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Global Market Report - 16 March

Lewis Jackson  |  16 Mar 2022Text size  Decrease  Increase  |  
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Australian shares are set to open higher in line with Wall Street as mass lockdowns in China saw oil prices fall below US$100 and raised hopes inflationary pressures could ease ahead of this week’s US Federal Reserve meeting.

ASX futures were up 41 points or 0.6% at 7138 as of 8.00am AEST, suggesting a positive start to trading.

The S&P 500 rose 1.4%, while the blue-chip Dow Jones Industrial Average advanced 1.3%, or about 427 points. The technology-heavy Nasdaq Composite added 1.9%. The S&P 500 began the week with modest losses Monday.

China’s biggest covid outbreak in two years is adding volatility to a global economy struggling with Russia’s invasion of Ukraine and record high inflation. Shuttering of key Chinese manufacturing hubs threatens further scrambling of supply chains. The prospect of lower demand from the world’s largest commodity buyer caused commodity prices to retrace gains this week, easing energy price inflation.

"You have this negative correlation right now where when oil goes up, the market goes down, and when oil is down the market goes up," said Jack Janasiewicz, lead portfolio strategist for Natixis Investment Managers Solutions. "If you can get oil to calm down to preinvasion levels, it gives us a little more confidence that inflation is not running away and making things more difficult for the Fed."

Russian and Ukrainian leaders ended peace talks on Monday agreeing to continue for a second day without reporting any progress. Separately, Polish, Slovenian and Czech leaders arrived in Kyiv late on Tuesday in a show of support to the Ukrainian government.

Locally, the S&P/ASX 200 closed 0.7% lower at 7097.4 on weakness in commodity stocks on Tuesday. Iron-ore, gold and energy stocks all fell on softness in commodity prices.

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The tech sector slid following a weak lead from the Nasdaq Composite, which hit a 52-week low.

Rio Tinto, BHP and Fortescue gave up between 3.9% and 4.9% as the materials sector suffered its biggest one-day loss in three weeks.

Gold miners sustained similar losses. Energy producers Woodside, Santos and Beach dropped by between 2.85% and 5.0%.

Financial stocks pared the overall losses as banks ANZ, NAB, Westpac and Commonwealth added between 0.4% and 1.75%.

In commodity markets, gold futures slipped 2.3% to $1916.10; Iron ore fell 6.5% to US$144.55 per tonne; Brent Crude dropped below US$100 for the first time since 1 March, falling 7.9% to US$98.47.

Bond markets are preparing for this week’s Federal Reserve interest rate decision, due Thursday morning AEST. The US 10-Year Treasury Note recovered from a morning rally and yields ended mostly flat at 2.14%. The yield on the Australian 10-year bond gained to 2.51%. Yields rise when prices fall.

The Australian steadied overnight after two days of losses was buying 71.93 US cents as of 8.00am AEST, up from the previous close of 71.85. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rallied again to 91.91, the highest level in more than five years excluding the three months following March 2020.


Chinese stocks closed the session sharply lower, extending a selloff as the country continued to record sharply higher Covid-19 infections after two years of near-zero cases. The benchmark Shanghai Composite Index slumped 4.9%, while the Shenzhen Composite Index dived 4.6%. The ChiNext Price Index held up relatively better, dropping 2.6%. Oil-related stocks such as oil industry services companies and engineering services providers led the downturn, as crude prices withdrew. Precious metal miners further weighed on the market after gold prices fell on profit-taking pressure.

Hong Kong shares finished lower, with the benchmark Hang Seng Index closing 5.7% lower, taking one-month declines to 25%. Investors are focusing on China's Covid-19 situation, with curbs in Shenzhen and Shanghai sparking fears that lockdowns could spread, which would affect growth, Oanda said. There was also a shift from value stocks to growth, which hurt Hong Kong equities, it added. Losses were broad-based, led by Longfor Group's 15% fall, followed by Country Garden Services, Ping An Insurance and Sands China, which slid 13%, 13% and 12%, respectively.

Japanese stocks ended higher, led by gains in auto stocks, as declining crude oil eases concerns about higher costs of fuel and raw materials. Financial stocks gain as the 10-year Japanese government bond yield rises 1.5 basis points to 0.205% ahead of the US central bank's two-day policy meeting starting later in the day. Meanwhile, energy and mining stocks fall, giving up some of their recent gains. Inpex loses 6.8% and Sumitomo Metal Mining drops 10%. The Nikkei Stock Average rises 0.2%.


European markets closed modestly lower as falling oil and metal prices dragged stocks down. The pan-European Stoxx Europe 600 shed 0.3%.

"While European markets have dropped back slightly, Wall Street has managed to make headway, though attention is steadily shifting towards tomorrow's Fed meeting," IG analyst Chris Beauchamp says. "The prospect of tighter monetary policy and the ongoing war in Ukraine continue to weigh on markets. Weaker commodity prices haven't helped."

In London, the FTSE 100 closed Tuesday down 0.32% as the prospect of tighter monetary policy and the continued war in Ukraine further weighed on markets.

"A weaker start to the day has at least been mostly reversed for European indices, including the FTSE 100, but for now these markets remain stuck below last week's highs as bullish momentum stalls," says Beauchamp. Weaker commodity prices dragged on the likes of Glencore PLC and Antofagasta PLC, while fears about a wider lockdown in China have hit markets as well, Mr. Beauchamp says.

