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Global Market Report - 21 March

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

Australian shares are set to jump at the open following a Friday rally on Wall Street that saw the best weekly performance since November 2020 amid optimism about the US economy.

ASX futures were up 59 points or 0.8% at 7323 as of 8.00am AEST, suggesting a positive start to trading.

The S&P 500 rose 1.2% on Friday, its fourth straight day of gains. The Dow Jones Industrial Average added 0.8%. The Nasdaq Composite advanced 2%, putting the index in the green for March.

The S&P 500 posted a 6.2% weekly gain, while the Dow Jones Industrial Average advanced 5.5% and the tech-heavy Nasdaq Composite climbed 8.2%. All three indexes recorded their best weekly performance since the week ended 6 Nov 2020, as votes from the last US presidential election were still being counted.

Investors are returning to US equities after weeks of volatility following Russia’s invasion of Ukraine saw flights to safe assets and wild swings in commodity prices. Sentiment received a boost on Wednesday when US Federal Reserve Chairman talked up the strength of the US economy and its resilience to higher interest rates.

"The US economy is on a really solid foundation right now, and it's a key reason why the Fed is feeling comfortable in moving forward with their tightening process without potentially putting the US in a recessionary type of environment," said Jeff Schulze, investment strategist at ClearBridge Investments.

Easing oil prices have also taken pressure off equities. Brent Crude oil edged up Friday to US$107.9, remaining well below the plus US$130 levels notched a week earlier.

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Locally, the S&P/ASX 200 closed 0.6% higher at 7294.4 on Friday, rounding out its strongest trading week since February 2021.

Commodity stocks rebounded amid higher oil and metals prices, helping the benchmark add 3.3% for the week. The energy sector led Friday's gains, adding 2.2%. Iron-ore miners BHP, Rio Tinto and Fortescue put on between 1.25% and 2.2%, while gold miners made similar gains.

The heavyweight financial sector completed a fifth consecutive gain, wrapping up a 6.1% weekly advance amid growing expectations of an RBA interest-rate rise this year.

Block's ASX-listed securities added 7.2%, taking its gains over the past three sessions to 26%.

Energy and metals prices rebounded in commodity markets: iron ore rose 3% to US$151.35 per tonne; Brent Crude jumped 1.2% to US$107.93; gold futures lost 0.7% to $1933.90.

Australia banned exports of alumina and aluminium ores to Russia on Sunday. Australia supplies nearly 20% of Russia’s alumina, according to the government.

In bond markets, yields on the US 10-Year Treasury Note slipped to 2.15%, while the yield on the Australian 10-year bond rose to 2.57%. Yields rise when prices fall.

The Australian extended its gains to 74.12 US cents as of 8.00am AEST, up from the previous close of 73.73. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, edged up to 91.09.

Asia

Chinese stocks ended higher on Friday, extending a strong rebound since Wednesday after top Beijing officials vowed support for financial markets and promised more predictable regulations. The benchmark Shanghai Composite Index rose 1.1%, while the Shenzhen Composite Index added 0.6%. The tech-heavy ChiNext Price Index edged up 0.1%, as tech stocks' momentum eased after soaring for two days. Insurance and property companies led today's gains, as Ping An's Shanghai-listed shares rose 5.3% after its 2021 dividend beat market expectations.

Hong Kong stocks ended lower, with the Hang Seng Index down 0.4%, snapping two straight days of gains which saw the HSI rise a cumulative 17%. Investor focus is turning toward the Covid-19 situation in China, Oanda said, noting signs that Shenzhen is relaxing some domestic restrictions even as authorities are recommending people in Shanghai to work from home. A mixed bag of companies led gains, with Ping An Insurance rising 4.8%, followed by Sands China and Wharf Real Estate, which advanced 4.2% and 3.9%. CK Hutchison rose 3.8% after reporting full-year results on Thursday.

Japanese stocks finished higher as uncertainty persists over the war in Ukraine and its impact on commodity prices while hopes continued for reopening of the domestic economy. Metal and real-estate stocks lead the gains. Sumitomo Metal Mining climbs 4.2% and Sumitomo Realty & Development adds 2.9%. The Nikkei Stock Average rises 0.7%. Investors remain focused on headlines on Ukraine.

Europe

European stocks closed higher ahead of the weekend, shrugging off interest-rate rises in the US and UK this week, which were expected. The pan-European Stoxx Europe 600 gained 0.9%.

"The market message is inflation recedes, growth is not damaged too much, and the bull market can resume over the next two years," Chris Iggo, CIO of core investments at AXA Investment Managers, says. However, uncertainty surrounding the war in Ukraine is high and markets will likely stay volatile, he says. "Markets are exhausting at the moment. Volatility is high and liquidity is poor," Iggo says.

