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Global Market Report - 22 March

Lewis Jackson  |  22 Mar 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to jump, sidestepping selling on Wall Street where investors sold stocks and bonds after US Federal Reserve Chairman Jerome Powell said the bank was prepared to raise rates quickly if needed to combat inflation.

ASX futures were up 80 points or 1.1% at 7316 as of 8.00am AEST, suggesting a positive start to trading that could face headwinds following the dip on Wall Street.

The S&P 500 edged lower 1.94 points, or less than 0.1%, at the close on Monday. US Treasury yields rose following his comments, reaching their highest level since May 2019. Yields rise as prices fall. The tech-focused Nasdaq Composite Index lost 0.4%, while the Dow Jones Industrial Average slipped 0.6%.

The US Federal Reserve’s is beginning its campaign to contain decades-high inflation against a backdrop of a broad commodity price shock that is stoking fears of a growth slowdown. Brent Crude oil rallied again overnight, although it remains below highs notched in early March. In comments on Monday, Chair Powell said the bank is prepared to raise rates by 0.5% increments if needed to combat inflation. The Fed raised rates for the first time since 2018 last week.

"Investors are taking Powell's transparency as a step further to say 'He's just preparing us for the worst,'" said Shannon Saccocia, chief investment officer at Boston Private. "Whereas, the bond market is saying, 'No, no, he's telling you he's going to do at least seven [rate increases], and you aren't listening.'"

Locally, S&P/ASX 200 index fell 0.2% to 7278.5 on Monday, giving up gains earlier in the day and snapping a three-day streak of higher closes. Industrials fell 1.2% and health care companies fell 1%, while information-technology shares rose 2.5% and utilities rose 0.8%.

Among the biggest losers Monday was Magellan Financial Group, which shed more than 4% to close at A$15.06/share after co-founder Hamish Douglass stepped down from the company's board due to a medical leave of absence, raising questions about the company's leadership going forward.

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The Ukraine war has led to sharply rising commodities prices and accelerating inflation, prompting a shift among investors to a risk-off position and driving them to sell down global banks sharply. However, investment bank Citi notes Australian banks have surprisingly bucked this trend.

"We believe this is due to Australia's commodities-dependent economy, an accelerating inflation and rates story as well as a strong capital adequacy and non-performing loan combination," Citi says.

In commodity markets, iron ore lost 2.3% to US$147.90 per tonne; Brent Crude jumped 8.1% to US$116.68; gold futures edged up 0.05% to $1934.80.

Bond markets sold off sharply following hawkish comments from Fed Chairman Powell and yields on the US 10-Year Treasury Note jumped to 2.29%. The yield on the Australian 10-year bond was flat at 2.57%. Yields rise when prices fall.

The Australian eased to 73.96 US cents as of 8.00am AEST, down from the previous close of 74.12. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, edged up to 91.26.

Asia

Chinese stocks ended higher, extending a recovery that started last week, and amid signs of an easing in US-China tensions over Russia's invasion of Ukraine. The benchmark Shanghai Composite Index edged up 0.1%, while the Shenzhen Composite Index rose 0.7%. The tech-heavy ChiNext Price Index grew 0.5%. Drug makers led the upturn as the sector extended Friday's gains, after several Chinese pharmaceutical companies received licenses to develop generic versions of Pfizer's oral Covid-19 drug nirmatrelvir. A-shares of Shanghai Fosun Pharmaceutical, which was among the licensed companies, surged 10% to hit their daily rise limit.

Hong Kong's Hang Seng Index reversed early gains and closed 0.9% lower thanks to profit taking, KGI Securities said. The brokerage expects investors to continue to focus on companies reporting financial results during the week. The Hang Seng Tech Index also gave up early gains to decline 1.5%. Haidilao International shed 8.1%, while delivery company Meituan fell 6.1%. Property-related stocks also declined. Country Garden Services lost 5.8% and Country Garden Holdings closed 6.2% lower. Gainers included ENN Energy, which advanced 12% higher after reporting 2021 net profit.

Japanese share markets were closed for a public holiday.

Europe

European markets closed mixed as US stocks headed lower amid continued concerns about Ukraine and economic comments from the US Federal Reserve. The pan-European Stoxx Europe 600 was flat.

In London, the FTSE 100 closed on Monday up 0.51%, as higher commodity prices drove oil and mining stocks higher.

"The drumbeat of conflict in Ukraine provides a firm foundation for commodity prices to keep moving higher, giving the FTSE 100 a boost even as other indices struggled for direction in early trading," IG Group PLC chief market analyst Chris Beauchamp says.

