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Global Market Report - 19 January

Lewis Jackson  |  19 Jan 2022Text size  Decrease  Increase  |  
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Australian shares are poised to fall after investors sold off stocks and bonds on Wall Street  amid upgraded expectations the US Federal Reserve may hike rates four to five times this year.

ASX futures were down 71 points or 1% at 7244 near 8.00 am AEST, suggesting a negative start to trading.

US stock indexes fell Tuesday and bond yields hit two-year highs as investors fretted over whether the Federal Reserve will raise interest rates more quickly and aggressively than expected.

Investors, coming off a holiday weekend that had closed markets on Monday, sold stocks and bonds across the board. All three indexes fell, with the S&P 500 sliding 1.8% and the Dow Jones Industrial Average shedding 1.5%. The Nasdaq Composite retreated 2.6%.

Locally, the S&P/ASX 200 index suffered a midday reversal of fortunes to close 0.1% lower at 7408.8, reflecting a mixed performance by financial stocks and the absence of leads from Wall Street.

CBA fell 0.4% to $100.79 and Westpac dropped 0.3% to $21.41, with ANZ the only riser among the major retail banks, logging a 0.1% improvement to $28.75.

Rio Tinto dropped 0.4% to A$109.65 after missing analysts' expectations for 4Q production and offering a weak outlook.

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However, JB Hi-Fi rose 6.9% to A$49.84 after it recorded like-for-like sales growth at its Australian businesses as major states emerged from lockdowns.

Overseas, the pan-continental Stoxx Europe 600 fell 1%, with the biggest losses in the technology and travel and leisure sectors. Major indexes in Asia broadly closed lower, although China's Shanghai Composite bucked the trend, adding 0.8%. South Korea's Kospi fell 0.9%, Japan's Nikkei 225 edged down 0.3% and Hong Kong's Hang Seng declined 0.4%.

Turning to commodities, gold futures slipped 0.15% to $US1813.80 an ounce; Brent crude gained 1.6% to $US87.90 a barrel; Iron ore added 2.7% to US$127.30 a tonne.

Selling continued in bond markets as investors prepared for higher interest rates. The yield on the Australian 10-year bond rose to 1.94%. Yield on the US 10-year Treasury leaped to 1.87%.

The Australian dollar was buying 71.86 US cents near 7.00am AEST, down from the previous close of 72.10. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, edged up to 89.62.


Chinese shares end the day mixed, with gains from coal companies and declines among renewables. Coal stocks got a boost from rising prices of the fuel, Daiwa Capital Markets says. It expects coal companies' earnings to stay resilient in 1Q as prices stabilize. China Shenhua Energy gained 4.2% while Yankuang Energy rose 3.5%. Renewable-energy companies were among the decliners. LONGi Green Energy Technology dropped 1.8% and Arctech Solar slid 1.1%. The benchmark Shanghai Composite Index ended 0.8% higher. The Shenzhen Composite Index and ChiNext Price Index both closed lower, down 0.3% and 0.8%, respectively.

Hong Kong stocks ended the session lower, as the market continued to track down after a strong rally at the very start of the year. The benchmark Hang Seng Index fell 0.4%. Chinese pharmaceutical companies led the downturn, amid what analysts say is profit-taking pressure following the sector's broad recovery over recent weeks. CSPC Pharma lost 3.2% and Sino Biopharmaceutical dropped 1.6%. Tech giants further weighed on the market, as Tencent skidded 2.7% and JD.com fell 1.7%.

Japanese stocks finished lower, dragged by steel and auto stocks amid continued concerns about potential Fed rate increases. Auto-parts maker Aisin fell 3.8% and Suzuki Motor dropped 2.9%. Nippon Steel fell 7.1% after Jefferies cut its rating to underperform from hold. The Nikkei Stock Average fell 0.3%. Covid-19 infection trends and U.S. economic data are in focus.


European stocks fall in closing trade as global bond yields rise on growing expectations central banks will withdraw support, with the pan-continental Stoxx Europe dropping 1%.

"A sharp rise in global bond yields has sent European stock markets into retreat today over concern that higher inflationary pressures will trigger a much more aggressive [interest rate] hiking cycle from central banks around the world," CMC Markets analyst Michael Hewson says.

