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Global Market Report - 21 December

Lewis Jackson  |  21 Dec 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to edge up as fears over Omicron dragged down global share markets and oil.

The Australian SPI 200 futures contract was up 6 points or 0.1% at 7201 near 8.00 am AEST on Tuesday, suggesting a positive start to trading.

The Dow Jones Industrial Average fell more than 600 points on Monday before recovering a bit as investors worried that a rise in Omicron Covid-19 cases would stall economic growth and add pressure to inflation.

The Dow wrapped up trading with losses of about 1.2%. The decline was the index's third straight and followed a 1.5% drop on Friday. The S&P 500 slid 1.1%, while the technology-focused Nasdaq Composite lost 1.2%.

The Australian dollar was buying 71.08 US cents near 8.00am AEST, down from the previous close of 71.24. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, fell to 90.34.

Locally, the S&P/ASX 200 closed 0.2% lower at 7292.2, dragged down by financial and energy stocks.

Most financial stocks slipped as the number of new Covid-19 cases in the country continued to surge, adding to fears about the potential economic impact of the Omicron variant.

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Big banks Westpac, NAB and ANZ lost between 0.1% and 1.4%, while wealth manager Magellan was the benchmark's worst performing component, shedding 33% after losing a key contract.

Energy explorers Woodside, Beach and Santos shed between 2.9% and 4.8% amid lower oil prices.

CSL helped pare losses, bouncing 0.6% after losing ground last week on the impact of its capital raising.

Gold futures slipped 0.8% to $US1789.90 an ounce; Brent crude fell 2.2% to $US71.84 a barrel.

The yield on the Australian 10-year bond declined to 1.53%, with the US 10-year Treasury yield edging up to 1.42%.

Asia

Chinese shares closed lower, as a move by the country's central bank to trim the one-year loan prime rate by 5 bps didn't lift sentiment for long. Concerns about the Omicron variant are mounting, and the Biden administration's $2 trillion spending package appears doomed after a key lawmaker opposed it. The Shanghai Composite Index slipped 1.1%, the Shenzhen Composite Index lost 1.8% and the ChiNext Price Index was 3.0% lower.

Hong Kong stocks ended at their lowest level in nearly two years, falling in line with other regional markets as investors weighed more bad news in China's property sector and new global restrictions to curb the spread of the Omicron variant. The Hang Seng Index fell 1.9%, its lowest close since March 2020. Property developers Evergrande and Kaisa slid 10% and 14% respectively as their debt woes continued.

The Nikkei Stock Average closed 2.1% lower, weighed by growing concerns that the spread of the Covid-19 Omicron variant could hurt the global economic recovery. Oil stocks were among the worst performers, on worries about demand following Europe's tightened measures in response to a surge in Omicron cases.

Europe

European markets dropped as coronavirus-variant fears and economic and political jitters weigh on sentiment. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies fell 1.4%.

In London, the FTSE 100 declined 2.1% on worries over new restrictions to contain the spread of the Omicron coronavirus variant.

"Fears about new Omicron restrictions and below-average festive week volumes look set to drive a chopping week of trade ahead with little sign of a Santa rally so far," Interactive Investor analyst Victoria Scholar says.

North America

The Dow Jones Industrial Average fell more than 600 points on Monday before recovering a bit as investors worried that a rise in Omicron Covid-19 cases would stall economic growth and add pressure to inflation.

The Dow wrapped up trading with losses of about 1.2%. The decline was the index's third straight and followed a 1.5% drop on Friday. The S&P 500 slid 1.1%, while the technology-focused Nasdaq Composite lost 1.2%.

Oil prices retreated as investors reassessed the prospects for near-term economic growth and fled risky assets. The selloff battered shares of energy companies, with Occidental Petroleum and Devon Energy both shedding more than 2.1%.

Some countries are imposing restrictions to stem the spread of the Omicron variant as the holiday season starts. Israel said Monday that it would ban its citizens from traveling to the US or Canada. Over the weekend, the Netherlands reimposed a lockdown, with all nonessential shops, bars and restaurants closed until mid-January. Irish Prime Minister Micheál Martin also announced new restrictions.

President Biden plans to deliver an update Tuesday on the fight against Covid-19 in the US, where cases are rising. The rise in infections has also prompted concerns that a new wave could prolong supply-chain disruptions that have elevated inflation.

"We're really seeing Omicron spread like wildfire, and it's weighing on sentiment," said Esty Dwek, chief investment officer at FlowBank. "You're seeing lockdowns instigated in Europe. You're seeing more and more restrictions and the number of cases is going up so much that even if it's less severe it could lead to more hospitalizations."

Further weighing on sentiment, Sen. Joe Manchin (D., W.Va.) said over the weekend that he would oppose his party's roughly $2 trillion education, healthcare and climate package, likely dooming the centerpiece of Mr. Biden's economic agenda as currently written.

Economists at Goldman Sachs lowered their forecasts for US economic growth in 2022 after Mr. Manchin's comments, writing in a Sunday note that the bill's apparent demise "has negative implications for near-term consumption." They cited the likely end of the expanded child tax credit, which has helped prop up consumer spending during the pandemic but is set to expire at the end of December.

Oil prices fell amid concerns that the spread of Omicron could crimp demand. Brent crude futures, the benchmark in global oil markets, declined 2.1% to $71.84 a barrel.

Global oil demand remains about two million barrels a day short of its pre-pandemic level of almost 101 million barrels a day, according to the International Energy Agency. The new surge in Covid-19 cases is expected to slow the revival in demand by reducing air travel and hitting consumption of jet fuel.

Nine of the 11 sectors of the S&P 500 were in negative territory on Monday. Financials, materials companies and industrials were among the worst-performing sectors.

There were wild moves in stocks that investors often use to bet on surges in Covid cases or post-pandemic recovery. Moderna shares initially jumped around 9% after the vaccine maker released upbeat data of the effectiveness of its Covid-19 vaccine against Omicron, but they later sold off and were down 6.3% as of 4 pm New York time. Shares of cruise operator Carnival -- a popular reopening trade -- fell more than 3% at the open, then reversed course and climbed 3.4%.

Oracle shares fell 5% after the software giant agreed to buy electronic-medical-records company Cerner Corp. for more than $28 billion. Shares of Cerner gained 0.8%.

The imminent end of 2021 may be contributing to the stock selloff. Portfolio managers whose performance is assessed on a year-over-year basis are likely closing out positions and locking in gains after a strong year in markets. Despite its recent slide, the S&P 500 is up more than 20% this year.

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

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