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Global Market Report - 16 May

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

Australian shares are set to rise in line with Wall Street after a Friday rally pared steep weekly losses.

ASX futures were up 54 points or 0.8% at 7110 as of last trade on Saturday, suggesting a positive start to the day.

Overseas, the Nasdaq Composite jumped 3.8%, its largest one-day percentage gain since November 2020. The S&P 500 gained 2.4%, while the Dow industrials rose 1.5%. All three indexes finished below highs seen earlier in the session.

Even with Friday's gains, all three major indexes finished the week with losses of at least 2%. The S&P 500 fell 2.4%, while the Nasdaq Composite lost 2.8%, their sixth consecutive weekly declines. The Dow industrials dropped 2.1%.

Traders welcomed a reprieve from the brutal spring selloff that has left virtually no corner of the market unscathed. This week brought several shocks for the market. Data showed inflation is still running hot, disappointing investors. Cryptocurrencies swooned after a so-called stablecoin unexpectedly crashed. The S&P 500 on Thursday flirted with bear market territory, a level 20% lower than a recent high, and the Dow Jones Industrial Average posted weekly losses for the seventh consecutive week, its longest losing streak since July 2001.

"Will this week be the low for the year? I doubt it," said Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management. "I wouldn't be surprised if we get a deeper growth scare sometime this summer."

Locally, the S&P/ASX200 index finished on Friday up 134.1 points, or 1.9% , to 7,075.1.

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The ASX200 still finished the week down 1.8%, in its fourth straight of declines, and hit a three-month low on Thursday.

All 11 of the ASX's official sectors gained ground on Friday, with tech rising by 7.0% after Thursday's 8.7% selloff -- the sector's worst day since March 2020.

"It's looking much better today," said CommSec market analyst Steven Daghlian.

"Over the course of the day, the market started off quite slowly, and has steadily been improving from those levels."

Square - the worst performer on Thursday - was the best performer on Friday, rising, up 15% to $114.88. Jack Dorsey's company is still down 19.6 % on the week, however.

Xero rose 9.4%, Wisetech Global gained 7.3 % and Altium rose 7.1%.

Health care gained 3.0% as blood products giant CSL climbed 3.3% to a three-month high of $280.20.

The heavyweight mining sector was up 1.6%, not quite recovering from Thursday's losses.

The big four banks lagged the rest of the financial sector, which was up 1.4% as Macquarie climbed 4.5%.

In commodity markets, Brent crude oil rose 4.4% to US$110.49 a barrel. Iron ore lost 0.2% to US$127.35. Gold was flat at US$1808.90.

Local bonds continued to rally on Friday, with the yield on the Australian 2 Year government bond down to 2.52% while the 10 Year eased to 3.39%. Investors went in the opposite direction overseas and yields on US Treasury 2 Years edged up to 2.58%, and the 10 Year gained to 2.92%.

The Australian dollar was buying 69.30 US cents as of last trade on Saturday. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged down to 96.71.

Asia

Chinese stocks ended the week higher, tracking broad gains among other Asian share markets. The Shanghai Composite Index gained 1.0% to 3084.28, while the Shenzhen Composite Index rose 0.5% to 1931.45 and the ChiNext Price Index added 0.3% to 2358.16.

Investors will focus on economic data out of China next week including industrial production and retail sales, IG market analyst Yeap Jun Rong says in a note. Such data will likely reflect the impact of China's Covid-19 lockdowns on economic activity, he adds. Bank stocks are higher. Industrial & Commercial Bank of China advanced 1.1% and Agricultural Bank of China added 0.7%.

Europe

European markets built on earlier gains amid optimism on Friday after an upbeat start to trading on Wall Street. The pan-European Stoxx Europe 600 and German DAX rose 1.9% and 1.8% respectively and the French CAC 40 gained more than 2%.

"As it turns out, the price action today has been fairly orderly, as well as positive to boot, with broad gains across the board as we look to cap a week of gains for European markets, closing at the highs of the week," CMC Markets analyst Michael Hewson says. "Today's gains have been broad-based, with energy, financials, healthcare, and consumer goods all seeing solid demand."

London’s FTSE 100 closed up 2.6% as it recovered from heavy losses earlier in the week, led by banking and oil stocks gains, as financials, healthcare and consumer goods saw solid demand. Worries over China's pandemic-related lockdowns slowing global growth helped offset concerns regarding dwindling fuel supplies from the world's second-largest oil exporter: Russia.

BP closed up 3.6% with Shell closing up 2.8%. Scottish Mortgage Investment Trust was the day's biggest riser, up 7.3%, followed by Flutter Entertainment and Compass Group, up 5.6% and 5.3% respectively. Education company Pearson was the day's biggest faller, closing down 1.5%, followed by Vodafone, down 0.8%, and Avast, down 0.6%.

North America

US stocks ended higher on Friday after a punishing week of losses across major indexes.

