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Global Market Report - 21 December

Lex Hall  |  21 Dec 2020Text size  Decrease  Increase  |  
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Australia

Australian shares are set to follow Wall Street lower as uncertainty over a covid stimulus deal dimmed investor sentiment.

The Australian SPI 200 futures contract was down 10 points at 6596 points at 8.30am Sydney time on Monday, suggesting a negative start to trading.

US stocks ended lower on Friday, pulled down by uncertainty around a coronavirus stimulus deal, while Tesla shares jumped in heavy trading in anticipation of their addition to the S&P 500 next week.

The Dow Jones Industrial Average fell 124.32 points, or 0.41 per cent, to 30,179.05, the S&P 500 lost 13.07 points, or 0.35 per cent, to 3,709.41 and the Nasdaq Composite dropped 9.11 points, or 0.07 per cent, to 12,755.64.

Locally, Greater Sydney has been cut off from the rest of the country after the states and territories slammed shut their borders, throwing into disarray Christmas plans for millions of Australians.

The S&P/ASX200 benchmark index closed lower by 81.2 points, or 1.2 per cent, to 6675.5 on Friday, with the virus outbreak overshadowing record closing results on US markets from economic stimulus hopes.

The All Ordinaries closed down 76.0 points, or 1.09 per cent, to 6924.1.

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The ASX200 gained 0.5 per cent in a week of better than expected jobs figures and a positive budget update. Both showed Australia's economic recovery from the pandemic is tracking better than feared.

Gold was down 0.2 per cent to $US1881.35/oz; Brent oil was up 1.5 per cent to $US52.26 a barrel; Iron ore was up 3.7 per cent to $U164.39 a tonne.

Meanwhile, the Australian dollar was buying 76.22 US cents at 8.30am, up from 75.89 US cents at Friday’s close.

Asia

China stocks erased early gains to end lower on Friday, weighed down by fresh signs of tension between the world's two largest economies.

Sources told Reuters that the US is set to add dozens of Chinese companies, including the country's top chipmaker SMIC, to a trade blacklist on Friday.

At the close, the Shanghai Composite index was down 0.29 per cent at 3,394.90, while the blue-chip CSI300 index was down 0.35 per cent.

In Hong Kong, the Hang Seng lost 0.67 per cent to close at 26,498.60.

Japan's Nikkei share average ended lower on Friday on concerns over the risks that surging covid-19 cases in Tokyo could pose to recovery prospects in the world's third-largest economy, but the index posted a weekly gain.

The benchmark Nikkei share average lost 0.16 per cent to 26,763.39, while the broader Topix was nearly flat at 1,793.24.

Europe

European shares fell on Friday as doubts over a post-Brexit trade deal and a stimulus package in the United States capped gains at the end of a solid week.

The pan-European STOXX 600 index broke a four-day rally to end 0.4 per cent lower, reversing gains that followed a surprise rise in German business morale in December.

The German DAX gave up gains of as much as 0.8 per cent to end in the red. The Ifo institute’s upbeat data came even as Europe’s biggest economy went into a strict lockdown to contain a second wave of coronavirus infections.

Britain’s exporter-heavy index lost 0.3 per cent, despite a weaker pound after Britain and the European Union said they remained far apart on a number of issues and that it was becoming more likely they would fail to reach a trade agreement before a 31 December deadline.

“This is the real final crunch time, so that will likely affect the markets in a broader sense rather than just the pound play,” said Connor Campbell, a financial analyst at Spreadex.

In the US, Congress looked increasingly unlikely to meet a deadline to agree on US$900 billion ($1.2 trillion) in fresh covid-19 aid and instead may pass a third stopgap spending bill to keep the government from shutting down at midnight.

“Markets are heading into the weekend with these two big unknowns. Investors may not get to react until Monday morning because the answer, especially for Brexit, might be between Sunday and Monday morning,” Campbell said.

The STOXX 600 ended the week with a 1.5 per cent gain, its sixth week in the black in seven.

Optimism around vaccine rollouts in Britain and potential roll outs in other part of Europe before the year-end, as well as progress in US stimulus talks underpinning hopes of a global economic recovery, lifted sentiment this week.

Travel & leisure stocks slipped on Friday, with British Airways-owner IAG down 2.1 per cent after a media report that it had agreed to buy Spanish carrier Air Europa for 500 million euros ($612.55 million).

In M&A moves, Dutch health technology firm Philips rose 1.7 per cent after it agreed to buy US cardiac diagnostics and monitoring firm BioTelemetry in a deal worth US$2.8 billion.

Finnish paint producer Tikkurila soared more than 60 per cent after US firm PPG Industries made an offer to buy the company for a total of 1.1 billion euros.

North America

US stocks ended lower on Friday, pulled down by uncertainty around a coronavirus stimulus deal, while Tesla shares jumped in heavy trading in anticipation of their addition to the S&P 500 next week.

All three major indexes hit record highs at the opening before retreating. The S&P 500 technology index, which has led gains this week, was the biggest drag on the overall benchmark index.

Trading was heavy and volatile in shares of electric-car maker Tesla Inc, which will become on Monday the most valuable company to be ever added to Wall Street’s main benchmark index.

The stock was last up 6 per cent and hit a record high. Turnover in Tesla shares topped US$120 billion shortly after 4 p.m. EST, with volume exceeding 200 million as the stock traded after hours, according to Refinitiv data.

“Tesla is sort of a New Age cult stock. There are people who love the product and who love the stock,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, New York.

Investors could see further gains in the stock on Monday, but possibly profit-taking after that, he said, adding, “a lot of people bought when the announcement” of the inclusion in the S&P 500 came out.

Market trading volumes were high also due to the expiration of stock index futures, stock index options, stock options and single stock futures at the end of trade, also known as “quadruple witching.”

Volume on US exchanges was 15.8 billion shares, compared with the 11.6 billion average for the full session over the last 20 trading days.

The US Congress on Friday risked blowing through a midnight deadline to keep the government open and address the coronavirus crisis, as a partisan fight over federal lending rules caused a fresh delay on a US$900 billion covid-19 relief bill.

The Dow Jones Industrial Average fell 124.32 points, or 0.41 per cent, to 30,179.05, the S&P 500 lost 13.07 points, or 0.35 per cent, to 3,709.41 and the Nasdaq Composite dropped 9.11 points, or 0.07 per cent, to 12,755.64.

For the week, the S&P 500 was up 1.3 per cent, the Dow was up 0.4 per cent and the Nasdaq gained 3.1 per cent.

Recent weak economic data has increased pressure on lawmakers to reach a deal.

“Investors definitely want to see something come through or like to see something come through on the stimulus front sooner rather than later as covid cases continue to rise and economic data has shown that it is beginning to deteriorate,” said Lindsey Bell, chief investment strategist at Ally Invest, in Charlotte, North Carolina.

The prospect of continued monetary and fiscal stimulus has helped stocks look past the economic impact of the pandemic, and set them up for strong annual gains, despite a rocky start to the year.

FedEx Corp fell 5.7 per cent after it did not give an earnings forecast for 2021, even as its quarterly profit almost doubled.

is senior editor for Morningstar Australia

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