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Global Market Report - 2 February

Lewis Jackson  |  02 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are poised to rise in line with strength on Wall Street as buoyant corporate earnings helped US stocks rally into a third day.

ASX futures were up 50 points or 0.7% at 6959 near 8.00 am AEST, suggesting a positive start to trading.

US stocks advanced in a choppy trading session Tuesday as investors weighed a recent spate of strong earnings results against continued uncertainty over the impact of higher interest rates this year.

The S&P 500 added 0.7%, climbing for a third consecutive session. The blue-chip Dow Jones Industrial Average and the technology-heavy Nasdaq Composite both advanced 0.8%.

Locally, the S&P/ASX 200 closed a volatile session 0.5% higher at 7006.0 amid strength in technology and financial stocks.

The benchmark dropped into negative territory in early trade, bounced as much as 1.0% higher and then eased. It finished above the 7000-point mark for the first time in five sessions.

The tech sector jumped 2.4%, with Appen's 7.9% gain making it the strongest-performing ASX 200 component after Citi maintained its buy rating on the stock.

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The heavyweight financials rallied from Monday's selloff as the Reserve Bank of Australia held the cash rate and ended its quantitative-easing program.

Banks Commonwealth, Westpac, NAB and Macquarie added between 0.2% and 2.7%.

Overseas, the pan-continental Stoxx Europe 600 rose 1.3%. In Asia, markets in Hong Kong and mainland China were closed. Japan's Nikkei 225 gained 0.3%.

Turning to commodities, gold futures added 0.3% to $US1801.40 an ounce; Brent crude rose 0.2% to $US89.41; Iron ore not available due to the Lunar New Year holidays.

In bond markets the yield on the Australian 10-year bond edged up to 1.90%, while the benchmark US 10-year Treasury yield was flat at 1.79%. Yields fall when prices rise.

The Australian dollar rebounded from last week’s lows to buy 71.23 US cents near 8.00am AEST, up from the previous close of 70.68. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, declined to 89.96.

Asia

Chinese and Hong Kong share markets are shut for the Lunar New Year holidays.

Japan's Nikkei Stock Average rose 0.3%, tracking Wall Street's gains overnight. TDK jumped 11.2% after it raised its fiscal-year revenue and net-profit views. NEC climbed 11.0% after it boosted its fiscal-year net-profit forecast. Shionogi & Co. added 10.3% after it reported encouraging data from a Phase 2a trial of its Covid-19 pill. Seven & i Holdings rose 4.4% following a report it plans to sell its department-store business.

Europe

European stocks made solid gains as investors took heart from softer monetary-policy comments from officials at the US Federal Reserve. The pan-European Stoxx 600 gained 1.3%.

"European markets have got off to a strong start to February after last night's push-back by a number of Federal Reserve officials, who poured cold water on some of the hawkish narratives being put out with respect to the Fed's hiking timeline," CMC Markets analyst Michael Hewson says.

In London, the FTSE 100 rose 0.8%, getting February off to a strong start.

"Amongst the best performers we're seeing some decent gains amongst the basic resource and banks, with the likes of Rio Tinto PLC, Glencore PLC, and Anglo American PLC near the top of the pile, while HSBC Holdings PLC and Lloyds Banking Group PLC are also doing well," says Hewson.

North America

US stocks advanced in a choppy trading session Tuesday as investors weighed a recent spate of strong earnings results against continued uncertainty over the impact of higher interest rates this year.

The S&P 500 added 0.7%, climbing for a third consecutive session. The blue-chip Dow Jones Industrial Average and the technology-heavy Nasdaq Composite both advanced 0.8%.

Stocks kicked off February on a wobbly note, extending some of the uneasiness that has characterized markets so far this year. On Monday, the S&P 500 closed out January with a 5.3% loss, its largest since March 2020. The Nasdaq fell even further, losing 9%.

Driving the selloff was growing anxiety among investors over how the US stock market will hold up as monetary policy tightens. The Federal Reserve last week signalled that it would begin raising rates in mid-March, prompting traders to shuffle their portfolios. Many dumped shares of highflying growth companies and shifted to stocks and funds that felt safer, such as dividend stocks.

The start of a new month has brought fresh earnings reports and economic data for investors to parse. Traders also say they are continuing to concentrate on how to position portfolios to account for higher interest rates ahead.

"We have relatively good economic conditions, in terms of much-higher-than-normal GDP growth, a strong labour market and consumers and companies with strong balance sheets," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. "But you have those big headwinds of the Federal Reserve raising rates and reducing [its] balance sheet. I think investors are trying to decide what's a good level ... for buying some dips but also making sure they are prepared for potential volatility down the road."

Mr. Zaccarelli said he currently prefers to reposition into higher-quality companies with good profitability. He said he has found opportunities in sectors including financials and energy.

Money managers say they are looking closely at earnings for clues about how companies are navigating issues surrounding inflation and the supply chain. This week, some earnings reports have showcased strong results. Exxon Mobil gained 6.5% after it reported $23 billion in profit for 2021, its highest total since 2014.

Shares of United Parcel Service rose 14% after it reported a rise in quarterly profit. US-listed shares of Switzerland's UBS Group rose 9% after the bank lifted its financial targets and said it has the firepower to buy back up to $5 billion in shares this year.

"One of the themes of this year was that earnings would be a main driver of the market," said Keith Lerner, co-chief investment officer at Truist Advisory Services. Some 77% of S&P 500 companies that have reported results thus far have beat earnings-per-share expectations, according to FactSet data early Tuesday afternoon.

Data released Tuesday showed US manufacturing activity slowed last month. The Institute for Supply Management's Manufacturing Report on Business PMI decreased to 57.6 -- a reading above 50 generally signals expansion -- in January from 58.8 in December. The report showed that the Covid-19 Omicron variant and supply-chain impediments were among the issues that weighed on activity.

A separate report from the Labor Department said hiring and the number of worker resignations slowed in December from the month before.

Of the S&P 500's 11 sectors, energy stocks posted the largest gain Tuesday. Industrials and materials stocks also rallied.

Megacap tech stocks, in contrast, traded mixed. Microsoft lost 0.7%, while Netflix added 7%. Tech firms suffered during January's selloff as rising interest rates threatened to weigh on their pricey valuations, which rely on expectations for growth far in the future.

"Tech came into the year very, very expensive, making it all the more vulnerable to an increase in rates," said Seema Shah, chief strategist at Principal Global Investors. "It makes sense that it has had that selloff, but for tech you have to be a long-term investor and think about the trends going forward."

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

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