These concerns have also manifested themselves in European bond markets, which raises the prospect of the European Central Bank lifting interest rates this year, he says.

In London, the FTSE 100 skidded 0.6%.

North America

US stock indexes fell Tuesday and bond yields hit two-year highs as investors fretted over whether the Federal Reserve will raise interest rates more quickly and aggressively than expected.

Investors, coming off a holiday weekend that had closed markets on Monday, sold stocks and bonds across the board. All three indexes fell, with the S&P 500 sliding 1.8% and the Dow Jones Industrial Average shedding 1.5%. The Nasdaq Composite retreated 2.6%.

Meanwhile, the yield on the benchmark 10-year Treasury note ticked up to 1.866% -- its highest level in two years -- from 1.771% Friday. Yields rise when bond prices fall.

Stocks and bonds have been in a tumultuous state since the year's start. All three stock benchmarks are down at least 2.5% so far in 2022. At issue is how much and how quickly the Fed will act in an effort to tame rampant inflation, with investors increasingly convinced that the central bank will act more forcefully.

Interest-rate futures markets indicate investors are now betting on four to five interest rate rises this year, up from three to four Friday, according to CME Group.

"Markets are still trying to find a level for rate increases. It was only in October the market was expecting one rate hike for 2022 and now it's expecting four," said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. "That's reflecting the level of uncertainty we have in the market right now about the path of Fed policy."

Some of the harshest selling has been focused on high-growth stocks whose earnings will look less attractive in a rising-rate environment. Fund managers surveyed by Bank of America's research team in recent weeks found that many cut their exposure to tech, pushing allocations to the sector to their lowest point since 2008.

That played out further Tuesday. Shares of tech and communication services stocks fell 2.1% and 1.7%, respectively. Meta Platforms, Facebook's parent, fell more than 4%. Netflix and Alphabet fell over 2%.

"We're experiencing a withdrawal of liquidity, and that's really spooking the market," said Jack Janasiewicz, a portfolio manager and lead portfolio strategist at Natixis Investment Managers Solutions.

The Cboe Volatility Index—Wall Street's so-called fear gauge, also known as the VIX—ticked up to 22.90, its highest level in a month. "The uncertainty around the timing and pace of the [Fed's] action will likely keep markets on edge for the first half of the year," Ross Mayfield, an investment strategy analyst at Baird Private Wealth Management, wrote in a note Tuesday.

He added market turbulence has been most acute across growth stocks, which have had their worst start to a year relative to value stocks since 1995.

The latest quarterly earnings season hasn't helped. Several financial companies have reported results showing profits have begun to ebb following a year in which many benefited from the tumultuous pandemic economy. Goldman Sachs was the latest to report Tuesday, showing a decline in fourth-quarter profits, sending shares down 7% and acting as a major drag on the price-weighted Dow.

Financial stocks broadly followed. Online brokerage Charles Schwab fell 3.6% after the company reported fourth-quarter profits that rose but came in below analysts' estimates. Analysts said a runup in stocks across the sector in recent weeks likely contributed to shares of Schwab and others taking substantial hits after releasing earnings.

Meanwhile, shares of Activision Blizzard jumped nearly 26% after Microsoft agreed to buy the videogame heavyweight, which has been roiled by claims of workplace misconduct. Microsoft shares dipped 2.4%. Other game stocks rose, including Electronic Arts, which added 2.7%.

Oil prices rose as geopolitical tensions in the Middle East added to worries about tight supply, sending shares of energy companies up 0.1%, the only S&P 500 sector in positive territory Tuesday. Futures for West Texas Intermediate, the main grade of US crude, rose 1.9% to $85.43 a barrel, their highest closing level since October 2014.

Oil prices have been generally moving higher as the latest surge of Covid-19 cases failed to dent demand for the commodity. The Organization of the Petroleum Exporting Countries raised its demand estimate by 260,000 barrels a day for the fourth quarter of 2021, reflecting the stronger-than-expected consumption. That has helped push energy stocks up 15% over the first weeks of the year, while most other sectors of the S&P 500 are in the red.

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

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