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Global Market Report - 22 February

Lex Hall  |  22 Feb 2021Text size  Decrease  Increase  |  
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Australia

Australian shares are set to fall following a mixed end to trading on Wall Street last week as cyclicals shone and big tech retreated.

The Australian SPI 200 futures contract was down 11 points, or 0.2 per cent, at 6,721 points at 8.30am Sydney time on Monday, suggesting a negative start to trading.

Stocks on Wall Street closed near break-even on Friday as investors sold technology shares that have rallied through the pandemic and rotated into cyclical stocks set to benefit from pent-up demand once the coronavirus pandemic is subdued.

The Dow Jones Industrial Average edged up 0.98 points, or 0 per cent, to 31,494.32 and the Nasdaq Composite added 9.11 points, or 0.07 per cent, to 13,874.46. The S&P 500 dropped 7.26 points, or 0.19 per cent, to 3,906.71.

Locally, popular support for Scott Morrison has strengthened ahead of Monday’s rollout of the COVID-19 vaccine as he stares down tech giant Facebook over its news ban on Australia but continues to face criticism of his handling of an ­alleged rape in Parliament House, The Australian reports.

Australia's share market had its biggest fall in more than three weeks on Friday, with sizeable losses in energy, materials and health.

The S&P/ASX200 benchmark index closed lower by 92.1 points, or 1.34 per cent, to 6,793.8 on Friday.

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The All Ordinaries closed lower by 91.5 points, or 1.28 per cent, at 7,064.0.

Spot gold was up 0.5 per cent to $US1,784.25/oz; Brent crude was down 1.6 per cent to $US62.91 a barrel; Iron ore was down 0.9pc to $US173.55 a tonne.

Meanwhile, the Australian dollar was buying 78.64 US cents at 8.30am, down from 77.88 US cents at Friday’s close.

Asia

China’s blue-chip index recouped earlier losses to end higher on Friday, helped by gains in infrastructure and securities stocks, though it posted weekly losses on investor concerns over policy tightening and lofty valuations.

The blue-chip CSI300 index edged up 0.2 per cent to 5,778.84, while the Shanghai Composite Index added 0.6 per cent to 3,696.17.

Hong Kong shares ended higher on Friday to deliver the third weekly gain, underpinned by materials stocks, as investors cheered data from major economies pointing to a global economic recovery from the COVID-19 pandemic fallout.

The Hang Seng index ended 0.2 per cent firmer at 30,644.73, while the China Enterprises Index gained 0.5 per cent to 12,106.77 points.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 1.22 per cent, while Japan’s Nikkei index closed down 0.72 per cent.

Europe

Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.

The euro zone index was up 0.9 per cent, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.

The pan-European STOXX 600 index rose 0.5 per cent, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.

Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.

Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.

But basic resources stocks outpaced their peers this week with a 7 per cent jump, as improving industrial activity across the globe drove up commodity prices.

“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.

“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”

Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.

The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.

The STOXX 600 has rebounded more than 50 per cent since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.

London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years.

French carmaker Renault tumbled more than 4 per cent after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.

North America

Stocks on Wall Street closed near break-even on Friday as investors sold technology shares that have rallied through the pandemic and rotated into cyclical stocks set to benefit from pent-up demand once the coronavirus pandemic is subdued.

Industrials led rising sectors in the S&P 500, spurred by a 9.9 per cent surge in Deere & Co and Caterpillar’s 5.0 per cent gain to an all-time peak of $211.40 a share. Financials, materials and energy, along with industrials, rose more than 1 per cent.

The S&P 1500 airlines index jumped 3.5 per cent, with post-pandemic travel in focus.

The stay-at-home winners, including Microsoft Corp, Facebook Inc, Alphabet’s Google and Netflix Inc, fell in a trend seen for most of the week. Amazon.com Inc also fell, as investors sold the leaders in the big rally since last March.

Value stocks rose 0.6 per cent while growth fell 0.6 per cent. Advancing stocks led declining shares by about a 2:1 ratio.

A battle continues between tech-led growth stocks and cyclicals, companies that are heavily affected by economic conditions, said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

“When the economy is roaring, they’re roaring. When the economy is weakening, they’re weakening,” Ghriskey said of cyclicals. “The economy will roar, at least for a period of time. There’s huge pent-up demand, whether just for travel or going back to work.”

The Dow Jones Industrial Average edged up 0.98 points, or 0 per cent, to 31,494.32 and the Nasdaq Composite added 9.11 points, or 0.07 per cent, to 13,874.46. The S&P 500 dropped 7.26 points, or 0.19 per cent, to 3,906.71.

Volume on US exchanges was 13.47 billion shares.

Strong earnings, progress in vaccination rollouts and hopes of a $1.9 trillion federal coronavirus relief package helped US stock indexes hit record highs at the start of the week.

The Dow hit an all-time intraday peak, led by Caterpillar, after Deere raised its 2021 earnings forecast. Deere reported profit more than doubled in the first quarter on rising demand for farm and construction machinery.

The benchmark S&P 500 and the tech-heavy Nasdaq posted their first weekly declines this month on concerns over higher stock market valuations, and expectations of rising inflation led to fears of a short-term pullback in equities.

For the week, the Dow rose 0.1 per cent while the S&P 500 fell 0.7 per cent and the Nasdaq slid 1.6 per cent as big tech sold off.

Bank of America expects a more than 10 per cent pullback in stocks, which are trading at more than 22 times 12-month forward earnings, the most expensive since the dot-com bubble of the late 1990s.

“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

On the economic front, data showed IHS Markit’s flash US composite PMI, which tracks the manufacturing and services sectors, inched up to 58.8 in February.

Applied Materials Inc was among the top boosts to both the Nasdaq and the S&P 500, rising 5.3 per cent to $119.46, after it forecast second-quarter revenue above market expectations. Demand for its semiconductor manufacturing tools has picked up during a global shortage of semiconductors.

With Reuters

is senior editor for Morningstar Australia

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