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Global Market Report - 20 December

Lewis Jackson  |  20 Dec 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to fall after weakness overseas as investors weigh higher rates and Omicron.

The Australian SPI 200 futures contract was down 30 points or 0.4% at 7177 near 8.00 am AEST on Monday, suggesting a positive start to trading.

US stocks ended the week on a downbeat note, with all three major indexes dropping as investors worried about rising interest rates and a surge in Covid-19 cases that is slowing the economic recovery in the US and Europe.

Markets lost ground after a brief rally Wednesday, when Fed officials said they would accelerate the paring back of pandemic-era stimulus measures and potentially raise interest rates three times next year.

The S&P 500 fell 1% on Friday. The Dow industrials weakened 1.5%. The Nasdaq Composite Index swung between small gains and losses, ending the day down less than 0.1%.

The Australian dollar was buying 71.24 US cents near 8.00am AEST, down from the previous close of 71.83. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, jumped to 90.40.

Locally, the S&P/ASX closed 0.1% higher at 7304.0, paring its weekly losses on gains by commodity and financial stocks.

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Shares of gold miners jumped following a rise in the price of the yellow metal, while big banks NAB, Westpac, ANZ and Commonwealth gained between 0.3% and 2.4%.

Investors dumped tech stocks, mirroring a selloff of the sector in the US, with buy-now-pay-later providers worst affected following the Biden administration's announcement of an inquiry into the industry.

Afterpay lost 7.6% to finish at a 14-month low A$82.67, while Zip, Openpay and Sezzle gave up between 6.1% and 9.9%.

The ASX 200 lost 0.7% for the week.

Gold futures rose 0.4% to $US1804.90 an ounce; Brent crude fell 2% to $US73.52 a barrel; Iron ore added 3.1% to US$119.60.

The yield on the Australian 10-year bond rose to 1.58%, with the US 10-year Treasury yield slipping to 1.40%.

Asia

Chinese shares closed lower along with other Asian markets, reflecting a flurry of major central banks around the world taking steps to tighten monetary policy. The Shanghai Composite Index was 1.2% lower, the Shenzhen Composite Index fell 1.4% and the ChiNext Price Index was off 1.6%. Concerns over the Biden administration's recent move to add 34 Chinese targets to its banned entity list also weighed on sentiment.

Japanese stocks declined, dragged by falls in electronics and pharmaceutical stocks, as the Bank of Japan joined other major central banks in trimming policy stimulus that had helped boost stocks globally during the Covid-19 pandemic. The Nikkei Stock Average fell 1.8%.

Hong Kong stocks closed lower amid declines by technology companies as the sector tracked the tech-heavy Nasdaq's decline on Friday, Oanda says. "The Wall Street tech retreat overnight has had a similar effect on Asian markets with similar weightings, with the US addition of another swath of Chinese companies to their entity lists also weighing on sentiment," it said. Meituan fell 5.3%, JD.com dropped 3.5%, Tencent Holdings lost 3.2% and Alibaba Group slid 3.1%. The Hang Seng Index was 1.2% while the Hang Seng Tech Index was down 2.4% to a fresh closing low.

Europe

The pan-European Stoxx Europe 600 index fell on concerns about central banks tightening monetary policy to counteract high inflation after decisions this week in the US, eurozone and UK Technology stocks are among the biggest fallers, along with industrial and oil stocks, hurt by lower crude-oil prices. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies fell 0.6%.

In London, the FTSE 100 edged up 0.1% as travel stocks recovered from recent falls. "With this week providing greater clarity over the outlook for monetary policy, it is likely that markets will soon look beyond the impending sharp Omicron wave and buy the temporary dip in retail and travel names," says IG's Joshua Mahony.

North America

US stocks ended the week on a downbeat note, with all three major indexes dropping as investors worried about rising interest rates and a surge in Covid-19 cases that is slowing the economic recovery in the US and Europe.

Markets lost ground after a brief rally Wednesday, when Fed officials said they would accelerate the paring back of pandemic-era stimulus measures and potentially raise interest rates three times next year.

The S&P 500 fell 1% on Friday. The Dow industrials weakened 1.5%. The Nasdaq Composite Index swung between small gains and losses, ending the day down less than 0.1%.

Stocks remain near record levels to end 2021. The spread of the Omicron variant, however, has raised fears of further economic restrictions and a drag on economic activity to close the year. Meanwhile, investors remain worried about an end to the era of low interest rates that have boosted markets, powering the S&P 500 to 67 record closes so far this year.

"Arguably the reasons why stocks have been so strong so consistently are now going away and those conditions are changing," said David Keller, chief market strategist at StockCharts.com.

Investors are watching the spread of Covid-19 cases and the virus's latest variant. In the US, New York set a state record for new cases. Center for Disease Control and Prevention Director Rochelle Walensky advised people to take Covid-19 tests before holiday gatherings.

Omicron has prompted fresh restrictions in Europe ahead of the holidays, but many investors are betting that higher vaccination rates will mean governments hold back from employing significantly tougher measures.

"You have to put that down as a risk, but it is also pretty clear that the political reaction is still very unlikely to lead to major impediments to the economy," said David Donabedian, chief investment officer at CIBC Private Wealth. "We don't think that's going to be a major force in knocking the economy or the market off its course."

Changes to monetary policy have coloured investors' outlooks for the rest of 2021 and next year. The Bank of England on Thursday became the first major central bank to raise rates since the pandemic started. Russia's central bank increased its rate Friday, and several others have raised rates or are poised to.

Fast-growing tech names have been pressured by the prospect of higher interest rates, which make it less appealing to hold riskier assets. Electric-vehicle startup Rivian Automotive Inc., which late Thursday reported net losses of $1.2 billion, fell $11.17, or 10%, to $97.70, closing at its lowest level since its initial public offering a month ago.

Some investors have turned their attention to how higher rates will affect value stocks, which tend to perform better when rates go higher.

"Friday is a choppy period, and it represents really just the indecision that we're in right now," Mr. Keller said. "It's been a rotation year, rotational week and now we have a rotational day."

The Fed might need to signal an even faster pace to rate increases early next year if data suggest inflation is still quickening, said Mr. Donabedian.

"The underlying, primary fear in the market is inflation," said Mr. Donabedian. "What the Fed did is the old saying: To solve a problem, you have to first acknowledge there is one. It's a wise move but just a temporary respite for the markets' concerns over inflation."

The yield on the benchmark 10-year US Treasury note fell to 1.401% on Friday, the lowest yield in two weeks.

In other individual stocks, Cerner Corp. soared $10.28, or 13%, to $89.77 after The Wall Street Journal reported that Oracle Corp. is in talks to buy the electronic-medical-records company. Oracle fell $6.6, or 6.4%, to $96.62. FedEx Corp. rose $11.8, or 5%, to $250.32 after reporting a jump in revenue because of higher shipping rates that helped ease rising costs tied to a labor shortage.

Stay-at-home stocks rallied. Zoom Video Communications Inc. rose $17.34, to 9.5%, to $199.74. Peloton Interactive Inc. recovered most of its losses from earlier in the week, rising $2.64, or 6.6%, to $42.45. Biotech stocks also rose. Moderna Inc. gained $12.78, or 4.5%, to $294. 80.

Bitcoin and other cryptocurrencies fell. Bitcoin recently traded at $46,945.82, down 2.5% from its level Thursday.

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

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