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Global Market Report - 17 March

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

Australian shares are set to rally as Wall Street notched record gains after the US Federal Reserve raised rates for the first time since 2018 and signalled more are to come as it moves to clamp down on the highest inflation in decades.

ASX futures were up 106 points or 1.5% at 7290 as of 8.00am AEST, suggesting a positive start to trading.

The S&P 500 rose 2.2%, building off Tuesday’s gains for the biggest two-day increase since April 2020. The tech-focused Nasdaq Composite advanced 3.8%, it’s biggest one-day rise since November 2020. The Dow Jones Industrial Average rose 519 points, or 1.55%.

The indexes initially pared their gains in the wake of the Fed's wide-expected announcement before rebounding during Chairman Jerome Powell's news conference. Powell said the US economy was strong enough to handle tighter policy and talked down the risk of a recession. Fed officials are projecting six further rate increases this year, one at each of the remaining meetings.

"It seems very much like they wanted to send a message that they're fighting inflation and they're going to fight it fast and get it under control," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.

Fed officials hiked rates as global stocks rallied on Wednesday following positive news on two of the big worries gripping markets: Russia's war in Ukraine and the new covid outbreak in China. The Financial Times reported on Wednesday that Russian and Ukrainian negotiators had made tentative progress towards a peace plan. Earlier, the Chinese government calmed plummeting equity markets after a top official promised measures to “boost the economy in the first quarter”.

Locally, the S&P/ASX 200 closed 1.1% higher at 7175.2, with every sector gaining amid expectations of interest-rate rises at home and overseas.

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The heavyweight financial and materials sectors, which together comprise about 51% of the ASX 200 by market capitalization, added 1.05% and 0.4%, respectively.

Tech stocks led gains, pulling the beleaguered sector 3.3% higher. Block's ASX-listed securities were the second best-performing ASX 200 component, jumping 7.0% in the wake of the Nasdaq Composite's outperformance in the US on Tuesday.

Xero, WiseTech, Appen and Life360 put on between 4.1% and 7.4%. Energy was the worst-performing sector, edging less than 0.2% higher.

Magellan jumped 3.9% after announcing plans to buyback up to 5.4% of its stock or 10 million shares. Share remain down 21.4% this month.

In commodity markets, gold futures slipped 0.2% to $1925.80; Iron ore jumped 7.3% to US$145.45 per tonne; Brent Crude steadied below US$100, falling 1.8% to US$98.09.

US long-duration bonds sold off sharply after the US Federal Reserve raised interest rates on Wednesday before recovering somewhat in late afternoon trading. The US 10-Year Treasury Note rose to 2.19%, compared to 2.14% the day before. The yield on the Australian 10-year bond eased to 2.49%. Yields rise when prices fall.

The Australian rallied overnight and was buying 72.92 US cents as of 8.00am AEST, up from the previous close of 71.94. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, eased to 91.36.

Asia

Chinese stocks ended the session sharply higher, rebounding from a rout over the past two days, as investor sentiment picked up on supportive comments from top officials. At a meeting chaired by Vice Premier Liu He, President Xi Jinping's top economic adviser, policy makers said the US and China are working to form a "concrete cooperation plan" over accounting oversight of US-listed Chinese companies. Worries over potential ADR delistings for these firms have been a major trigger of the latest selloff. The benchmark Shanghai Composite Index jumped 3.5%, while the Shenzhen Composite Index rose 3.6%. The tech-heavy ChiNext Price Index was the big winner, gaining 5.2%.

Hong Kong shares rose sharply on Wednesday, with the benchmark Hang Seng Index closing 9.1% higher, its biggest one-day gain since 2008. Supportive comments from top Chinese economic policy makers boosted shares, with Chinese officials saying they would "coordinate pandemic prevention and control and economic development, keep the economy operating within a reasonable range and keep the capital market running smoothly," state-owned Xinhua reported. Tech shares led gains, with JD.com, Meituan and Alibaba Health Information Technology jumping 35%, 32% and 28%, respectively. The Hang Seng TECH Index was up 22%.

Japan's Nikkei Stock Average rose 1.6%, as the decline in crude oil prices spurred risk-on sentiment. The overnight slide in oil prices powered Wall Street's relief rally which extended into Asia today, Oanda says. The Nikkei's gains were relatively broad-based, with SoftBank Group climbing 5.95%, Fujitsu Ltd. rising 5.4% and Shimano up 4.9%. Airline stocks were also higher, with Japan Airlines gaining 5.2% and ANA Holdings up 2.8%.

Europe

European markets rose on hopes of an easing in Ukraine-Russia tensions and hints about potential economic stimulus in China. The pan-European Stoxx Europe 600 gained 3.1%.

