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Global Market Report - 17 June

Lewis Jackson  |  17 Jun 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to tumble as the global share market rout resumes with central banks in Europe delivering fresh rate hikes and stoking recession fears.

ASX futures were down 135 points or 2.1% at 6325 as of 8.00am on Friday, pointing to a renewed selloff at the open.

Overseas, the S&P 500 fell 3.3%, erasing gains from yesterday’s relief rally. The Dow industrials dropped 2.4%, crossing below 30,000 points for the first time since January 2021. Both indexes ended at their lowest closing levels since December 2020. The technology-focused Nasdaq Composite slumped 4.1%, its lowest close since September 2020.

Jittery markets received fresh blows on Thursday as the Bank of England and Swiss National Bank raised rates, a day after the US Federal Reserve delivered its biggest rate hike since 1994. The moves leave the Bank of Japan as the only developed world central bank yet to begin hiking rates.   

"It seems like anyone who was contemplating buying the dips, especially if we close below 30,000, could easily say 'You know what, I'm just going to wait this one out,'" said Carol Schleif, deputy chief investment officer at BMO Family Office.

Locally, the S&P/ASX 200 closed 0.15% lower at 6591.1 on Thursday, completing its longest losing streak since August.

The benchmark index rose 1.0% in early trade and looked to be following US stocks, which gained after the Federal Reserve raised interest rates to tackle inflation. Yet the ASX 200 stalled amid weakness by financial stocks and continued economic worries. It has fallen 7.4% across five straight losses.

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Banks ANZ, Commonwealth and Westpac gave up between 0.2% and 1.9%.

Health, utility and consumer staples were also weak. Losses were pared by commodity stocks and a bounce by heavily sold-off shares of property trusts. The ASX 200 is 4.9% lower so far this week.

In commodity markets, Brent crude oil rose 1.1% to US$119.81 a barrel. Iron ore slid 1% to US$129.50. Gold added 0.3% to US$1855.00.

Long bond markets rallied on Thursday and the yield on Australian 2 Year government bonds declined to 3.14% while the 10 Year fell to 3.99%. In the US, the yield on 2 year Treasury notes, which are especially sensitive to changes in interest rates, slipped to 3.09% and the yield on the 10 year US Treasury notes edged lower to 3.28% as recession fears mount.

The Australian dollar rallied to 70.45 US cents, down from 70.00 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies fell to 96.41.

Asia

Chinese shares ended mixed, with losses among coal miners, financials and oil producers, while pharma stocks rose. Property developers fell after latest data on new-home prices showed a faster on-year decline in May compared with April. China Vanke dropped 0.9% and Poly Developments fell 1.8%. Insurers gave up some of their strong gains from yesterday, with Ping An down 2.4% and China Life Insurance 3.1% lower. PetroChina slid 3.4% and miner China Shenhua Energy shed 3.9%. Among gainers, Shenzhen Mindray Bio-Medical and Chongqing Zhifei Biological Products each added more than 1%. The Shanghai Composite Index lost 0.6% to 3285.38, but the Shenzhen Composite Index and the ChiNext Price Index each gained 0.4%.

Hong Kong stocks ended the session lower, as the market weakened sharply from its opening gains amid rising worries over more aggressive interest-rate increases by the US Fed. The benchmark Hang Seng Index fell 2.2% to settle at 20845.43. A mixed bag of sectors weighed on the market, with shipping company Orient Overseas leading the downturn with a 6.9% slump, as analysts pointed to a worsening outlook for trans-Pacific transportation demand due to slowing demand for goods in developed markets after peaking in 2021. Tech companies, which are particularly affected by higher rates, also suffered, as Alibaba Health fell 5.1% and Meituan slid 4.0%.

Japan's Nikkei Stock Average rose 0.4% to close at 26431.20 on hopes for less aggressive Fed tightening after the US central bank raised its policy rate by the most since 1994 but signalled moves of similar scale are unlikely to become common. The reason for the post-Fed rally is that the market had gone well ahead of itself in terms of hawkish pricing, and some of the hawkish bets have been cut, says Swissquote Bank's senior analyst Ipek Ozkardeskaya in an email. Gains on Nikkei were broad-based, with Toray Industries climbing 4.0%, Asahi Group Holdings adding 3.0% and Mitsubishi Heavy Industries up 2.9%.

Europe

European markets dropped amid recession fears following central-bank interest-rate rises in Europe and the US. The pan-European Stoxx Europe 600 and French CAC 40 fell more than 2% and the German DAX retreated 3%.

"After breaking a six-day run of declines yesterday, European markets have resumed normal service to the downside, after the Swiss National Bank unexpectedly hiked rates by 50 basis points, following last night's 75bps rate rise by the Federal Reserve, with the Bank of England following up with another 25bps," CMC Markets analyst Michael Hewson writes, adding that lackluster US housing-industry data for May increased concerns about a potential economic slowdown.

London’s FTSE 100 closed down 3.1% on Thursday as the Bank of England raised interest rates by 25 basis points. Perhaps the most surprising thing was how underwhelming BOE's response was, says Craig Erlam, senior market analyst for UK and EMEA at Oanda.