North America

US stocks climbed on Tuesday after a retreat in oil prices eased investors' inflation concerns and the prospect that the Federal Reserve will move more aggressively to lift interest rates.

Oil's decline came as investors waited for Wednesday's decision by the Fed, which is expected to raise rates for the first time since 2018. Russia's invasion of Ukraine had increased prices on the commodity well above $100 a barrel, raising the stakes for the US economy and its central bank.

The S&P 500 rose 1.4%, while the blue-chip Dow Jones Industrial Average advanced 1.3%, or about 427 points. The technology-heavy Nasdaq Composite added 1.9%. The S&P 500 began the week with modest losses Monday.

Oil prices dropped back below $100, undoing much of the price surge since Russia invaded Ukraine. West Texas Intermediate, the US benchmark, dropped over 8% to $94.69 a barrel. Brent crude, the international benchmark, declined over 7% to $98.59 a barrel.

Shares of Delta Air Lines, United Airlines Holdings and other US airlines moved higher. Several US airline executives said at an investor conference Tuesday that demand for air travel had rebounded more quickly than they expected. The pickup has made it easier for the carriers to boost fares and cut less-profitable flights, moves that have helped them absorb increases in jet-fuel costs.

Energy stocks fell, with the S&P 500's energy sector retreating nearly 4%. Occidental Petroleum, Marathon Oil and Halliburton all fell at least 3%.

"You have this negative correlation right now where when oil goes up, the market goes down, and when oil is down the market goes up," said Jack Janasiewicz, lead portfolio strategist for Natixis Investment Managers Solutions. "If you can get oil to calm down to preinvasion levels, it gives us a little more confidence that inflation is not running away and making things more difficult for the Fed."

Oil prices fell as investors weighed what Beijing's sweeping Covid-19 lockdowns will mean for demand.

Chinese indexes slid, extending a recent rout fuelled by the country's rising Covid-19 caseload, renewed regulatory pressure from Beijing and the threat of US delistings of Chinese stocks. China's daily cases more than doubled, the government said Tuesday, in an outbreak that has prompted lockdowns in major cities and an entire province.

A clampdown in travel and retail spending in China, coupled with supply-chain disruptions, adds yet another complication to a global economy already dealing with the war in Ukraine and the highest inflation in a generation.

"The headlines that Covid is swirling throughout China is something else that stokes uncertainty in global markets because it adds to concerns about supply chain disruptions," said David Donabedian, chief investment officer at CIBC Private Wealth.

Shares of Nvidia, Advanced Micro Devices and other chip makers also rose, as investors flocked to technology companies more sensitive to the economy's outlook. As a group, information-technology stocks posted the biggest gains in the S&P 500.

The index, along with the other major US benchmarks, opened higher and then gained strength in late-morning trading.

Fed officials are set to meet Tuesday, the beginning of a two-day policy meeting that comes against a backdrop of 40-year-high inflation and concerns that Russia's invasion could hurt global economic growth. While the Fed is expected to stick to its plans for a cycle of rate rises beginning with a quarter-percentage-point increase Wednesday, investors are looking for clarity on how the war in Ukraine might affect the pace of future tightening.

A delegation of European leaders were headed to Kyiv on Tuesday to meet with Ukraine's president and offer his country a broad package of support. Meantime, Russia continued to lob more missiles at the capital city.

US Treasury yields pulled back ahead of the meeting after rising to their highest level in over 2 1/2 years on Monday. The yield on the benchmark 10-year note fell to 2.122% from 2.139% on Monday. Bond yields and prices move in opposite directions.

Investors were also considering fresh data on producer prices. The producer-price index, which generally reflects supply conditions, rose a seasonally adjusted 0.8% in February, according to the Labor Department, down from January's upwardly revised 1.2% rise.

Investors read the drop in oil prices and a slowdown in producer prices as signs the Fed may not need to raise interest rates as aggressively to stave off inflation, said Tim Murray, capital market strategist at T. Rowe Price Group Inc.

"If lower oil means lower inflation, it would hopefully mean a lower end point for Fed tightening," Mr. Murray said. "Rates are the No. 1 issue for US stocks."

Investors have been concerned that the Russia-Ukraine conflict would push inflation even higher by cutting off Russia's sizable supplies of oil and gas and snarling shipments of key metals and grains. They worry the shock could crimp the growth of the global economy just as it gets over the impact of Covid-19 lockdowns.

"The fundamental challenge for investors is that the invasion of Ukraine stokes inflation which was already an issue of concern, but also injects doubt into the outlook for economic growth," said Mr. Donabedian. "It's a one-two punch in terms of elevating uncertainty."

Heightening that uncertainty is the threat of an escalation, as the latest diplomatic efforts to end the fighting have shown little signs of progress. Investors are growing increasingly concerned that a conflict that many people just weeks ago thought wouldn't happen could now spill beyond Ukraine's borders, said Mr. Donabedian.

Reports that China is considering supplying military aid to Moscow raise the threat that Western sanctions could be targeted at Beijing, he added. "That would open up a whole new Pandora's box," he said.

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

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