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Global Market Report - 14 July

Lewis Jackson  |  14 Jul 2022Text size  Decrease  Increase  |  
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Australia

The Australian market is set to open slightly lower this morning as US inflation jumped to a fresh forty-year high increasing expectations the Federal Reserve will be forced into a bigger-than-expected 1% rate hike when it next meets.

ASX futures were down 4 points or 0.01% at 6515 as of 8.00am on Thursday, pointing to a small fall at the open.

Major indexes wavered during the session but traded lower in late afternoon. In 4 p.m. trading, the S&P 500 was down 0.45% on the day, while the Dow Jones Industrial Average was down 0.7%, or about 209 points. The tech-heavy Nasdaq Composite slipped 0.15%.

Stock futures turned negative after Wednesday morning's (late Wednesday night AEST) data showed that consumer-price inflation accelerated to 9.1% in June. That marked an increase from the 8.6% recorded in May and was a faster rate of inflation than economists had expected.

But some analysts said investors were anticipating that the inflation report could disappoint.
"Certainly the market was braced a bit for a report that was probably not going to look good," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

Locally, the S&P/ASX 200 closed 0.2% higher at 6621.6, clawing back early losses thanks to gains by financial, consumer and industrial stocks.

The benchmark gained in the final hour after edging 0.3% lower at the open following a weak lead from US equities.

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The heavyweight financial sector put on 0.7% as banks Westpac, Commonwealth and NAB rose by between 0.3% and 1.1%. ANZ lost 1.2% after it said it was discussing the acquisition of KKR's MYOB business.

Retailers Wesfarmers, Harvey Norman and JB Hi-Fi added between 1.2% and 2.4%, while Qantas rose 4.25%.

Commodity stocks weighed on the market, with the materials and energy sectors dropping 0.55% and 1.8%, respectively.

In commodity markets, Iron ore rose 3.4% to $US109.40 a tonne, Brent crude oil lost 0.15% to $US99.64 a barrel, while gold declined 0.62% to US$1735.50.

In local bond markets, the yield on Australian 2 Year government bonds fell to 2.45% while the 10 Year dipped to 3.38%. Overseas, the yield on 2 Year US Treasury notes slipped to 2.31% and the yield on the 10 Year US Treasury notes edged down to 2.93%.

The Australian dollar is up 0.04% to 67.61 US cents as of 6.30am AEST. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies fell to 99.73.

Asia

China stocks ended higher, supported by improved sentiment following the release of the country's export data. China's 1H exports rose 13.2% in yuan terms from a year earlier, while foreign trade also sped up in both May and June, according to data from the General Administration of Customs. The benchmark Shanghai Composite Index rose 0.1% to 3284.29, the Shenzhen Composite Index added 0.9% to 2175.59 and the ChiNext Price Index advanced 1.6% to 2746.86. Investors are likely to keep a close watch on developments relating to China's recent uptick in Covid-19 cases. Chinese liquor stocks were higher, with Kweichow Moutai gaining 0.5% and Wuliangye Yibin advancing 1.6%.

Hong Kong's Hang Seng Index ended lower for the third straight session, dropping 0.2% to 20797.95. Property developers were among the top laggards, while tech shares strengthened. The real estate sector is beset by fresh concerns about unfinished construction in China, Nomura analysts said in a note. Country Garden skidded 8.5%. Game developers Kingsoft and Bilibili each rose 3.5% after their games were among the latest batch that authorities approved for release. Tencent Holdings, which didn't make it to the list, shed 0.7%. Tianqi Lithium recovered heavy losses early in its market debut to finish flat.

Japanese shares ended higher, led by gains in power and auto stocks, as concerns eased somewhat about higher fuel costs. Tokyo Electric Power advanced 5.3% and Honda Motor added 2.5%. The Nikkei Stock Average rose 0.5% to 26478.77.

Europe

European stocks fell in closing trade as investors digested fresh data showing US inflation accelerated against expectations. The Pan-European Stoxx Europe 600 fell 1.01%, the German DAX dropped 1.2% and the French CAC 40 declined 0.7%.

