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Global Market Report - 20 September

Lewis Jackson  |  20 Sep 2021Text size  Decrease  Increase  |  
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The ASX is set to fall after US markets closed lower. This week, central banks in the US, UK and Japan meet and concerns grow over indebted Chinese property developer Evergrande.

The Australian SPI 200 futures contract was down 68 points or 0.6 per cent at 7,302 near 7.30 am Sydney time on Monday, suggesting a negative start to trading.

US stocks fell and bond yields rose as fresh data on consumer sentiment was slightly below expectations, raising fresh questions about the pace of economic growth and the inflation outlook.

The S&P 500 dropped 0.9%, pushing the index into the red for the week. The Nasdaq Composite Index also lost 0.9% and the Dow Jones Industrial Average declined 0.5%. The yield on the US 10-year note rose to 1.38%.

The moves in stocks and bonds show investors grappling with mixed economic data in the US and China, the spread of the Covid-19 Delta variant and concerns about inflation. A report from the University of Michigan showed consumer sentiment subdued and about where it was in August, with inflation expectations still high.

The Australian dollar was buying 72.67 US cents near 7.30am AEST, down from the previous close of 72.94. The WSJ Dollar Index, which measures the US dollar relative to 16 foreign currencies, rose to 87.72.

Locally, the S&P/ASX 200 closed 0.8% lower at 7403.7, as tumbling commodity stocks wiped out the last of the benchmark's gains for the week.

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The materials sector suffered its heaviest one-day fall since May 2020, dropping 4.0% amid lower iron-ore prices. Fortescue shed 11% after UBS downgraded the miner to sell on lower price forecasts, while BHP and Rio Tinto gave up 3.7% and 4.7%, respectively.

The energy sector fell 1.3%, paring strong gains from earlier in the week. Westpac, ANZ and NAB banks lost between 0.5% and 1.1%, pulling the heavyweight financial sector down by 0.4%.

The ASX 200 lost 2.9 points, or less than 0.1%, for the week.

Australia should be alert, but not alarmed by the 50% fall in the iron ore price over recent months, says Shane Oliver, chief economist at AMP Capital. Since July, the iron ore price has more than halved, reflecting China's constraints on steel production and the slowdown in its economy. The iron ore price has fallen from levels no one ever thought it would get to and is still very high and well above cost, he adds.

A slew of central bank meetings this week, including the US Fed, along with virus developments and the debt problems of developer China Evergrande will likely instill a cautious tone in financial markets, says NAB.

"This week along with the FOMC the other big factor in terms of markets will be what's happening in China, especially with virus developments and the Evergrande possibility of explicit default," says NAB director of economics Tapas Strickland

Gold futures fell 0.3% to $US1751.40 an ounce; Brent crude was down 0.4% at $US75.34 a barrel; Iron ore was down 4.9% to $US101.95.

The yield on the Australian 10-year bond rose to 1.30%.


Chinese stocks finished higher Friday, as liquor makers and the pharma sector strengthened, offsetting losses by coal miners and steelmakers. Coal miners and steelmakers' recent rallies lost steam, with Shaanxi Coal down 6.9%, China Coal Energy slipping 5.6% and Baoshan Iron & Steel declining 5.1%. The Shanghai Composite Index rose 0.2% but lost 2.4% for the week.

Hong Kong stocks ended higher, snapping a four-day losing streak. The benchmark Hang Seng Index rose 1.0%, led by a rebound in Chinese tech giants. Alibaba Health led the upturn, with an 8.9% rise, while Meituan added 3.5%. Property developers also recovered some losses after a tough week. Country Garden gained 4.5% and China Res Land was up 3.6%.

Japan's Nikkei Stock Average ended 0.6% higher, led by gains in shipping and tech stocks as hopes continue that a new ruling-party chief will introduce fresh fiscal stimulus and other policy measures to support the economy amid the pandemic.


The UK’s FTSE 100 closed down 1.19% Friday, leaving it in the red for the week.

European markets also fell Friday as a cocktail of economic and coronavirus-related concerns sent stocks and commodities down ahead of the weekend. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies, was down 0.88%. It was down 1% for the week.

"Markets remain under pressure and the see-saw narrative of the week seems set to continue right into the final close in the US," IG analyst Chris Beauchamp says.

"Though still fairly measured at present, this current sell-off has the potential to be one of the most dramatic pullbacks we've seen all year, as inflation, stagflation, slowdown and virus risks all combine to knock back European and US markets."

North America

US stocks fell on Friday, as investors weighed recently published better-than-expected economic data against less economic support from the Federal Reserve.

Friday's close continued a recent pullback in the major US indexes, which has been partially driven by companies issuing lower earnings forecasts.

The Dow Jones Industrial Average dropped 166 points, or 0.5%. The index slipped 63 points on Thursday to close at 34,751. The S&P 500 and Nasdaq Composite each fell 0.9%.

The S&P 500 is down 2.3% from its all-time high, hit on Sept. 2. Many companies have lowered their quarterly earnings estimates because they can't access the supplies needed to meet demand. Firms are incurring higher costs as a result, threatening profit margins. On Thursday, US retail sales beat expectations, a positive, but also a development that could make it more likely that the Federal Reserve will lower its bond purchases at a faster pace.

The speed of that program matters: The Fed will likely lower its purchasing program to zero from $80 billion per month within a few quarters. As the Fed "tapers" its purchases down to zero, bond prices could fall and their yields could rise. That makes future profits less valuable -- and would be bad news for stock prices.

"Without the infusion of the Fed buying, several quarters down the road, that only signifies a market that will have higher rates," says Kevin Simpson, founder and portfolio manager at Capital Wealth Planning. The speed of the Fed's tapering "is the only unknown that's out there," Simpson says.

The yield on the 10-year Treasury bond rose to 1.38%. In the coming days, "the bond market selloff could see further momentum," wrote Edward Moya, senior market analyst at Oanda. "Investors are expecting Fed Chair Powell to set up a November taper."

Investors are also paying close attention to when the Fed will lift short-term interest rates in response to inflation. The yield on the 2-year Treasury note rose to 0.23%.

Overall, some degree of indecisiveness seems to be prevailing in the market. The S&P 500 has largely remained on an upward path in the second half of the year, wrote Fiona Cincotta, senior financial markets analyst at City Index. But for the immediate term, the index is unlikely to push much past its all-time high of 4,536 until it rises about 1.3% above its closing level Friday.

In the 13-trading day stretch ended Thursday, there were only two days during which 70% or more S&P 500 stocks rose, according to Instinet data, compared to six days of such breadth in the prior 13 trading days. Just 24% of stocks in the index rose Friday, according to FactSet.

Still, the index is trading at a level that doesn't suggest a big correction has necessarily begun, Cincotta said.

When the Fed holds its monetary policy meeting next week, most on Wall Street do not expect the central bank to make a formal tapering announcement. Fed members likely need to see the September payrolls report, out in October, before deciding the economy is ready for less stimulus, Simpson says.

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

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