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Global Market Report - 12 June

Lex Hall  |  12 Jun 2020Text size  Decrease  Increase  |  
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Australia

Shares are expected to slide in early trading on the Australian market after US indices plunged over fears of a rise in COVID-19 cases in the country and negative economic projections.

The local SPI 200 futures contract was down by 181 points, or 3.04 per cent, to 5,775.0 at 8am Sydney time on Friday, indicating heavy losses in share values.

US investors continued selling shares after the US Federal Reserve released its first pandemic-era economic outlook, with chairman Jerome Powell warning of a "long road" to recovery.

Increasing COVID-19 infection numbers also have investors worried. A new analysis found that in 21 of the 50 US states, the rolling seven-day average of new cases per capita was higher than in the seven days earlier.

All three major US stock indexes lost well over 5 per cent, posting their worst one-day percentage drops since 16 March, when markets were sent into freefall by the abrupt economic lockdowns.

In Australia, the market ended seven consecutive days of gains on Thursday.

The benchmark S&P/ASX200 index closed down 187.8 points, or 3.05 per cent, at 5,960.6 points, while the broader All Ordinaries index closed down 189.8 points, or 3.03 per cent lower, at 6,079.5.

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The Australian dollar was buying 68.45 US cents at 8am. That was sharply lower from 69.27 US cents at the close of trade on Thursday amid rising risk aversion among investors.

Asia

China stocks erased early gains and ended lower on Thursday, reflecting lingering concerns over the economy as some investors took profit after a strong rebound recently.

The blue-chip CSI300 index fell 1.1 per cent, to close at 3,995.88, while the Shanghai Composite Index lost 0.8 per cent to 2,920.90.

Hong Kong stocks fell the most in nearly three weeks on Thursday, as Asian markets tracked Wall Street lower after a downbeat economic outlook from the US Federal Reserve rekindled growth concerns.

The Hang Seng index fell 2.3 per cent, to 24,480.15 points, while the China Enterprises Index lost 2.0 per cent, to 9,944.60 points.

Japanese shares suffered their biggest one-day fall in six weeks on Thursday as the safe-haven yen strengthened after the US Federal Reserve’s dour economic outlook spooked investors.

The benchmark Nikkei average plunged 2.8 per cent to 22,472.91, its largest daily decline since 1 May, moving further away from a 3-1/2-month closing high hit earlier in the week.

Europe

European shares suffered their worst day in more than 11 weeks on Thursday after a sobering economic outlook from the US Federal Reserve and worries of a second wave of COVID-19 cases.

The pan-European STOXX 600 fell 4.1 per cent, its fourth straight daily fall, with automobile stocks leading losses.

Fiat Chrysler fell 7.7 per cent and Peugeot maker PSA 10 per cent after a report that the carmakers will face a lengthy EU antitrust probe over their planned $50 billion merger.

Renault fell 14.1 per cent after its chairman said nationalisation was not being contemplated. The carmaker recently obtained a 5 billion euro ($5.7 billion) loan, backed by the French state.

The STOXX 600 came further off three-month highs after the Fed indicated that it would take more than just the easing of coronavirus-related curbs for a full-fledged economic recovery, undermining optimism that has buoyed markets recently.

The central bank also forecast a 6.5 per cent contraction in the world’s largest economy for 2020.

The possibility of a fresh rise in US cases also upset hopes for a smooth easing of coronavirus curbs, with a Reuters analysis showing confirmed infections had risen slightly after five weeks of declines, partly due to more testing.

Travel and leisure stocks were pressured by the prospect of new infections, with British cinema operator Cineworld the biggest loser on the STOXX 600, plummeting 17.1 per cent.

Lufthansa slumped 9.1 per cent after admitting that the positions of up to 26,000 employees are surplus to requirements, suggesting many more jobs will be cut at the German carrier.

European stocks also extended losses late in the session after Wall Street indexes opened substantially weaker, with the S&P 500 falling 3 per cent.

Consumer goods giant Unilever’s UK-listed shares UNc.AS fell nearly 1 per cent after it proposed to combine its Dutch and British legal entities in a single holding company based in Britain.

European healthcare stocks declined the least, indicating that defensive plays were coming back into the market.

North America

Wall Street plummeted on Thursday as investors reacted to renewed fears of a pandemic resurgence and digested dour economic forecasts from the US Federal Reserve.

All three major US stock indexes lost well over 5 per cent, posting their worst one-day percentage drops since 16 March, when markets were sent into freefall by the abrupt economic lockdowns put in place to contain the pandemic. The Nasdaq snapped a three-day streak of record closing highs.

The sell-off was broad, with all 11 major sectors of the S&P 500 falling from nearly 4 per cent to well over 9 per cent.

Deaths of Americans from COVID-19 could reach 200,000 in September, a grim result of the US’ economic re-opening before getting growth of new cases down to a controllable level, according to a leading health expert.

At the conclusion of its two-day monetary policy meeting on Wednesday, the US Federal Reserve released its first pandemic-era economic outlook, after which chair Jerome Powell warned of a “long road” to recovery.

Economic data appeared to back up the Fed’s gloomy economic projections, with jobless claims still more than double their peak during the Great Recession and continuing claims at an astoundingly high 20.9 million.

A year-on-year drop in core producer prices also reflected the central bank’s disinflationary concerns.

The CBOE volatility index, a barometer of investor anxiety, posted its largest one-day point gain since March 16.

The Dow Jones Industrial Average fell 1,861.82 points, or 6.9 per cent, to 25,128.17, the S&P 500 lost 188.04 points, or 5.89 per cent, to 3,002.1 and the Nasdaq Composite dropped 527.62 points, or 5.27 per cent, to 9,492.73.

Among the major S&P 500 sectors, energy and financials suffered the largest percentage drops, plunging by 9.5 per cent and 8.2 per cent, respectively.

Interest rate-sensitive banks slipped 9.6 per cent, after the Fed indicated key interest rates would remain near zero through at least 2022.

Travel-related companies, among the hardest hit by mandated lockdowns, were sharply lower.

The S&P 1500 airlines index tumbled 13.8 per cent, while Norwegian Cruise Line Holdings Ltd and Royal Caribbean Cruises dropped 16.5 per cent and 14.3 per cent, respectively.

Boeing Co was the heaviest weight on the Dow, shedding 16.4 per cent after its top supplier Spirit AeroSystems Holdings Inc announced a 21-day layoff for staff doing production and support work for Boeing’s 737 program.

is senior editor for Morningstar Australia

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