"At a time when the central bank announced that inflation is now expected to peak above 11% in October, it also raised interest rates by a measly 25 basis points and didn't show a particular willingness to accelerate the tightening to combat those price pressures," Erlam says in a research note. The bank clearly hopes inflation will come down naturally over time, but that is quite the gamble, he adds.

North America

US stocks tumbled Thursday, sending the Dow Jones Industrial Average below 30000 for the first time since January 2021 as volatility continued to rock the market.

Major indexes have notched big declines in 2022 as high inflation, rising interest rates and growing concerns about corporate profits and economic growth dent investors' appetite for risk. The blue-chips are down 18% this year, while the S&P 500 is down 23% and the tech-heavy Nasdaq Composite has fallen 32%.

Stocks rallied Wednesday after Federal Reserve Chairman Jerome Powell suggested the central bank's 0.75-percentage-point interest rate increase this week wouldn't become common. On Thursday that optimism fizzled, and stocks declined across the market as investors reassessed the risks ahead.

"The outlook for growth and profits and inflation, at least over the next few months, is not all that favorable, unfortunately," said Michael Sheldon, chief investment officer at investment advisory firm RDM Financial Group.

The S&P 500 fell 3.3%. The Dow industrials dropped 2.4%. Both indexes ended at their lowest closing levels since December 2020. The technology-focused Nasdaq Composite slumped 4.1%, its lowest close since September 2020.

The leg lower by the blue-chip average could weigh on the mood of investors who had grown accustomed in recent years to stocks appearing to march ever higher.

"It seems like anyone who was contemplating buying the dips, especially if we close below 30,000, could easily say 'You know what, I'm just going to wait this one out,'" said Carol Schleif, deputy chief investment officer at BMO Family Office.

The Fed's 0.75-percentage-point rate increase was its largest since 1994 but lined up with investors' expectations as the central bank races to tame high inflation. Recent data showed consumer inflation in May reached its highest level in more than four decades.

Mr. Powell said that while the central bank isn't trying to cause a recession, it was becoming more difficult to achieve a so-called soft landing, in which the economy slows enough to damp inflation without entering a recession. Some analysts said investors are coming to terms with increasing risks to economic growth.

"I think this is the realization that we really could be heading for a recession. I am not sure that had really filtered through to the mind of the market until now," said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors.

Stocks fell across the board Thursday, with each of the S&P 500's 11 sectors lower on the day. The energy group, the only sector in positive territory for 2022, logged a decline of 5.6%.

Big tech stocks retreated, with Microsoft shares falling 2.7%, Amazon shares declining 3.7% and Nvidia shares dropping 5.6%.

Twitter shares lost 63 cents, or 1.7%, to $37.36 after Tesla chief executive Elon Musk addressed Twitter employees in a company meeting Thursday on topics including whether there would be layoffs if he completes his planned takeover of the social-media company. Tesla, which is raising prices on some of its cars amid rising costs, was down $59.70, or 8.5%, to $639.30.

While Mr. Powell suggested Wednesday that the "unusually large" rate rise wouldn't become common, he left the door open to another 0.75-percentage-point increase as soon as next month.

Interest-rate increases of that size could unsettle investors if they feel the Fed is racing too quickly to get ahead of inflation, said Aoifinn Devitt, chief investment officer at Moneta. "That may lead to even more anxiety in the market," she said.

Switzerland's central bank surprised investors by hiking interest rates for the first time in 15 years. The Swiss National Bank raised its policy rate by 0.5 percentage point to minus 0.25%, leaving only the Bank of Japan among the major developed economy central banks not to have raised rates to tame inflation. Economists had expected the SNB to leave rates unchanged.

"This is the last hurdle to fall," said Seema Shah, chief strategist at Principal Global Investors. "If we are getting the central banks who have been considered permanently dovish raising rates then there is no denying that there is a huge inflation problem in the global economy."

The Bank of England on Thursday raised its key interest rate as expected to 1.25% from 1%, marking its fifth move in as many meetings, and said larger moves might be required to tame inflation.

Weekly jobless claims data showed 229,000 Americans applied for unemployment benefits in the week ended June 11. The job market has been an area of strength for the economy, but Fed officials have signalled that weaker employment figures may be a necessary consequence of the central bank's effort to control inflation.

The yield on the benchmark 10-year US Treasury note fell to 3.303% from 3.389% on Wednesday. Treasury yields, which move in the opposite direction from prices, help set rates on a variety of consumer products including mortgages and auto loans.

Bitcoin declined 5.3% from its 5 pm New York level on Wednesday to $20,528, according to CoinDesk, putting it on course to fall for a 10th consecutive day. Cryptocurrencies have been hit by broad economic concerns that are hurting risky trades and worries about select projects and companies in the crypto ecosystem. Investors in cryptocurrency lender Celsius Network are unlikely provide the company with more financing that might bail out the company, The Wall Street Journal reported Thursday.

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

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