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Global Market Report - 21 September

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

Australian shares are set to fall as US tech stocks continued to sell off, pushing Wall Street lower for a third week.

The Australian SPI 200 futures contract was down 36 points, or 0.6 per cent, to 5,836 points at 8.30am Sydney time on Monday, suggesting a negative start to trading.

US stocks fell on Friday as technology shares sold off for a third day in a row, while all three major US indexes posted a third straight week of declines.

It was the Nasdaq’s first such weekly streak since August 2019, and S&P 500 and Dow’s first since early October 2019.

The Dow Jones Industrial Average fell 244.56 points, or 0.88 per cent, to 27,657.42, the S&P 500 lost 37.54 points, or 1.12 per cent, to 3,319.47 and the Nasdaq Composite dropped 117.00 points, or 1.07 per cent, to 10,793.28.

The S&P/ASX200 benchmark index closed down 18.7 points, or 0.3 per cent, at 5,864.5 points on Friday. The All Ordinaries index finished 11.6 points down, or 0.2 per cent, at 6,057.6.

Gold was up 0.3 per cent to $US1,950.86 an ounce; Brent oil was down 0.4 per cent to $US43.15 a barrel; Iron ore was up 2.1 per cent to $US124.90 a tonne.

Meanwhile, the Australian dollar was buying 72.88 US cents at 8.30am, down from 73.15 US cents at Friday’s close.

Asia

China stocks staged a strong finish on Friday, led by heavyweight financials on hopes of fresh supportive measures to boost the virus-ravaged economy, while a strong yuan also helped lure foreign inflows.

The blue-chip CSI300 index ended up 2.3 per cent at 4,737.09, while the Shanghai Composite Index rose 2.1 per cent to 3,338.09.

Hong Kong stocks ended higher on Friday but posted a third straight weekly drop on worries over ongoing Sino-US tensions and lingering disappointment that central banks merely affirmed their monetary support this week.

At the close of trade, the Hang Seng index was up 114.56 points, or 0.47 per cent, at 24,455.41. The Hang Seng China Enterprises index rose 0.73 per cent to 9,803.1.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 1.15 per cent, while Japan’s Nikkei index closed up 0.18 per cent.

Europe

European equity markets closed lower on Friday, with travel, banking and auto shares leading declines as a resurgence in coronavirus cases across the continent rekindled fears about the pandemic’s impact on a nascent economic recovery.

The pan-European STOXX 600 index fell 0.7 per cent, with the banking-heavy Spanish index down 2.2 per cent and the French and Italian bourses more than 1 per cent lower.

London's FTSE 100 slipped 0.7 per cent, with British-Airways owner ICAG, easyJet and cruise operator Carnival down between 8 per cent and 15 per cent as talk of a second lockdown in the United Kingdom did the rounds after new covid-19 cases almost doubled to 6,000 per day.

Travel and leisure was the worst-performing sector, down 3.5 per cent.

Other European nations from Denmark to Greece announced new restrictions to curb surging coronavirus infections in some of their largest cities.

“If the uptick in cases becomes strong enough that lockdowns have to be tightened to a point that it derails the economic recovery, then it becomes a risk factor,” said Mobeen Tahir, associate director of research at fund house Wisdom Tree.

The banking index fell 2.6 per cent, hitting its lowest level since 26 May and on course for record-lows as major central banks pledged to keep interest rates lower for a long time, with the Bank of England looking at taking borrowing costs to sub-zero levels, if needed.

Sparking hopes of consolidation among lenders battling the fallout from the covid-19 pandemic, Caixabank agreed to buy state-owned Bankia for 4.3 billion euros ($7 billion) to create Spain's biggest domestic bank.

Bankia fell 4.8 per cent and Caixabank was down 2.2 per cent after rallying in the run up to the announcement.

Swedbank, Handelsbanken and Nordea were down between 1.8 per cent and 5.3 per cent on fears that the Swedish banks will bear the brunt of a recently proposed government "risk tax".

Separately, Sweden’s financial watchdog said it was investigating Swedbank for potential market abuse.

The STOXX 600 still eked out 0.2 per cent weekly gain as some major retail companies showed resilience in earnings earlier this week and a string of takeovers enlivened global M&A activity.

The London Stock Exchange Group entered exclusive talks to sell Borsa Italiana to France's Euronext, driving its shares up 4.3 per cent.

Swedish telecoms gear maker Ericsson was up 1.3 per cent after it agreed to buy US-based wireless networking company Cradlepoint in a US$1.1 billion deal.

North America

Apple, Microsoft Corp, Amazon.com and Alphabet, which helped to fuel the market's rally off the March lows, were among the biggest drags on the S&P 500 and Nasdaq on Friday, while the S&P 500 technology index fell 1.7 per cent, the biggest weight among the S&P 500 sectors. Apple was down 3.2 per cent.

“We had a market peak on 2 September, and then we had a rapid decline and a lot of that came in technology and growth stocks that had done so well,” said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta.

But even though the market has had a sell-off in technology and growth, “it doesn’t mean the (valuation) extremes are fully worked off,” he said.

Friday marked the quarterly expiration of US stock options, stock index futures and index option contracts, known as “quadruple witching,” bringing increased trading volume at the market close.

Volume on US exchanges was 14.31 billion shares, the highest since this year’s reconstitution by FTSE Russell of its indexes in June.

The Dow ended just barely lower on the week, while the S&P 500 fell 0.7 per cent and the Nasdaq dropped 0.6 per cent for the week.

Strategists said investors appeared to be continuing a recent rotation out of high-flying tech-related stocks and into other sectors.

“It looks to be sentiment driven and, to some extent, it appears to be rotational to us,” said Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle.

“We’re not sure this really indicates there’s a problem with economic growth, but rather, it’s some profit-taking, some adjustment and rotation” between sectors, he said. “You’re moving from the biggest weights in the market to the smallest weights.”

The S&P 500 materials is the best-performing sector so far this month, while S&P 500 technology is the worst.

Investors kept a close eye on rising coronavirus cases overseas. European countries from Denmark to Greece announced new restrictions on Friday to curb surging coronavirus infections in some of their largest cities, while Britain was reported to be considering a new national lockdown.

Tesla rose 4.4 per cent as two analysts raised their price targets on the electric carmaker’s shares ahead of its highly anticipated “Battery Day” event next week.

is content editor for Morningstar Australia

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