London’s FTSE 100 ended Wednesday down 0.74%, tumbling alongside other indices as the latest batch of US. inflation data hit global sentiment. UK airline stocks were one of the big underperformers today, with inflation data showing that the sector has been one of the few to cut prices over the last year, IG Group PLC senior market analyst Joshua Mahony says in a research note.

As businesses desperately try to claw back coronavirus pandemic-driven losses and inflation has soared, airlines have instead had to wage price wars to tempt consumers back, Mr. Mahony says. "With elevated fuel costs, lower fares, and declining household disposable income, there is little reason to be bullish airlines as things stand," he says.

North America

Stocks dropped Wednesday after data showed inflation reached a new four-decade high last month, reaffirming expectations that the Federal Reserve will continue aggressively tightening monetary policy.

Major indexes wavered during the session but traded lower in late afternoon. In 4 p.m. trading, the S&P 500 was down 0.45% on the day, while the Dow Jones Industrial Average was down 0.7%, or about 209 points. The tech-heavy Nasdaq Composite slipped 0.15%.

Stock futures turned negative after Wednesday morning's data showed that consumer-price inflation accelerated to 9.1% in June. That marked an increase from the 8.6% recorded in May and was a faster rate of inflation than economists had expected.

But some analysts said investors were anticipating that the inflation report could disappoint.

"Certainly the market was braced a bit for a report that was probably not going to look good," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

The fastest pace of consumer-price growth in four decades has upended financial markets this year by pushing the Fed to raise interest rates at a rapid clip. The end of the central bank's pandemic-era stimulus policies has dragged on the stock market, boosted yields on government and corporate bonds and sent the dollar higher. More recently, the Fed's drive to tighten monetary policy has raised concerns of a looming recession.

The rapid increase in prices could erode consumer confidence, threatening to unsettle a pillar of the US. economy as well as corporate profits.

"Part of the selloff may be that the consumer gets spooked," said Rich Steinberg, chief market strategist at the Colony Group. "The risk that the markets have is that the consumer backs off further."

Many investors say they will be keenly focused on additional inflation data as they try to gauge the market's path forward.

"The Fed has made it clear they are going to fight this as best they can, " said Paul Cavazos, chief investment officer at American Beacon Advisors. "Looking at those inflation prints is going to be first and foremost."

Falling prices for commodities such as oil, grains and industrial metals in recent weeks could be a sign that inflation is starting to ease. Some retailers, meanwhile, are offering discounts to shed unwanted inventory.

But even if inflation does start to relent, investors expect the Fed to keep raising interest rates and unwinding its bond-purchase program this year. The central bank's focus, said Paul O'Connor, head of multiasset at Janus Henderson Investors, is to make sure workers and companies don't begin to expect inflation to become entrenched -- a dynamic that economic theory suggests could become self-reinforcing.

In 4 p.m. trading, Delta Air Lines shares dropped 4.6% after the company said strong demand helped it turn a profit during the second quarter, though expenses also climbed. Unity Software fell 17% after agreeing to merge with app company ironSource, which rose 47%. Industrial supplier Fastenal said there were signs that demand is starting to soften, sending its shares down 6.3%.

Earnings season will pick up pace Thursday when the nation's biggest banks begin to report.

In bond markets, the yield on the benchmark 10-year US. Treasury note declined to 2.904% from 2.958% Tuesday. Yields fall as bond prices rise.

Oil prices stabilized after tumbling more than 7% Tuesday as investors bet that an economic downturn will weigh on fuel demand. Brent-crude futures added 0.1% to $99.57 a barrel. They are down 13% this month, a decline that has fed through to lower gasoline prices at the pump. The International Energy Agency said the crisis in oil supplies appears to be easing, pointing to a slowdown in demand and rising output in North America.

The WSJ Dollar Index, which tracks the US. currency against a basket of others, dropped 0.1%. The euro traded close to parity against the dollar for the first time since 2002. Many investors are gloomy about the outlook for the eurozone as the war in Ukraine threatens the continent's supplies of natural gas, a vital fuel for heating and power generation.

International markets were mixed. The Stoxx Europe 600 fell 1%, while in Asia, the Shanghai Composite Index added 0.1% and Japan's Nikkei 225 gained 0.5%.

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

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