A surge in stock prices last week might still flounder, however, given the lack of major news expected this week--earnings season is the next big hurdle for stocks--and while it's too early to get a sense of how the war is affecting earnings there may be some hints for the future, Mr. Beauchamp says.

Russia's stock market remains closed, but trading of Russia's local-currency government bonds resumed Monday. Russia's central bank said it would purchase government bonds. Gov. Elvira Nabiullina said last week that the Moscow Exchange would reopen gradually but provided no details beyond the bond buying.

The Egyptian pound fell by more than 13% against the dollar on Monday after Egypt's central bank raised its key interest rate at a meeting of policy makers that was brought forward by three days, citing the pickup in inflation pressures it sees following Russia's invasion of Ukraine.

As with many countries in Africa, Egypt has relied heavily on Ukraine and Russia for its imports of wheat. According to the United Nations, more than 80% of its wheat imports came from the warring countries between 2018 and 2020.

North America

Investors sold US stocks and government bonds after Federal Reserve Chairman Jerome Powell reiterated the central bank's commitment to controlling inflation through a rapid series of interest-rate increases.

The S&P 500 edged lower 1.94 points, or less than 0.1%, at the close on Monday following comments from Mr. Powell about the possibility of more-aggressive interest-rate moves to tame inflation. Treasury yields rose following his comments, reaching their highest level since May 2019.

The tech-focused Nasdaq Composite Index lost 0.4%, while the Dow Jones Industrial Average slipped 0.6%. Major US stock indexes on Friday finished their best week since November 2020.

Boeing shares fell $6.93, or 3.6%, to $185.90 after a Boeing 737 passenger plane operated by China Eastern Airlines carrying more than 130 people crashed in southern China.

Mr. Powell, speaking at the National Association for Business Economics, said the US central bank was prepared to raise interest rates in half-percentage-point steps -- and high enough to deliberately slow the economy -- if needed.

"Investors are taking Powell's transparency as a step further to say 'He's just preparing us for the worst,'" said Shannon Saccocia, chief investment officer at Boston Private. "Whereas, the bond market is saying, 'No, no, he's telling you he's going to do at least seven [rate increases], and you aren't listening.'"

The yield on the benchmark 10-year Treasury note rose to 2.294%. Yields and prices move inversely. Investors expect additional interest-rate increases from the Fed this year as the central bank aims to slow inflation that is running at its highest levels in four decades. Analysts say higher yields could sap investor appetite for riskier assets.

"I wouldn't say bonds look like a phenomenal investment at this point in time, but they are definitely more balanced than they were earlier into the year," said Matt Dmytryszyn, chief investment officer at Telemus.

The Ukraine war has heightened volatility in stocks, bonds, commodities and currencies as investors try to assess the economic impact of sanctions and the potential for disruptions to supply chains. Investors are monitoring developments out of the region and whether a resolution can be soon found.

"This is the main driver of markets in the coming days and maybe even weeks -- it is about everything that comes out of the Ukraine conflict," said Carsten Brzeski, ING Groep's global head of macro research.

In individual stocks, Shares of Nielsen Holdings dropped $1.68, or 6.9%, to $22.76 after it rejected a roughly $9 billion takeover offer from a private-equity consortium, saying that the offer undervalued the TV-ratings company. Shares of insurer Alleghany Corp. soared $167.85, or 25%, to $844.60 after Berkshire Hathaway said it agreed to buy the company for about $11.6 billion in cash.

Brent-crude futures, the international benchmark, added $7.69 a barrel, or 7.1%, to $115.62. West Texas Intermediate futures, their US counterpart, were up $7.42 per barrel, or 7.1%, to $112.12. Most of the S&P 500's 11 sectors fell Monday; one of the few exceptions was energy, which rose 3.8%. Occidental Petroleum rose $4.72, or 8.4%, to $60.96; Hess added $6.44, or 6.1%, to $103.85 and Exxon Mobil gained $3.53, or 4.5%, to $82.20.

Elevated oil prices have prompted concerns of sustained high inflation and lower economic growth in the US and Europe, as gas and energy prices eat away at household spending on other goods and services.

Support for a European Union-wide ban on the purchase of Russian oil is growing inside the bloc, according to diplomats involved in the discussions, which could send prices even higher. Russia's invasion of Ukraine has drawn focus on Europe's reliance on Russian energy, with Germany getting over half of its gas from Russia.

"We have this growing awareness that a couple of supply chains could be broken for good. Energy prices, no matter how the war resolves, will remain high," Mr. Brzeski said.

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

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