In London, the FTSE 100 closed Friday up 0.3% in a muted finish to the week as investors took stock of the situation following a recovery this week for stock markets.

"A quiet calendar and few headlines have meant that stocks have been drifting for most of the day, after a week in which many markets have staged strong recoveries," IG Group chief market analyst Chris Beauchamp said. But, for now, there doesn't seem to be much of an appetite to sell the bounce, he said. Stocks may actually take the lack of news flow as a positive and certainly next week is rather sparse on the event front as well, Mr. Beauchamp said.

The Russian stock market remained closed. The country's central bank hasn't yet said if it will open next week. The central bank kept its key policy rate steady at 20%. The Russian state avoided default by making coupon payments on dollar-denominated sovereign bonds on Thursday.

"Markets were positioned for a technical default of Russia, people were surprised," said Ludovic Subran, chief economist at Allianz.

North America

Major US stock indexes notched their best week since November 2020 as oil prices stayed below recent highs and investors embraced signs of confidence in the US economy from the Federal Reserve.

The gains returned the S&P 500, the Dow Jones Industrial Average and the tech-heavy Nasdaq Composite to positive territory for March, despite the elevated commodity prices and geopolitical anxieties that have weighed on stocks recently.

The S&P 500 ended Friday with a gain of 6.2% for the week, while the Dow Jones Industrial Average advanced 5.5% in that time. The tech-heavy Nasdaq Composite climbed 8.2%. All three indexes recorded their best weekly performance since the week ended Nov. 6, 2020, as votes from the last presidential election were still being counted.

Big tech stocks clawed back some of their recent losses to help pull the market higher. Shares of Meta Platforms advanced 15% for the week, while Amazon.com gained 11% and Microsoft rose 7.3%. Shares of fast-growing companies, including many technology names, have suffered lately as the central bank's plans to raise interest rates threaten the value of their future earnings.

The S&P 500 on Friday rose 1.2%. The Dow Jones Industrial Average added 0.8%. The Nasdaq Composite advanced 2%.

Investors showed increased enthusiasm for US stocks after two weeks of declines for the S&P 500 and five weeks of losses by the Dow Jones Industrial Average. They say the solid fundamentals of many US companies will allow them to deliver profits in the face of higher costs and growing geopolitical uncertainty. Many believe the strong US labour market will help consumers keep the economy growing.

Analysts also pointed to a positive tone from the US central bank, where officials this week voted to lift interest rates in an effort to slow inflation. Fed Chairman Jerome Powell cited strong household balance sheets and consumer demand to deflect worries about the potential for a recession in the next year.

"The US economy is on a really solid foundation right now, and it's a key reason why the Fed is feeling comfortable in moving forward with their tightening process without potentially putting the US in a recessionary type of environment," said Jeff Schulze, investment strategist at ClearBridge Investments.

Central bank officials signalled their interest-rate increase of one-quarter of a percentage point would be followed by six more increases this year. The move seemed to calm fears among some investors that inflation would spiral upward.

"What you're seeing is that there is a sense that the market believes that the Fed is going to be able to get inflation under control," said Whitney Sweeney, investment strategist at Schroders.

A pause in the recent climb in oil prices eased pressure on stocks. Brent crude, the global oil benchmark, settled Friday at $107.93 a barrel, down 4.2% for the week. Early last week oil at times traded above $130 a barrel.

Russia's invasion of Ukraine drove oil prices above $100 a barrel for the first time since 2014 as investors bet on disruptions to resource exports from the region. The jump in energy costs has heightened concerns about inflation, which was already at a 40-year high in the US.

Traders remain concerned about lower oil supplies due to longer-term sanctions on Russia amid signs that the conflict may drag on. Russian and US officials said Thursday that talks between Moscow and Kyiv on a cease-fire hadn't yielded progress.

"Sentiment remains fragile, and the risk of further escalation remains a real concern despite the gains of the last two weeks," said Michael Hewson, chief markets analyst at CMC Markets.

In economic news, US existing-home sales fell 7.2% in February, the National Association of Realtors said Friday, while February sales fell 2.4% from a year earlier. The average rate for a 30-year fixed mortgage recently topped 4% for the first time since 2019.

Investors are watching closely for signs of weakness in the US economy as the Fed begins to raise rates and households and businesses cope with higher energy costs. New data points that change the outlook could prompt big moves in the market.

"We still feel the recession risk this year is very low, but we're likely to remain in an environment of a lot of volatility," said Steven Violin, portfolio manager at F.L.Putnam Investment Management.

Among individual stocks, FedEx fell $9.07, or 4%, to $218.91 Friday after it reported lower shipping volumes and said profit margins were coming under pressure.

The yield on the benchmark 10-year US Treasury note fell to 2.146% Friday from 2.192% on Thursday, but rose for the week. Yields rise as prices fall.

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

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