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Global Market Report - 16 February

Lewis Jackson  |  16 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to rebound from Tuesday’s losses in line with Wall Street amid apparent easing of geopolitical tensions in Eastern Europe.

ASX futures were up 54 points or 0.8% at 7157 near 8.00 am AEST, suggesting a positive start to trading.

US stock indexes rose, while energy prices slumped and bonds sold off, after Russia said it had pulled back some troops from the Ukrainian border.

The S&P 500 climbed 1.6% Tuesday, snapping a three day losing streak. The blue-chip Dow Jones Industrial Average gained 1.2%, while the technology-heavy Nasdaq Composite added 2.5%.

Tuesday's advance came as investors' fears about a conflict between Ukraine and Russia dampened. The threat of war has, in recent days, added a geopolitical element to an already troubled market outlook. Investors also have been weighing inflation concerns, as well as signs of easing supply-chain issues.

Locally, the S&P/ASX 200 closed 0.5% lower at 7206.9. Energy stocks were the biggest drag on the benchmark index, closing 3.1% lower, while technology stocks provided a boost, finishing 1.0% higher.

Beach Energy, Santos and Whitehaven coal fell 10.5%, 4.2% and 3.5%, respectively. BHP lost 0.3% despite telling investors its 1H net profit more than doubled, underpinned by strong prices for all of its commodities, including copper and coal.

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Technology stock Block rose 4.2%, while Xero gained 0.3%. Seek surged 6.1% higher after the Australian jobs advertiser upgraded its annual guidance in anticipation of further strong hiring activity by employers.

Elsewhere overseas, European stock indexes rallied after Monday's sharp losses, with the pan-continental Stoxx Europe 600 up 1.4%. Asian stock markets, which mostly closed before Russia announced its pullback, were generally lower. Both Japan's Nikkei 225 and Hong Kong's Hang Seng Index fell 0.8%. Mainland China's Shanghai Composite Index rose 0.5%.

Turning to commodities, gold futures lost 0.85% to $US1853.5 an ounce; Brent crude dropped 3.4% to $US93.20 a barrel; Iron ore fell 8.7% to US$136 amid reports Chinese authorities are cracking down on price speculators.

In bond markets, the yield on the Australian 10-year bond shot up to 2.18%. The benchmark US 10-year Treasury yield jumped to 2.05%. Yields fall when prices rise.

The Australian dollar was buying 71.48 US cents near 8.00am AEST, down from the previous close of 71.24. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, fell to 89.82.

Asia

Turning to Asian markets, which mostly closed prior to news of Russia's pullback in Ukraine, Chinese shares closed higher, supported by liquor makers. The Shanghai Composite Index rose 0.5%, the Shenzhen Composite Index advanced 1.4% and the ChiNext Price Index gained 3.1%. Stocks of Chinese liquor makers were higher amid the festive mood surrounding the Beijing Olympics. Kweichow Moutai advanced 1.2% and Wuliangye Yibin added 0.9%. Iron-ore stocks may be in focus, following reports that Chinese authorities plan to dispatch teams to commodity exchanges and ports to conduct checks on the iron-ore market. Shandong Iron & Steel and Baoshan Iron & Steel each slipped 1.1%.

In Hong Kong, the Hang Seng Index closed 0.8% lower as US rate hike concerns weighed on sentiment, KGI Securities says. Russian-Ukraine tensions also hurt market sentiment, it says. Declines were led by BOC Hong Kong, which closed 4.1% lower. Among oil majors, China Petroleum & Chemical Corp. fell 3.6% while PetroChina Company lost 3.5%. Shares of insurance companies also declined. China Life Insurance and Ping An Insurance both closed 3.5% lower. Gains were led by Wuxi Biologics (Cayman), which added 10%.

Japan’s Nikkei Stock Average closed 0.8% lower, amid uncertainties over the US Fed's pace of tightening and geopolitical tensions between Ukraine and Russia. Financial stocks were among the worst performers, with Sumitomo Mitsui Financial Group slipping 1.0% and Mitsubishi UFJ Financial Group 2.6% lower. Japan Post Bank closed 11% lower after its 3Q net profit fell 49% on year. Other notable losers include Recruit Holdings which declined 12% after it posted slower earnings growth for the quarter ended December.

Europe

European stocks gained as investors welcomed reports of a possible Russian military pull-back from the border with Ukraine. The pan-European Stoxx 600 rose 1.4%.

