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Global Market Report - 14 December

Lewis Jackson  |  14 Dec 2021Text size  Decrease  Increase  |  
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Australia

The ASX is poised to fall in line with Wall Street as investors weigh the end of easy money.

The Australian SPI 200 futures contract was down 41 points or 0.6% at 7339 near 8.00 am AEST on Tuesday, suggesting a negative start to trading.

US stocks fell ahead of a major decision by the Federal Reserve expected later this week on how aggressively to combat inflation.

The S&P 500 fell 0.9%, pulling back after the benchmark gauge closed last week at its 67th record high of 2021. The Dow Jones Industrial Average slid 0.9%, as losses worsened in afternoon trading. The technology-heavy Nasdaq Composite Index declined 1.4%.

The Fed is set to release its decision on Wednesday (Thursday morning AEST) following the conclusion of a two-day policy meeting. The US central bank is expected to move more quickly to wind down its bond-buying program and signal that it will raise interest rates next year to curb inflation.

The Australian dollar was buying 71.30 US cents near 8.00am AEST, down from the previous close of 71.69. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 90.22.

Locally, the S&P/ASX 200 closed 0.35% higher at 7379.3, led by commodity stocks. The benchmark followed a positive lead from US equities, building on a 1.55% gain across last week.

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Energy, materials and real-estate stocks finished higher; every sector had been in positive territory until a last-minute pullback dropped financials, health, consumer discretionaries, consumer staples, and industrials into the red.

Woodside, Santos and Beach added between 1.1% and 3.35% amid higher oil prices, while iron-ore miners Fortescue, BHP and Rio Tinto put on between 2.0% and 2.7%.

Charter Hall led gains by real-estate groups, jumping 5.6% after upgrading its FY earnings guidance.

Gold futures nudged up 0.2% to $US1787.90 an ounce; Brent crude lost 1% to $US74.36 a barrel; Iron ore jumped 5.7% to US$114.20.

The yield on the Australian 10-year bond fell to 1.59%, with the US 10-year Treasury yield joining it lower at 1.41%.

Asia

Chinese stocks closed higher, supported by construction companies. The Shanghai Composite Index closed 0.4% higher, the Shenzhen Composite Index gained 0.6% and the ChiNext Price Index rose 0.9%. There has been some incrementally positive signals on the property sector from the central government, which should boost home buyers' sentiment and support gradual physical market recovery, Jefferies said. The market is expected to focus on China data due this week, including industrial production, retail sales and fixed asset investment.

Japanese stocks closed higher, led by gains in insurance and shipping stocks, as investors took the prospects of future US policy tightening in stride. The Nikkei Stock Average closed 0.7% higher. Investors were focusing on any developments over the Omicron Covid-19 variant and their policy implications. The US Federal Reserve Fed and the Bank of Japan are scheduled to make policy decisions later this week.

Hong Kong shares fell amid declines by property developers, taking the benchmark Hang Seng Index 0.2% lower. Brokerage Federated Hermes said property developers' debt problems remained of concern, with Fantasia's stock dropping by more than 9% after it resumed trading Monday.

Europe

European equities trade mostly lower in closing trade as worries about the Omicron coronavirus variant persist while investors await a slew of central bank decisions. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies fell 0.4%.

In London, the FTSE 100 ended Monday down 0.83% with stocks slipping as the afternoon went on, largely on the back of the prospect of more coronavirus pandemic-related restrictions.

North America

US stocks fell ahead of a major decision by the Federal Reserve expected later this week on how aggressively to combat inflation.

The S&P 500 fell 0.9%, pulling back after the benchmark gauge closed last week at its 67th record high of 2021. The Dow Jones Industrial Average slid 0.9%, as losses worsened in afternoon trading. The technology-heavy Nasdaq Composite Index declined 1.4%.

The Fed is set to release its decision on Wednesday following the conclusion of a two-day policy meeting. The US central bank is expected to move more quickly to wind down its bond-buying program and signal that it will raise interest rates next year to curb inflation. Data published Friday showed consumer prices increased in November at the fastest annual rate since 1982. Rising prices have rattled policy makers and hurt US consumer confidence, putting pressure on the Fed to act.

Low rates and easy-money policies from the Fed have helped fuel this year's extraordinary stock-market rally. Removing that support could send markets tumbling, some investors say.

"We are in the midst of a transition from a euphoric economic environment funded by the Federal Reserve to an environment that is much more uncertain," said Phil Blancato, president and chief executive of Ladenburg Thalmann Asset Management.

Still, Gregory Perdon, co-chief investment officer at Arbuthnot Latham, said he expects stocks to keep rising even as the Fed tightens monetary policy.

"The classic textbook would be rates up, stocks down," Mr. Perdon said. "The reality is there's so much liquidity out there, there's so much demand to get a return on assets that ultimately we're going to have to have a much...more aggressive tightening to knock stocks."

Another wild card for investors is the new Omicron variant of Covid-19. The UK on Monday reported its first death from Omicron, after imposing new social-distancing restrictions last week. Chinese authorities, meanwhile, said they detected the first case of the variant on the country's mainland.

Policy makers are awaiting clearer data on the severity of the new variant, which has triggered spasms of volatility in the markets this month.

Vaccine makers were among the best-performing stocks in the S&P 500 as the Omicron variant has increased demand for booster shots. Moderna shares jumped 5.8%, while Pfizer advanced 4.7%. Anthony Fauci, chief medical adviser to President Biden, on Sunday encouraged Americans to get Covid-19 boosters, while the UK government said it planned to offer a booster shot to every adult in England by the end of the year.

Harley-Davidson shares gained 4.7% after the motorcycle maker said its electric-vehicle division would go public by merging with a special-purpose acquisition company. Shares of the SPAC, AEA-Bridges Impact, climbed 3.6%.

Shares of Arena Pharmaceuticals soared 80% after the drugmaker said it would be bought by Pfizer in a deal valuing the company at $6.7 billion.

Some meme stocks popular with individual investors fell sharply. Shares of videogame retailer GameStop were recently down 13%, while AMC Entertainment was off 16%.

Monday's selloff hit cryptocurrencies, which tend to drop when investors pull back from risky assets. Bitcoin's price in dollars dropped to about $46,551, down nearly 7% from where it stood on Sunday at 5 pm New York time, according to CoinDesk.

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

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