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Global Market Report - 16 June

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

Australian shares are set to lift in line with a rally on Wall Street after the US Federal Reserve delivered the biggest rate hike since 1994 but signalled further such moves would be rare.

ASX futures were up 16 points or 0.24% at 6622 as of 8.00am on Thursday, pointing to a positive open for the first time this week.

Overseas, the S&P 500 snapped a five-day losing streak and rose 1.5% with all sectors bar energy gaining. The Dow Jones Industrial Average added 1%. The Nasdaq Composite rose 2.5%, buoyed gains of 3% or more at Microsoft, Nvidia, Amazon.com and Netflix.

The US Federal Reserve approved a 0.75% rate hike on Wednesday, taking US interest rates to a range between 1.5% and 1.75%. Investors had largely expected the Fed’s move after a Wall Street Journal article on Monday claimed officials were considering the hike. What some had worried about heading into Wednesday's interest-rate decision was that the Fed would have to raise interest rates at an even more aggressive pace.

At a press conference that followed the decision, Fed Chairman Jerome Powell said Wednesday's move was "an unusually large one" and he did not expect it to be common. He added that he expected either a 0.50 percentage point or 0.75 percentage point increase at the Fed's July meeting.

"Markets are pricing in a Fed that's trying to get in front of the curve rather than behind the curve on inflation," said Art Hogan, chief market strategist at National Securities. That helped lift stocks heading into Wednesday's rate decision, Mr. Hogan added.

Locally, the S&P/ASX 200 closed 1.3% lower at 6601.0 as continued selling pulled the benchmark to a fourth consecutive loss and its lowest close since January 2021.

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Real-estate and tech stocks led losses as the ASX 200 followed US equities lower. Realestate.com.au owner REA Group and Seek both hit two-year lows, dropping 6.4% and 6.8%, respectively, as Westpac-Melbourne Institute Index consumer confidence figures showed sentiment had declined to a 22-month low.

Buyers scooped up shares of banks in early trade, but the gains were soon reversed. All 11 sectors fell.

The property-trusts sector declined 2.9% amid fears of an economic downturn, while Commonwealth, ANZ, Westpac and NAB banks lost between 0.6% and 1.9%. Block, Novonix and Megaport shed between 7.1% and 14%.

The ASX 200 has lost 7.3% over four sessions.

In commodity markets, Brent crude oil fell 1.8% to US$118.98 a barrel. Iron ore slid 2.5% to US$130.85. Gold added 0.3% to US$1819.60.

Long bond markets continued to decline and the yield on Australian 2 Year government bonds jumped to 3.27% while the 10 Year rose to 4.19%, breaching the 4% mark for the first time since 2013. US bonds rallied after the Fed signalled supersized rate hikes would be rare. The yield on 2 year Treasury notes, which are especially sensitive to changes in interest rates, declined to 3.19% and the yield on the 10 year US Treasury notes edged down to 3.28%.

The Australian dollar rallied to 70.01 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies slipped to 97.23.

Asia

Chinese stocks rose after May activity data beat market expectations, supporting investor sentiment. The A-share market was boosted by insurers and the property sector, while energy companies retreated. Ping An Insurance, China Life Insurance and New China Life were up 5.4%-10%, following upbeat premium income data for May. Developers strengthened after the May data reflected a marginal improvement in the property sector from April. China Vanke gained 3.3% and Poly Developments rose 4.8%. Among laggards, Cnooc fell 5.0% and PetroChina dropped 1.3%, reversing recent gains. The Shanghai Composite Index climbed 0.5% to 3305.41, the Shenzhen Composite Index was 0.5% higher and the ChiNext Price Index added 1.1%.

Hong Kong stocks ended the session higher, as the market extended its recovery from a selloff on Monday triggered by faster-than-expected inflation in the US and worries over more aggressive interest-rate hikes by the Fed. The benchmark Hang Seng Index rose 1.1% to settle at 21308.21. Chinese insurance companies led gains after industry premium-income data pointed to an improving demand outlook for the sector. Ping An jumped 8.0% and China Life rose 5.3%. Tech companies provided further support, with Alibaba rising 4.3% after better-than-expected China retail sales data for May.