"Stocks have taken a solid step forward this afternoon, boosted by some good news on two key issues," IG analyst Chris Beauchamp says. "China stimulus headlines and Ukraine deal reports will always give stocks a lift and to get them both on the same day has meant risk appetite has surged in impressive style."

In London, the FTSE 100 closed on Wednesday up 1.75% in a surge of risk appetite from investors after receiving good news on two fronts--China stimulus headlines and reports of deal progress between Ukraine and Russia.

“It is very much a risk-on day for the London market, with gains spread across a host of names and sectors and the only real losers--aside from Avast PLC--being utility stocks, which have been unceremoniously dumped in the rush back into other names," Beauchamp says.

There are still many hurdles ahead, particularly the imminent Federal Reserve decision, but Chinese stimulus and hints of a peace deal could help to allay fears, not least those around surging commodity prices, Mr. Beauchamp says.

North America

US stocks climbed in a volatile session and bond yields jumped Wednesday after the Federal Reserve officially said it would raise interest rates for the first time since 2018.

The S&P 500 finished the day with strength to rise 2.2%. The tech-focused Nasdaq Composite advanced 3.8%, and the Dow Jones Industrial Average rose 519 points, or 1.55%. The indexes initially pared their gains in the wake of the Fed's announcement before rebounding during Chairman Jerome Powell's news conference.

The Fed raised interest rates by a quarter-percentage-point as officials look to keep the economy from overheating and reduce inflation. New projections show that most officials expect the fed-funds rate to rise to at least 1.875% by the end of the year and to around 2.75% by the end of 2023. That implies a total of seven-quarter-percentage-point increases this year and more next year.

"It seems very much like they wanted to send a message that they're fighting inflation and they're going to fight it fast and get it under control," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.

In recent weeks, some investors had lowered their forecasts for rate increases this year because of the Ukraine crisis. The central bank is navigating an unusually complicated environment of a tight labour market, supply disruptions, spiralling inflation, Russia's invasion of Ukraine and Covid-19 lockdowns in China -- the latter two of which are likely to compound inflationary and supply-chain issues.

The Fed's interest rate increase on Wednesday marks the end of a historic wave of stimulus enacted while the Covid-19 pandemic was first spreading through the US The pandemic put a halt to a yearslong bull market in stocks and tipped the economy into a recession. The Fed's stimulus helped the economy bounce back faster than many had expected and drive the stock market to new heights. Now, investors are faced with a different challenge: inflation that's at a 40-year high. Some are even worried about a looming recession.

The prospect of Fed interest rate increases have roiled markets for months. The Nasdaq Composite is now on track for its longest bear market since the financial crisis. The S&P 500 is down around 10% from its high.

Bond yields rose after the announcement. The yield on the benchmark 10-year Treasury note climbed to 2.192% from 2.160% Tuesday. Yields and prices move inversely. The sharp climb in bond yields reflects investors' growing bets that Russia's invasion of Ukraine won't slow the momentum toward higher interest rates.

US retail-sales data for February showed increased spending from the month prior as households adapt to the crosscurrents of a strong labour market, falling coronavirus cases and inflation running at the highest annual rate in 40 years.

Moves in the oil market were muted as investors weighed whether lockdowns in some Chinese cities will sap demand for energy even as Russia's invasion of Ukraine has bolstered concerns of supply disruptions. Brent-crude futures, the international benchmark, edged down 1.9% to $98.02 a barrel.

Elevated oil prices have prompted concerns that the US and Europe could see sustained inflation and lower economic growth, as higher gas and energy prices eat away at household spending on other goods and services. Oil prices have fallen below $100 a barrel in recent days, helping the stock market rebound.

Shares of tech and growth companies, which had been battered in recent months, fared particularly well in trading Wednesday. Shares of the ARK Innovation ETF soared 8.6%. Nvidia shares jumped 6.3%, while PayPal shares added 7%.

Chinese officials said they would "coordinate pandemic prevention and control and economic development, keep the economy operating within a reasonable range and keep the capital market running smoothly," according to a report on Wednesday by Xinhua, China's state news agency. This helped soothe some fears over an economic slowdown in China that would also sap growth globally.

Technology stocks led a blistering rebound in Chinese markets after supportive comments from Beijing policy makers. Hong Kong's Hang Seng Index soared 9.1%, led by gains in technology stocks. China's Shanghai Composite climbed 3.5%.

"The bounceback in Chinese equities shows you how sensitive the markets are," said Peter Garnry, head of equity strategy at Saxo Bank, noting wide swings in markets in recent weeks as investors watch headlines on a number of events.

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

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