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Global Market Report - 11 June

Lex Hall  |  11 Jun 2020Text size  Decrease  Increase  |  
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Australia

Shares are tipped to slip early on the Australian stock market after the US Federal Reserve projected a more sluggish recovery than investors expected.

The local SPI 200 futures contract was down by 66 points, or 1.08 per cent, to 6,063.0 at 8am on Thursday, indicating losses in share values early.

In the US, policymakers at a two-day meeting of the Reserve projected a 6.5 per cent decline in gross domestic product this year and a 9.3 per cent unemployment rate at year's end.

The Fed's pledge to keep monetary policy loose until the US economy is back on track repeats a promise made early in the central bank's response to the coronavirus pandemic.

The Dow Jones Industrial Average fell 282.31 points, or 1.04 per cent, to 26,989.99, the S&P 500 lost 17.04 points, or 0.53 per cent, to 3,190.14 and the Nasdaq Composite added 66.59 points, or 0.67 per cent, to 10,020.35.

In Australia, the benchmark S&P/ASX200 index on Wednesday closed up 3.5 points, or 0.06 per cent, at 6,148.4 points.

The All Ordinaries closed up 6.4 points, or 0.1 per cent, at 6,269.3 points.

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The Australian dollar was buying 69.95 US cents at 8am, the same value as at the close of trade on Wednesday, after hitting an almost one-year high of 70.64 US cents earlier in the morning.

Asia

China stocks ended lower on Wednesday as deepening deflation in the country’s producer prices underlined the economic impact of the COVID-19 pandemic on overseas demand, raising doubts about a swift economic recovery.

At the close, the Shanghai Composite index was down 0.42 per cent at 2,943.75.

Hong Kong shares closed little changed on Wednesday as risk sentiment was hit by a deepened deflation in China’s producer prices, and investors waited for the US Federal Reserve’s economic projections.

At the close of trade, the Hang Seng index was down 7.49 points, or 0.03 per cent, at 25,049.73. The Hang Seng China Enterprises index rose 0.22 per cent to 10,143.48.

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.41 per cent, while Japan’s Nikkei index closed up 0.15 per cent.

Europe

European stocks swung both ways before settling lower on Wednesday as investors awaited the US Federal Reserve’s first economic projections since the COVID-19 pandemic set off a recession in February.

After gaining as much as 0.9 per cent at the open, the pan-European STOXX 600 ended down 0.4 per cent, falling for a second straight session. Travel and leisure stocks led declines.

Food ordering firm Just Eat Takeaway bottomed out the STOXX 600, down 13.3 per cent, after saying it was in advanced talks to buy Grubhub Inc in an all-stock deal.

While no major policy announcements are expected when the Fed wraps up its meeting later in the day, investors will scrutinise its remarks on the health of the US economy, given that its virus-related loosening of monetary policy has flushed markets with money and helped global equities recover from their March lows.

The central bank’s projections are expected to point to a collapse in output this year and near-zero interest rates for the next few years. Any indication that the bank could rein in its recent stimulus measures would be likely to spook investors.

The continent’s markets have seen a broad recovery in recent weeks, with investors moving into cheap, growth-sensitive stocks such as banks and oil companies on hopes that the worst fallout from the health crisis is over.

However, the banking index fell 1.3 per cent despite an early boost from a Reuters report that European Central Bank officials were drawing up a scheme to cope with potentially hundreds of billions of euros in unpaid loans.

Lufthansa slid 5.7 per cent after Germany said it planned to extend its travel warning to countries outside Europe until Aug. 31.

Continental fell 3.6 per cent after a media report cited the German automotive supplier’s CEO as saying it needed to save hundreds of millions of euros and would probably have to lay off workers due to a slump in demand caused by the pandemic.

North America

The Dow and S&P 500 ended a choppy session lower on Wednesday after the Federal Reserve reassured investors of its support for the economy but projected a 6.5 per cent decline in gross domestic product this year.

The Nasdaq, helped by gains in Microsoft and Apple, managed to hold onto a good chunk of its gains and registered a closing record high for a third straight session.

In its latest policy statement, the Fed also forecast a 9.3 per cent unemployment rate at year’s end, and officials saw the key overnight interest rate, or federal funds rate, remaining near zero through at least 2022.

The S&P 500 and Dow both moved between gains and losses after the statement, which included the Fed’s first projections on the economy since the coronavirus outbreak, and following comments from Fed Chairman Jerome Powell.

An S&P index of bank shares, which tend to benefit from rising rates, fell 5.8 per cent in its biggest daily percentage decline since 15 April, and the S&P 500 financial index was the biggest drag on the benchmark index.

The Dow Jones Industrial Average fell 282.31 points, or 1.04 per cent, to 26,989.99, the S&P 500  lost 17.04 points, or 0.53 per cent, to 3,190.14 and the Nasdaq Composite added 66.59 points, or 0.67 per cent, to 10,020.35.

The S&P 500 was off as much as 0.8 per cent before the Fed statement.

The Fed’s pledge to keep monetary policy loose until the US economy is back on track repeats a promise made early in the central bank’s response to the coronavirus pandemic.

Shares of Eli Lilly and Co rose late, ending up 1.3 per cent, after its chief scientist told Reuters that it could have a drug specifically designed to treat COVID-19 authorised for use as early as September if all goes well with either of two antibody therapies it is testing.

is senior editor for Morningstar Australia

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