June, well above the 250,000 expected by economists surveyed by The Wall Street Journal.

Some investors said they were encouraged by the pace of hiring, though others said it increased chances that the Fed would proceed with a 0.75-percentage-point increase at its next meeting. The Fed raised interest rates by that much in June, marking its largest interest-rate increase since 1994. The rate hikes have spurred volatility throughout the year and stoked concerns that the moves to combat inflation may tip the economy into a recession.

"On one hand, it's great to see durable demand for jobs -- but pressure on the Fed to hike rates will depress the bulls," said Mike Bailey, director of research at FBB Capital Partners.

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Locally, the S&P/ASX 200 closed 0.45% higher at 6678.0, completing its biggest weekly gain since mid-March.

The benchmark was 1.0% higher in early trade and was gaining ground again before stalling at about the time of reports that former Japan Prime Minister Shinzo Abe had been shot.

Commodity, tech and industrial stocks led local gains, with shares of coal, oil, gold, lithium and iron-ore companies all rising.

Lithium miners Lynas, Mineral Resources, Pilbara Minerals and Liontown put on between 4.5% and 7.4%.

Gold miner St Barbara jumped 9.6% after hitting its FY output guidance. The ASX 200 added 2.1% over the week.

In commodity markets, Iron ore fell 0.7% to US$114.05, Brent crude oil lost 0.5% to US$106.45, while gold stayed broadly flat at US$1741.50.

In local bond markets, the yield on Australian 2 Year government bonds advanced for a second day to 2.52% while the 10 Year gained to 3.47%. Overseas, the yield on 2 Year US Treasury notes rose to 3.10% and the yield on the 10 Year US Treasury notes jumped to 3.08%.

The Australian dollar rose to 68.60 US cents, up from 68.37 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies fell slightly to 98.78.

Asia

China stocks ended the session lower, reversing their opening gains as the auto sector retreated slightly from its recent gains amid Beijing's continued policy support for the industry. The benchmark Shanghai Composite Index edged down 0.2% to settle at 3356.08, and the Shenzhen Composite Index was 0.3% lower at 2219.90. The tech-heavy ChiNext Price Index was the top loser with a 1.1% drop to 2817.64. Passenger car makers, car dealers and auto service providers led the downturn, after the sector jumped on Thursday on the back of officials' plan for more consumption stimulus in the industry. N-Securities analysts said in a note that the pullback could be in part driven by profit-taking pressure after strong recent gains.

Hong Kong shares closed higher, with the benchmark Hang Seng Index rising 0.4% to 21725.78 amid broad-based gains. Hong Kong equities were supported by overnight gains on Wall Street, IG market strategist Yeap Jun Rong said in a note. Also, "concerns of climbing virus cases in China seem to be overridden by China's plan to lift the economy with a US$224 billion stimulus infrastructure package for now" he added. CSPC Pharmaceutical led gains on the HSI, rising 5.9%. Alibaba Group gained 3.7%, Sunny Optical advanced 3.3% and China Resources Land rose 2.6%.

Japanese stocks ended slightly higher after paring some of earlier gains following news that former Prime Minister Shinzo Abe was shot during a speech. Energy and financial stocks led the gains. Oil explorer Inpex advanced 2.7% and Resona Holdings climbed 2.3%. Japan's reflationary policy, backed by Abe, may lose momentum, even though the ruling Liberal Democratic Party may gain additional votes in support of Abe at the upper-house election on Sunday, analysts say. The Nikkei Stock Average rose 0.1% to 26517.19.

Europe

European markets rose as US investors had a mixed reaction to strong US non-farm payroll data. The pan-European Stoxx Europe 600 gained 0.5%, the French CAC 40 was up 0.4% and the German DAX climbed 1.3%, with automotive stocks among the biggest pan-European risers.

"The latest US job report helped alleviate fears that the widely anticipated recession could begin to hit business investment and hiring decisions," IG analyst Joshua Mahony says. "Nevertheless, we have seen some weakness for US markets as better-than-expected payrolls and stable unemployment/wages strengthen the case for a 75 basis-point hike in three weeks' time."

London’s FTSE 100 rose on Friday for the third day in a row, gaining 0.1% despite a week of major political turmoil in the UK. Fashion retailer JD Sports was among the best performers, with its shares closing 2.2% higher after it named Andy Higginson as its new chairman to replace Peter Cowgill.

