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Global Market Report - 21 February

Lewis Jackson  |  21 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to open lower after US stocks fell and bond yields rose as traders cut risk amid increasing ceasefire violations in Eastern Ukraine and the prospect of consecutive rate rises from March.

ASX futures were down 51 points or 0.7% at 7094 near 8.00 am AEST, suggesting a negative start to trading.

US stocks posted weekly losses Friday as the threat of an invasion of Ukraine and uncertain path of monetary policy weighed on market sentiment.

The S&P 500 and The Dow Jones Industrial Average both fell 0.7% on Friday. The Nasdaq Composite declined 1.2%.

For the week, the S&P 500 was down 1.6%, bringing its losses this year to 8.8%. The Dow Jones Industrial Average lost 1.9% for the week, while the tech-heavy Nasdaq Composite retreated 1.8%.

Locally, the S&P/ASX 200 closed 1.0% lower at 7221.7, losing almost all of its weekly gains amid continued concern over Russia and Ukraine. Ten of the ASX 200's 11 sectors finished lower. The ASX 200 gained less than 0.1% for the week.

The materials sector finished flat thanks to gains by shares in gold miners, which are viewed by investors as relatively safe assets.

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The heavyweight financial sector shed 0.9%, weighed by banking stocks and QBE's 8.7% fall. The insurer was the worst-performing ASX 200 component after announcing a more conservative dividend policy.

Origin Energy gave up 8.3% after it was downgraded to underweight by JP Morgan.

Atlassian co-founder Mike Cannon-Brookes and Canadian asset management Brookfield launched an $8 billion bid for AGL energy on Saturday. Early reports indicate the board has rejected the offer, which was marginally above Friday's close price of $7.16. 

Elsewhere overseas, the pan-continental Stoxx Europe 600 fell 0.8% on Friday. Major indexes in Asia closed with mixed performance. China's Shanghai Composite rose 0.7%, while Japan's Nikkei 225 declined 0.4%. Hong Kong's Hang Seng shed 1.9%, with declines led by Meituan, which fell 15% after China said the country's food-delivery platforms should reduce the fees they charge merchants.

Turning to commodities, gold futures slipped 0.1% to $US1899.80 an ounce its highest level since June 2021; Brent crude added 0.6% to $US93.54 a barrel; Iron ore declined 0.4% to US$134.

In bond markets, the yield on the Australian 10-year bond rose to 2.24%. The benchmark US 10-year Treasury yield eased to 1.93%. Yields fall when prices rise.

The Australian dollar was buying 71.74 US cents near 8.00am AEST, down from the previous close of 71.85. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, edged up to 89.74.

Asia

Turning to Asian markets, Chinese shares closed broadly higher, helped by gains in financial stocks. The Shanghai Composite Index was 0.7% higher, the Shenzhen Composite Index gained 0.4% and the ChiNext Price Index was 0.5%. Investors' near-term focus will likely be China's February one-year and five-year loan prime rate fixing decision on Monday, United Overseas Bank (UOB) says. "While we think the PBOC has room to lower the LPR further, any further cuts will likely be small," UOB says. Financial stocks were higher, with Bank of China, Bank of Shanghai and Industrial & Commercial Bank of China each gaining 0.6%.

In Hong Kong, the Hang Seng Index closed 1.9% lower, as Russia-Ukraine tensions continue to weigh on global investor sentiment, KGI Securities says. Shares likely tracked the sell-off in US equities overnight, led by financial and technology stocks, KGI Securities notes. Declines were led by Meituan, which closed 14.9% lower after China said it will guide delivery platforms to cut fees and provide more support for merchants. Other decliners included ANTA Sports, which fell 4.4% and Techtronic Industries, which was off 3.8%. Gains were led by China Resources Land, which closed 5.1% higher.

Japanese stocks ended lower, dragged by falls in electronics stocks, as geopolitical uncertainty continues over Ukraine. Fanuc drops 5.8% and Tokyo Electron Ltd. loses 2.4%. The Nikkei Stock Average falls 0.4%. USD/JPY is at 115.18, up from 114.93 on Thursday at 5 pm New York Time. USD/JPY has risen following news that US Secretary of State Antony Blinken and Russian Foreign Minister Sergey Lavrov have agreed to meet next week. The Yen is seen by many investors as a safe-haven currency.

