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Global Market Report - 17 June

Lewis Jackson  |  17 Jun 2021Text size  Decrease  Increase  |  
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Australians shares set to edge higher at the open, while global markets and the Aussie dollar both fell on news the Federal Reserve could lift rates sooner than expected.

The Australian SPI 200 futures contract was up 6 points or 0.08 per cent to 7,388 near 7.30 am Sydney time on Thursday, suggesting a positive start to trading.

Markets were jostled Wednesday after US Federal Reserve officials projected interest rate hikes sooner than expected, with stocks sliding and the dollar jumping on the news.

The MSCI world equity index, which tracks shares in 45 nations, fell 2.39 points or 0.33 per cent. The Dow Jones Industrial Average fell 265.66 points, or 0.77 per cent, the S&P 500 lost 22.89 points, or 0.54 per cent, and the Nasdaq Composite dropped 33.17 points, or 0.24 per cent.

The Australian dollar was buying 76.13 US cents near 7.30am AEST, down from 77.02 at Wednesday’s close.

Locally, Australia's share market notched a second consecutive all-time high, but China's continued efforts to lower commodity prices caused mining shares to slump.

The S&P/ASX200 index rose to a record 7406.2 points early, helped by a standout gain of 1.49 per cent in energy shares.

While shares in most industries traded higher, media reports of China's orders on commodities felled miners and limited ASX gains.

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BHP and Fortescue lost more than 1.5 per cent, while Rio Tinto shed 0.61 per cent.

China reportedly told state-owned companies to limit their exposure to overseas commodities markets.

NAB head of commodity research Lachlan Shaw said China was concerned soaring prices of iron ore, copper, thermal coal and more were contributing to inflation.

He said China has used a range of measures to try and lower prices, and the latest order seemed focused on those trading commodity futures contracts.

Companies which have steel mills, as well as investment groups, might trade these assets.

However Mr Shaw said more speculative traders, betting that commodity prices would soar, were the likely targets.

"China is trying to reduce the amount of participation in these futures markets," Mr Shaw said.

"You don't want to be caught by the government trying to push prices higher."

The big miners' losses meant the ASX200 eased and closed higher by 6.7 points, or 0.09 per cent, to 7386.2.

The All Ordinaries closed up by 0.4 points, or 0.01 per cent, to 7633.4.

Meanwhile global investors are awaiting the results of the US Federal Reserve's policy meeting.

The central bank will give a statement on policy and conditions by Thursday.

US markets closed lower after data showed stronger inflation and weaker US retail sales in May.

Energy shares climbed after oil prices rose nearly two per cent to their highest level in more than two years.

Major oil traders said they see prices staying above $US70 a barrel as travel demand improves despite the pandemic.

Woodside Petroleum was one of the big names to benefit most and gained 2.28 per cent to $24.27.

Oil Search rose 1.46 per cent to $4.18.

Financial shares proved the next best part of the market and climbed 0.81 per cent.

The Commonwealth Bank extended its all-time high price to $104.94. The bank was best of the big four and shares closed up 1.32 per cent to $104.82.

Insurer IAG said it had received 4300 claims following the heavy rain and flash flooding that continues to plague large parts of Victoria.

The company said full-year natural perils claim costs were likely to be higher than earlier guidance.

Shares were up 1.17 per cent to $5.17.

The Shaver Shop Group plummeted after investors were disappointed by a full-year earnings forecast.

Shares fell as much as 10 per cent early despite the company projecting earnings would be higher than last financial year.

Shares closed down 8.26 per cent to $1.00.

On Thursday, Reserve Bank governor Philip Lowe will address the Australian Farm Institute Conference in Toowoomba, Queensland.

Mr Lowe's speech - called Recovery to Expansion - will provide an opportunity to give his view on how the economy is faring after last year's recession.

May employment figures will be published on the same day, with most experts forecasting the rate to stay the same as April at 5.5 per cent.

Lots of jobs being advertised and buoyant business conditions mean there is likely to be limited impact from the end of the JobKeeper wage subsidy in March.

Spot Gold was flat at $US1859.61 an ounce; Brent crude was up 0.4 per cent to $US74.31 a barrel. Iron ore was down 3.5 per cent at $US214.08.

The yield on the Australian 10-year bond closed at 1.55 per cent.


At the close, China's Shanghai Composite index was down 1.07 per cent at 3,518.33.

The Hang Seng index, used to record and monitor daily changes of the largest companies of the Hong Kong stock market, was down 0.70 per cent, to 28,436.84.

Japan's Nikkei 225 Index closed down 0.51 per cent at 29,291.01.


The pan-European STOXX 600 index, which tracks the return of the largest listed companies across 17 European countries, was up 0.23 per cent at 459.86.

The German DAX fell 0.12 per cent to 15,710.57.

North America

Markets were jostled Wednesday after US Federal Reserve officials projected interest rate hikes sooner than expected, with stocks sliding and the dollar jumping on the news.

The MSCI world equity index, which tracks shares in 45 nations, fell 2.39 points or 0.33 per cent. The Dow Jones Industrial Average fell 265.66 points, or 0.77 per cent, the S&P 500 lost 22.89 points, or 0.54 per cent, and the Nasdaq Composite dropped 33.17 points, or 0.24 per cent.

All three major US indices fell following the afternoon announcement, as investors digested the possibility that interest rates could begin climbing sooner as Fed officials cited an improved economic outlook.

At the conclusion of its two-day policy meeting, the Fed disclosed that 11 out of 18 officials were projecting at least two quarter-point interest rate increases in 2023, as Fed Chairman Jerome Powell insisted at a press conference that the US economy is well positioned coming out of the pandemic.

The Fed said monetary support will remain until "substantial further progress" is seen on employment and inflation.

"The central case growth and inflation expectations for the next couple of years have not changed by much since March, but there is an explicit recognition that the vaccination program has reduced the risks to the economy from the health crisis," said Brian Coulton, chief economist at Fitch Ratings.

Investors had been fixated on the new Fed statement all week, as it was the first policy update from the central bank since fresh economic data showed job growth slowing and inflation on the rise.

New projections from Fed officials showed an uptick in projection inflation in the near term, but the Fed did not indicate any significant rethinking of its approach, said analysts.

"Clearly expectations for the Fed to flinch were grossly overblown--a unanimous vote clearly shows they're all on the same page with the current state of the economy, and importantly they've essentially doubled down on their view that inflation is transitory, albeit at a higher rate than last time they met," said Mike Loewengart, managing director of investment strategy for E*Trade Financial.

"But what happens next year becomes more of a question mark."

Markets dipped immediately following the statement, but recovered from session lows as investors digested the news.

The prospect of higher rates was felt in Treasury bonds and the dollar, which both jumped following the Fed statement.

The benchmark 10-year yield rose to its highest level since June 4 at 1.594 per cent. It was last up 7.5 basis points at 1.5737 per cent.

The five-year yield had its biggest one-day move since February, climbing to its highest level since April 6 at 0.913 per cent.

The dollar index =USD, which tracks the greenback against six major currencies, was up 0.63 per cent at 91.103, its highest since May 6.

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

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