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Global Market Report - 22 October

Lex Hall  |  22 Oct 2020Text size  Decrease  Increase  |  
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Australia

Australian shares are set to fall at the open following losses on Wall Street overnight as investors fretted about stimulus talks.

The Australian SPI 200 futures contract was down 56 points, or 0.9 per cent, to 6,125 points at 8.30am Sydney time on Thursday, suggesting a negative start to trading.

The S&P closed slightly lower on Wednesday after a volatile trading session as investors worried whether difficult negotiations in Washington would produce a deal for a fresh US coronavirus stimulus package.

The Dow Jones Industrial Average fell 98.76 points, or 0.35 per cent, to 28,210.03, the S&P 500 lost 7.77 points, or 0.23 per cent, to 3,435.35 and the Nasdaq Composite dropped 31.80 points, or 0.28 per cent, to 11,484.69.

Locally, Westpac has announced it will cash in on the share price run of buy now, pay later provider Zip and sell its 10.7 per cent stake to lift its common equity tier 1 capital ratio, the Australian Financial Review reports. The move comes just a day after the Australia’s oldest bank announced a partnership with Afterpay to provide savings and transactions accounts to its customers

Australia’s share market finished marginally higher after disappointing retail sales figures and mixed messages on US economic stimulus minimised gains. The S&P/ASX200 benchmark index closed up 7.2 points, or 0.12 per cent, to 6,191.8 on Wednesday. The All Ordinaries ended better by 6.3 points, or 0.1 per cent, to 6,403.1.

Gold was up 0.9 per cent at $US1,923.77 an ounce; Brent oil was down 3.2 per cent to $US41.77 a barrel; Iron ore was up 0.7 per cent to $US120.49 a tonne.

Meanwhile, the Australian dollar was buying 70.28 US cents at 8.30am, down from 70.74 US cents at Wednesday’s close.

Asia

China shares ended lower on Wednesday, dragged down by profit-taking in new-energy vehicle and technology stocks due to their high valuations, while confidence in the country’s economic recovery from the covid-19 pandemic restrained the losses.

At the close, the Shanghai Composite index was down 0.09 per cent at 3,325.02, narrowing the loss earlier in the day.

The blue-chip CSI300 index was down 0.01 per cent, with its financial sector sub-index higher by 0.92 per cent, the consumer staples sector down 0.08 per cent, the real estate index up 0.27 per cent and the healthcare sub-index down 0.07 per cent.

Hong Kong shares ended higher for a fourth consecutive session on Wednesday, as hopes for a new round of US fiscal stimulus and strong third quarter results due to China’s accelerated economic recovery boosted sentiment.

At the close of trade, the Hang Seng index was up 184.88 points or 0.75 per cent at 24,754.42. The Hang Seng China Enterprises index rose 0.9 per cent to 10,077.78.

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.25 per cent, while Japan’s Nikkei index closed up 0.31 per cent.

Europe

European shares fell for a third straight session on Wednesday, as losses in healthcare and construction stocks countered a lift from encouraging earnings from consumer giant Nestle and telecoms equipment maker Ericsson.

The pan-European STOXX 600 fell 1.3 per cent to close at its lowest in more than two weeks.

Losses were broad-based with only the basic material sector in the green, supported by rising copper prices.

Nestle lifted its 2020 sales forecast following a quarterly beat, but shares inched lower after early gains.

Sweden’s Ericsson jumped 9.6 per cent as higher margins and China’s 5G rollout helped the company beat quarterly core earnings estimates.

“Earnings have been generally well above expectations, and guidance has been a positive surprise,” said Patrick Moonen, principal strategist in the multi-asset team at NN Investment Partners.

“But there are other elements that are currently at play and may have a bigger impact on the market performance than earnings,” he said, pointing to many European countries reimposing mobility restrictions following a surge in covid-19 cases that could weigh on fourth-quarter economic activity.

The STOXX 600 has struggled to break out of a trading range since June, when it recouped a large part of the early pandemic-driven losses. The benchmark is still about 16 per cent below its all-time high.

Capital Economics expects the new containment measures to cause the euro-zone economy to stagnate over the next six months, resulting in only a slight increase in GDP on a quarter-on-quarter basis in the fourth quarter and zero growth in the first quarter of next year.

London’s exporter-heavy FTSE 100 underperformed, marking its worst session in a month, hit by a surge in the pound after bullish Brexit comments.

Vivendi rose 1.6 per cent after the French media group reported a bigger-than-expected quarterly sales and unveiled plans to list its most-prized asset, Universal Music Group, in 2022.

Third-quarter profits for companies on the STOXX 600 are expected to drop 34.8 per cent, according to Refinitiv data, a slight improvement from the 36.7 per cent predicted at the start of the earnings season.

Of the 29 companies that reported so far, 75.9 per cent have topped earnings expectations.

Gold miner Centamin slumped 19 per cent to the bottom of STOXX 600 after cutting its 2020 production forecast.

Construction companies also took a knock, with Assa Abloy, the world’s biggest lockmaker, falling 4.1 per cent after it reported a drop in quarterly sales.

North America

The S&P closed slightly lower on Wednesday after a volatile trading session as investors worried whether difficult negotiations in Washington would produce a deal for a fresh US coronavirus stimulus package.

White House Chief of Staff Mark Meadows said that while there are a number of differences between the White House and Congressional Democrats, Republican President Donald Trump was “willing to lean into” working on an agreement.

Before starting afternoon talks with Treasury Secretary Steven Mnuchin, US House Speaker Nancy Pelosi said there was still a chance for a deal despite resistance from Senate Republicans, though she acknowledged it might not pass until after the election.

“As long as she keeps dangling the carrot out there that there’s still a chance that something could get done investors continue to remain optimistic,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“You would rather have more long exposure than have too much cash if an agreement is reached. That’s a big if.”

James said investors were holding out hope a deal could be reached on Thursday. “Everybody’s going to be sitting on pins and needles waiting for the next headline between now and the end of tomorrow’s trading day.”

The Dow Jones Industrial Average fell 98.76 points, or 0.35 per cent, to 28,210.03, the S&P 500 lost 7.77 points, or 0.23 per cent, to 3,435.35 and the Nasdaq Composite dropped 31.80 points, or 0.28 per cent, to 11,484.69.

Instead of plowing money into the market broadly, Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut said investors picked stocks as they looked at third-quarter financial results.

Of the major industry sectors communications services was the biggest gainer for much of the session.

Shares surged in Snapchat messaging app owner Snap Inc after it beat user growth and revenue forecasts, as more people signed up to chat with friends and family during the covid-19 pandemic.

The news helped boost the shares of other social media companies Facebook Inc and Twitter Inc and helped lift the communications services sector. Smaller social media firm Pinterest Inc also soared.

Dampening the mood however was Netflix Inc, which took a big tumble after it kicked off earnings for the market’s high-flyers club. The video streaming service missed expectations for subscriber growth as competition increased and live sports returned to television.

Of the 84 S&P 500 firms that have reported third-quarter results, 85.7 per cent have topped expectations for earnings, according to IBES Refinitiv data.

Investors also have their eyes on the upcoming elections. Trump and Democratic challenger Joe Biden will face off in their second and final debate on Thursday night.

Electric-car maker Tesla Inc was due to report quarterly results after the closing bell.

is content editor for Morningstar Australia

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