North America

The S&P 500 notched a week of strong gains, a reprieve for many investors after a prolonged bout of volatility.

The week was marked by some sharp intraday swings, though for the most part investors got a respite from the heavy selling across markets that has dominated for much of the year.

On Friday, the S&P 500 slipped shortly after the opening bell before recovering later in the session, only to give up those gains to end the day. The S&P 500 lost 0.1%. The Dow Jones Industrial Average slipped 0.1%. The tech-heavy Nasdaq Composite added 0.1%, continuing its outperformance for the week.

The S&P 500 rose 1.9% this week, while the Dow Jones Industrial Average added 0.8%. The tech-heavy Nasdaq Composite jumped 4.6%, and on Friday rose for the fifth consecutive session, notching its longest winning streak of the year.

Some investors have jumped back into the market, looking for bargains after a stretch of volatility that has dragged the S&P 500 down 18% for the year. Many investors returned to a familiar trade in recent sessions: Buying shares of tech companies.

The S&P 500's technology and communication services groups have been among the biggest winners in recent sessions. Shares of Tesla and chip makers including Micron Technology were among the S&P 500's best performers for the week, gaining around 10% apiece. The ARK Innovation ETF has soared almost 14%. Meanwhile, shares of energy companies, which had been the star performers this year, have lagged behind.

"Everybody we're talking to right now is looking to add to their equity allocations," said SJ Zaremba, director at RJA Asset Management. Mr. Zaremba said that some investors were looking to do so through options strategies, so as to not miss out on a potential rebound in the second half of the year.

Investors have been parsing every bit of economic data that has been released in recent days as worries about a recession have grown. Concerns about a potential economic slowdown have rippled through stock, bond and metals markets, driving big swings in everything from Treasurys to copper, the latter which recently fell to its lowest level in nearly two years.

On Friday, the Labor Department's June jobs report showed that rising interest rates and high inflation are so far not crimping hiring. The US economy added 372,000 jobs in June, well above the 250,000 expected by economists surveyed by The Wall Street Journal.

Some investors said they were encouraged by the pace of hiring, though others said it increased chances that the Fed would proceed with a 0.75-percentage-point increase at its next meeting. The Fed raised interest rates by that much in June, marking its largest interest-rate increase since 1994. The rate hikes have spurred volatility throughout the year and stoked concerns that the moves to combat inflation may tip the economy into a recession.

"On one hand, it's great to see durable demand for jobs -- but pressure on the Fed to hike rates will depress the bulls," said Mike Bailey, director of research at FBB Capital Partners.

Though the jobs report proved encouraging, other economic data has been disappointing, sending mixed signals to investors. Lately, data have shown a drop in activity in industries ranging from manufacturing to home construction.

A closely watched recession predictor, the yield curve, remained inverted Friday, with the yield on two-year government bonds trading higher than the 10-year equivalent. The yield on the benchmark 10-year Treasury note rose after the monthly jobs report to trade at 3.098%, notching its biggest one-week yield gain in around a month.

The yield on two-year government notes traded at 3.119%, up from 3.039% in the previous session. Yields rise when bond prices fall.

This week, US central bankers reaffirmed their commitment to fighting inflation, first in minutes from the Fed's June meeting, and then again on Thursday when two officials signaled support for another 0.75-percentage-point interest-rate increase later this month. Both also indicated that recession fears may be overblown.

Federal Reserve Bank of Atlanta President Raphael Bostic said in a Friday CNBC interview that a 0.75-percentage-point interest-rate increase would be warranted.

The jobs report "gives the Fed a little bit more confidence that it can move aggressively without severely hurting the labor market," said Mona Mahajan, senior investment strategist at Edward Jones.

But, she added, at some point the hikes "will hit the real economy."

In corporate news, Twitter shares fell $1.98, or 5.1%, to $36.81 after it said Thursday it would lay off 30% of its talent-acquisition team.

GameStop shares sank $6.58, or 4.9%, to $128.54, after the retailer also said it was cutting staff and terminated its finance chief.

Many expect coming inflation data and the start of second-quarter earnings season next week to bring more volatility.

"There are lots of headfake rallies in a bear market, and I suspect this is one of them," said Rupal Bhansali, chief investment officer of global equities at Ariel Investments. "There's a lot more pain to come."

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

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