"Tentative signs of de-escalation in eastern Europe gave risk assets the space to rally today, repairing some of yesterday's heavy equity losses," IG chief market analyst Chris Beauchamp says. "Traders hit the buy button with a vengeance this afternoon on hopes that the Ukraine situation appears to be calming down.”

In London, the same sentiment helped the FTSE 100 close 0.77% higher on Tuesday
While there is still a large concentration of troops in the region this sign of de-escalation was taken as a positive sign, providing a market already overly-stretched to the downside with an excuse to rally, says Beauchamp.

"Despite the focus on inflation and the risks of tighter monetary policy investors seem to be emerging from hiding and are picking up bargains."

North America

US stock indexes rose, while energy prices slumped and bonds sold off, after Russia said it had pulled back some troops from the Ukrainian border.

The S&P 500 climbed 1.6% Tuesday, snapping a three day losing streak. The blue-chip Dow Jones Industrial Average gained 1.2%, while the technology-heavy Nasdaq Composite added 2.5%.

Tuesday's advance came as investors' fears about a conflict between Ukraine and Russia dampened. The threat of war has, in recent days, added a geopolitical element to an already troubled market outlook. Investors also have been weighing inflation concerns, as well as signs of easing supply-chain issues.

"We have two big crosscurrents. One that has been out there for a while, which is inflation. The other being in the near term -- which has ramped up over the last week -- which is Russia," said David Kalis, manager of the Future Fund Active ETF.

The likelihood of a Russian invasion into Ukraine has increased in recent days. Investors are spooked about the economic effects of such a conflict. Though those fears abated somewhat Tuesday after Russian President Vladimir Putin said Moscow had withdrawn some troops from the border, mixed messages continue to fuel a murky outlook.

"I don't think we're out of the woods just because we had one good day," Vincent Deluard, global macro strategist at StoneX.

Oil prices dropped from the eight-year high they hit Monday. Brent crude, the international oil benchmark, lost 3.4% to $93.20. Benchmark European natural-gas prices slumped 3.4%.

Yields on benchmark US 10-year Treasury notes rose to 2.044%, the highest settle value since July 2019. Bond yields and prices move in opposite directions.

Bitcoin prices climbed, adding 4.2% to their Monday 5 pm New York levels of $42,256.83.

"The market is believing what it is hearing in the headlines, but you do have to be careful with these things," said Hani Redha, a multiasset fund manager at PineBridge Investments. "We have to be cautious on news like this in the so-called fog of war."

Investors continue to assess rising inflation as they look ahead to the Federal Reserve meeting in March. Fresh data on Tuesday showed that prices suppliers charged businesses and other customers jumped in January, rising a seasonally adjusted 1% from the prior month, the sharpest rise since May 2021. Producer prices rose 9.7% on a 12-month basis, nearly the same as the prior month.

European stock indexes rallied after Monday's sharp losses, with the pan-continental Stoxx Europe 600 up 1.4%. Russia's MOEX index jumped over 3%. The Russian ruble rallied 1.5% against the dollar and the Ukrainian hryvnia rose 0.9%.

Russia's parliament on Tuesday voted to ask Mr. Putin to recognize two Russian-backed separatist republics in the eastern Ukrainian region of Donbas as independent states. The move could be used to justify an incursion into its neighbour. Russia has denied it plans to attack.

Russia is among the world's largest suppliers of oil, as well as the biggest exporter of wheat and a major producer of key metals, such as palladium, aluminium and nickel, while Ukraine is a key transit route for Europe's natural-gas supplies.

"The biggest impact this thing has had has been in commodities and the feed through of that into inflation," said Mr. Redha. A conflict that pushes commodity prices and inflation higher could prompt central banks to raise interest rates faster than planned, he added.

Some investors are betting that the international economic impact from a conflict would be limited. "In the near term, the market will react first and ask questions later," said Brian O'Reilly, head of market strategy at Mediolanum International Funds. "But anything outside a massive escalation of tensions doesn't really change the trajectory of the global economic outlook."

Earnings season continues, with results due from companies including Airbnb after markets close. Marriott International shares rose 5.8% after the hotelier reported that its fourth-quarter revenue doubled.

Nasdaq-listed Tower Semiconductor rose 42% after The Wall Street Journal reported that Intel was close to buying the Israeli chip company for nearly $6 billion.

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

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