Europe

European stocks fall as investors stayed on the sidelines amid continued geo-political volatility in eastern Europe. The pan-European Stoxx 600 dropped 0.8%.

European markets initially were more positive Friday amid cautious optimism that there would be no further negative developments ahead of next week's US-Russia meeting, CMC Markets says.

"Unfortunately, the early gains soon disappeared on reports that separatist leaders in Eastern Ukraine were evacuating their citizens in the region into Russia for their own safety," CMC analyst Michael Hewson says.

In London, the FTSE 100 fell 0.3% on Friday, as the situation in Ukraine continues to unsettle investors with reports of evacuations in the east of the country.

"The main drags on the FTSE 100 have been banks, and the oil and gas sector, as the first weekly decline in Brent crude this year weighs on the sector," CMC Markets UK said.

Again, steelmaker Evraz—which has operations in Russia—was among the main losers, with shares closing 7.2% lower on Friday. The company could be affected by potential sanctions against Russia if an invasion of Ukraine occurs.

North America

US stocks posted weekly losses Friday as the threat of an invasion of Ukraine and uncertain path of monetary policy weighed on market sentiment.

On Friday, the S&P 500 and The Dow Jones Industrial Average both fell 0.7%. The Nasdaq Composite declined 1.2%.

For the week, the S&P 500 was down 1.6%, bringing its losses this year to 8.8%. The Dow Jones Industrial Average lost 1.9% for the week, while the tech-heavy Nasdaq Composite retreated 1.8%.

Investors tracked headlines on the Ukraine situation throughout the week. US officials warned they expect a Russian attack on Ukraine in the next few days and said prospects for averting war appear dim.

Conflict could inject fresh volatility into markets, with the heightening of geopolitical uncertainty prompting some traders to sell first and ask questions later.

"It could create a more risk off environment where investors just want to move out of riskier assets into safer assets," said Michael Sheldon, chief investment officer at investment advisory firm RDM Financial Group.

War between Ukraine and Russia could prolong elevated inflation in developed economies by disrupting supplies of important commodities, said Hani Redha, a portfolio manager at PineBridge Investments. Russia is among the world's largest suppliers of oil, as well as the biggest exporter of wheat and a major producer of metals such as palladium, aluminium and nickel.

"Inflation is really the big question that will determine how markets play out, and that only adds to the delay in resolving the inflation situation," Mr. Redha said. He expects markets will remain volatile as investors try to assess how central banks will respond to elevated prices and the direction of the Ukraine conflict.

Federal Reserve officials at their January meeting discussed an accelerated timetable for raising interest rates amid concerns with high inflation, according to meeting minutes released Wednesday. The discussion showed central bank officials were prepared to raise rates at consecutive policy meetings, potentially setting up a series of rate increases in March, May and June.

Investors have been forced to confront a slew of conflicting signals, said Victoria Fernandez, chief market strategist at Crossmark Global Investments. There are the challenges of geopolitical tensions, high inflation and questions about the future of monetary policy. On the other hand, Ms. Fernandez said that corporate earnings have been decent and she expects inflation could peak in the first half of the year.

"It just kind of depends on the day and the economic numbers that are coming out which side is winning this tug of war," she said.

The stock-market declines Friday were broad-based, with 10 of the 11 sectors of the S&P 500 pulling back. The technology sector was the worst performer, dropping 1.1%. The consumer staples segment bucked the trend by rising 0.1% for the day.

Among individual stocks, Shake Shack shares fell $3.11, or 4.1%, to $72.07 after the burger chain guided for weaker-than-expected revenue this quarter. Roku shares tumbled $32.25, or 22%, to $112.46 after the company said supply-chain disruptions continued to affect its growth and TV sales.

Shares of DraftKings dropped $4.77, or 22%, to $17.29 after the sports-betting company said it expects its adjusted loss to widen this year as it launches in states like New York and Louisiana.

In bond markets, the yield on the benchmark 10-year US Treasury note dropped to 1.930% Friday from 1.972% Thursday. Yields fall as bond prices rise.

Brent crude, the international oil benchmark, rose 0.6% Friday to $93.54 per barrel.

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

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