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Global Market Report - 15 June

Lewis Jackson  |  15 Jun 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to extend their decline at slower pace as selling moderated on Wall Street ahead of this week’s widely anticipated US Federal Reserve interest rate decision.

ASX futures were down 40 points or 0.6% at 6637 as of 8.00am on Wednesday, pointing to a continuation of yesterday’s losses at the open.

Overseas, the broad-market S&P 500 see-sawed through the day to end down 0.4%, with selling moderating on the index’s fifth consecutive day of losses. The index fell 9.8% over the four prior trading days. The battered technology-heavy Nasdaq Composite eked out a 0.2% gain amid a strong results from Oracle while the Dow Jones Industrial Average slipped 0.5%.

Federal Reserve officials convened on Tuesday for a two-day interest rate setting meeting amid mounting concerns the central bank will be forced into supersized rate hikes that could derail growth. After data last Friday showed US inflation continued to accelerate in May, traders now expect the bank will announce a 0.75% hike at the meeting’s conclusion on Wednesday (Thursday 4am AEST). It would be the biggest since 1994. Markets now expect interest rates to hit between 3.5% and 4% by December, up from 3% last week.

Escalating rate hike expectations are souring optimism about the US economy. Bank of America’s monthly fund manager survey for June showed stagflation fears on the rise and profit forecasts hitting 2008 levels.

Locally, the S&P/ASX 200 closed 3.6% lower at 6686.0 on Tuesday, its biggest loss since May 2020, pulling it into correction territory amid rising bond yields.

Losses in all 11 sectors sent the benchmark index to its lowest close since February 2021 as trade resumed following a holiday weekend and heavy selling of U.S. equities.

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Commodity stocks were badly hit amid fears of global inflation and a weakening in the Australian dollar.

Block shed 15% and WiseTech gave up 6.0% as the tech sector fell 4.5%.

Banks--Commonwealth, Westpac, NAB and ANZ--lost between 2.75% and 4.6%.

Buy-now-pay-later operator Zip fell 16%, making it the worst-performing ASX 200 component.

The ASX 200 is about 12% down on its August 2021 peak.

In commodity markets, Brent crude oil fell 1 % to US$121.09 a barrel. Iron ore slid 1.8% to US$134.20. Gold declined 0.2% to US$1810.00.

Long bond markets sold off sharply on Tuesday and the yield on Australian 2 Year government bonds soared to 3.03% while the 10 Year jumped to 3.95%. US bonds continued to decline albeit at a slower pace with the yield on 2 year Treasury notes, which are especially sensitive to changes in interest rates, climbing to 3.43% and the yield on the 10 year US Treasury notes rose to 3.47%.

The Australian dollar slumped to 68.70 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies rose to 98.00, the highest level in more than three years.

Asia

Chinese stocks ended higher, supported by auto and energy sectors. Car makers have risen over recent sessions amid recovering demand prospects, while Chinese oil majors track oil futures higher. Great Wall Motor jumped 7.3% and Chongqing Changan Automobile surged 10%, while PetroChina gained 5.4% and Cnooc was 4.0% higher. Among laggards were nonferrous metal miners, with Zijin Mining, Ganfeng Lithium and Tianqi Lithium each down more than 1%. The Shanghai Composite Index rose 1.0% to 3288.91, the Shenzhen Composite Index climbed 0.2% and the ChiNext Price Index was 0.1% higher.

Hong Kong stocks closed flat, erasing the session's early losses, with the benchmark Hang Seng Index ending little changed at 21067.99. Even though recessionary fears weighed on sentiment, there were small gains in futures tied to U.S. equity benchmarks, which have "taken the edge off the negativity in Asian markets today," Oanda senior market analyst Jeffrey Halley said in a note. Lenders led gains, as BOC Hong Kong advanced 4.8%, Hang Seng Bank rose 2.4% and HSBC was 1.7% higher. The Hang Seng Tech Index ended 0.1% lower at 4595.74.

Japan's Nikkei Stock Average fell 1.3% to close at 26629.86, tracking Wall Street's sharp decline overnight, although the benchmark's losses were pared somewhat amid gains in U.S. stock futures. The risk-averse sentiment was triggered by the hotter-than-expected U.S. CPI data on Friday, which spooked markets into expecting more aggressive Fed rate increases, says Tina Teng, markets analyst at CMC Markets, in an email. Losses on Nikkei were broad-based, with Daiichi Sankyo dropping 7.0%, NEXON losing 5.65% and Hoya falling 5.2%.

Europe

European markets dropped after mixed trading in Asia and ahead of an expected slightly higher US open. The pan-European Stoxx Europe 600 and French CAC 40 fell more than 1%, and the German DAX backtracked 0.9%. London’s FTSE 100 retreated 0.25%.

"Expectations seem to be climbing by the hour for the Fed decision on Wednesday; from expecting 50 bps a week ago, many banks now expect the committee to increase rates by 75 bps and even 100 bps is being contemplated," IG analysts say in a note.

North America

US stocks extended losses in volatile trading as investors positioned for a mammoth rate hike following this week’s Federal Reserve interest rate meeting.

The broad-market S&P 500 see-sawed through the day to end down 0.4%, with selling moderating on the index’s fifth consecutive day of losses. The index fell 9.8% over the four prior trading days. The battered technology-heavy Nasdaq Composite eked out a 0.2% gain amid strong results from Oracle while the Dow Jones Industrial Average slipped 0.5%.

Federal Reserve officials convened on Tuesday for a two-day interest rate setting meeting amid mounting concerns the central bank will be forced into supersized rate hikes that could derail growth. After data last Friday showed US inflation continued to accelerate in May, traders now expect the bank will announce a 0.75% hike at the meeting’s conclusion on Wednesday (Thursday 4am AEST). It would be the biggest since 1994. Markets now expect interest rates to hit between 3.5% and 4% by December, up from 3% last week.

Escalating rate hike expectations are souring optimism about the US economy. Bank of America’s monthly fund manager survey for June showed stagflation fears on the rise and profit forecasts hitting levels not seen since 2008.

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

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