Japan's Nikkei Stock Average fell 1.1% to close at 26326.16 on fears of aggressive Fed tightening at the FOMC meeting later in the day. It is interesting that most of Asia is completely ignoring gains in US stock futures, which suggests that Asian investors are overweighting on cash ahead of the outcome, Oanda senior market analyst Jeffrey Halley says. Losses on the Nikkei were broad-based, with Osaka Gas slipping 5.1%, Sysmex Corp. dropping 4.5% and SMC Corp. down 4.2%.

Europe

European markets rose ahead of the latest US Federal Reserve interest-rate decision and after an emergency meeting of the European Central Bank. The pan-European Stoxx Europe 600, French CAC 40 and German DAX all gained more than 1%.

"European markets have enjoyed a welcome respite today, after six days of losses, driven largely by the news that the ECB was looking to speed up work on a crisis tool to deal with concerns about fragmentation in EU bond markets," CMC Markets analyst Michael Hewson says.

London’s FTSE 100 closed up 1.2% on Wednesday as the market anticipated a rise in interest rates by the US Federal Reserve at their meeting later in the day.

"Expectations have risen that policymakers at the US central bank will slam on the brakes hard with a 75 basis-point [interest rate] hike, to stop prices spiralling out of control," Hargreaves Lansdown analyst Susannah Streeter says in a research note.

North America

US stocks soared Wednesday after the Federal Reserve approved its biggest interest-rate increase since 1994 but suggested moves of that scale would likely not become common.

The S&P 500 rose 1.5%, snapping a five-day losing streak and with 10 or 11 sectors reporting gains. The Dow Jones Industrial Average added 1%, while the Nasdaq Composite rose 2.5%, buoyed gains of 3% or more at Microsoft, Nvidia, Amazon.com and Netflix.

The Fed's move is its latest effort to quell inflation through tighter monetary policy. Investors had largely expected the Fed to raise its short-term benchmark rate by 0.75 percentage point. What some had worried about heading into Wednesday's interest-rate decision was that the Fed would have to raise interest rates at an even more aggressive pace.

At a press conference that followed the decision, Fed Chairman Jerome Powell said Wednesday's move was "an unusually large one" and he did not expect it to be common. He added that he expected either a 0.50 percentage point or 0.75 percentage point increase at the Fed's July meeting.

Ultimately, the guidance the Fed gives about the direction of interest rates Wednesday is more important for markets than the size of the rate increase, said Dorian Carrell, a fund manager at Schroders. Uncertainty about monetary policy has been a key driver of volatility this year, helping send the S&P 500 on Monday into bear-market territory, or a drop of at least 20% from a previous high.

"Markets are pricing in a Fed that's trying to get in front of the curve rather than behind the curve on inflation," said Art Hogan, chief market strategist at National Securities. That helped lift stocks heading into Wednesday's rate decision, Mr. Hogan added.

Economically sensitive areas of the market rose. Bank stocks, which had sold off on investor fears about a slowdown in growth, climbed Wednesday, with the KBW Nasdaq Bank Index up 1.6%.

Energy stocks slid, marking a relatively rare retreat for the year's best-performing S&P 500 sector. The S&P 500 energy sector fell about 2.1%.

Meanwhile, US government bonds rallied after sliding in recent weeks in a selloff that has pushed yields to their highest levels in more than a decade. The yield on 10-year Treasurys slipped to 3.389% from 3.482% Tuesday. Yields, which fall as bond prices rise, help set rates for everything from mortgages to federal student loans to auto loans.

Elsewhere, European stocks and prices on peripheral government bonds in the eurozone jumped after the ECB held an ad hoc meeting Wednesday to discuss turbulence in the region's bond markets.

The ECB outlined a plan to buy more bonds of weaker eurozone governments under an existing bond-purchase program. It tasked ECB staff with accelerating the design of a new instrument that would narrow differences in borrowing costs across the region, addressing financial imbalances that have long posed a problem to the currency union.

"They wanted to make sure financing conditions don't deteriorate too much," said Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management. He said the meeting signaled that the ECB was ready to cushion markets earlier than investors had expected.

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

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