Traders welcomed a reprieve from the brutal spring selloff that has left virtually no corner of the market unscathed. This week brought several shocks for the market. Data showed inflation is still running hot, disappointing investors. Cryptocurrencies swooned after a so-called stablecoin unexpectedly crashed. The S&P 500 on Thursday flirted with bear market territory, a level 20% lower than a recent high, and the Dow Jones Industrial Average posted weekly losses for the seventh consecutive week, its longest losing streak since July 2001.

The Nasdaq Composite jumped 3.8%, its largest one-day percentage gain since November 2020. The S&P 500 gained 2.4%, while the Dow industrials rose 1.5%. All three indexes finished below highs seen earlier in the session.

The moves higher followed a late-session rally Thursday that helped the Nasdaq Composite eke out a gain. Risk-on sentiment carried into international stock markets overnight. By Friday morning in the US, investors were scooping up shares of beaten-down technology companies before the opening bell.

Even with Friday's gains, all three major indexes finished the week with losses of at least 2%. The S&P 500 fell 2.4%, while the Nasdaq Composite lost 2.8%, their sixth consecutive weekly declines. The Dow industrials dropped 2.1%.

Traders and investors were unwilling to call a bottom.

"Will this week be the low for the year? I doubt it," said Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management. "I wouldn't be surprised if we get a deeper growth scare sometime this summer."

Investors are currently confronting issues not seen in decades as inflation continues to hover near a four-decade high. Many traders believe a recession is increasingly likely as the Federal Reserve attempts to get pricing pressures under control. Many institutional and individual investors alike have begun to discount the idea that the Fed can engineer a so-called soft landing, during which inflation falls but unemployment stays low and the economy keeps growing.

Though Mr. Slimmon said he believes there is more short-term pain in store for stocks, he remains optimistic in the longer term, and said he thinks the market will rebound by the end of the year, citing some fairly upbeat earnings reports. More than three-quarters of S&P 500 companies have reported a positive earnings-per-share surprise for the first quarter, in line with prior quarters, according to FactSet.

"I spend a ton of time talking to companies and listening to company conference calls, and what I can tell you is I don't hear collectively the weakness out of companies that I'm seeing in the stock market," said Mr. Slimmon said.

On Thursday, Fed Chairman Jerome Powell acknowledged that getting inflation under control could create a short-term hit to the economy. He repeated his view that further half-percentage point increases would likely be appropriate at coming meetings, but said the central bank could consider larger increases if economic data necessitate such steps. Federal Reserve Bank of Cleveland President Loretta Mester said Friday that half-percentage point increases were appropriate at the next two meetings.

This week's inflation report offered little solace to investors, especially after data showed that price pressures were largely broad based. Gasoline prices eased, but prices rose for groceries and dining out, airline travel and other services, spooking investors who had hoped that inflation had peaked.

That forced many to sell off riskier investments and pile into assets perceived as safer. Growth and technology stocks, which are typically hurt by higher interest rates, in particular were walloped. The risk-off sentiment rippled elsewhere, leading to sharp plunges in cryptocurrencies.

"This week was like a pivot in the markets. The mood has changed from evaluating if we can live in an economy with higher rates to [investors] asking: 'Are we on the brink of a recession?'" said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

On Friday, however, technology stocks were among those that led the rebound. Nvidia added $15.31, or 9.5%, to $177.06, PayPal advanced $4.54, or 6.1%, to $78.83 and Netflix gained $13.33, or 7.6%, to $187.64. The S&P 500's information technology segment ended the day up 3.4%.

Twitter shares fell $4.36, or 9.7%, to $40.72 after Tesla Chief Executive Elon Musk tweeted that his deal to buy the social-media company and take it private is "temporarily on hold" pending details on the amount of fake accounts on the social-media platform. Mr. Musk later tweeted that he was committed to the acquisition, helping Twitter trim premarket losses of more than 20%. Tesla shares rose $41.59, or 5.7%, to $769.59.

Twitter CEO Parag Agrawal on Friday said "while I expect the deal to close, we need to be prepared for all scenarios," a day after he internally announced a hiring freeze and cost cuts.

Robinhood surged $2.13, or 25%, to $10.69 after Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX, disclosed a 7.6% stake in the brokerage. Duolingo jumped $22.79, or 34%, to $89.77 after the language-learning platform reported a sharp jump in revenue and monthly active users.

Energy stocks were some of the biggest gainers Friday, rising with the price of oil. Brent, the global crude oil benchmark, rose 3.8% to $111.55. Oil prices ticked lower this week, but remain up more than 40% since the start of the year.

Bitcoin climbed to just above $30,000 on Friday, from its 5 p.m. ET level of $28,572.24 on Thursday. Elsewhere in the cryptocurrency markets, the beleaguered stablecoin TerraUSD continued to spiral lower, trading at 11 cents. TerraUSD broke its typical peg to $1 last weekend following a wave of selling of the token. Its sister token Luna also has fallen precipitously this week, trading at half a penny, down from more than $60 on Monday.

In the bond market, the yield on the benchmark 10-year US Treasury note climbed to 2.932% from 2.815% Thursday, reversing a four-day slide that came as investors piled back into bonds. Yields climb when bond prices decline.

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

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