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Global Market Report - 23 February

Lex Hall  |  23 Feb 2021Text size  Decrease  Increase  |  
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Australia

Australian shares are set to rise despite a mixed night on Wall Street as rising Treasury yields spurred valuation concerns.

The Australian SPI 200 futures contract was up 16 points, or 0.2 per cent, at 6,729 points at 8.30am Sydney time on Tuesday, suggesting a positive start to trading.

The S&P 500 and Nasdaq closed lower on Monday as climbing Treasury yields and prospects of rising inflation triggered valuation concerns, hitting shares of high-flying growth companies. The Dow industrials ended higher, boosted by a surge in Walt Disney Co shares.

The Dow Jones Industrial Average rose 29.08 points, or 0.09 per cent, to 31,523.4, the S&P 500 lost 30.2 points, or 0.77 per cent, to 3,876.51 and the Nasdaq Composite dropped 341.42 points, or 2.46 per cent, to 13,533.05.

Locally, a royal commission will investigate Crown Resorts’ flagship casino’s links to organised crime and money laundering after the Victorian government bowed to political pressure and launched the probe following the damning findings of a NSW inquiry.

Australia's share market has closed marginally lower while the Australian dollar reached its highest level in almost three years.

The S&P/ASX200 benchmark index closed lower by 12.9 points, or 0.19 per cent, to 6,780.9 on Monday.

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The All Ordinaries closed lower by 2.4 points, or 0.03 per cent, at 7,061.6.

The materials sector was the only one which closed higher and rose 2.58 per cent.

Spot gold was up 1.4 per cent to $US1,808.97/oz; Brent crude was up 2.9 per cent to $US64.75 a barrel; Iron ore was up 1.4 per cent to $US175.96 a tonne.

Meanwhile, the Australian dollar was buying 79.25 US cents at 8.30am, up from 78.82 US cents at Monday’s close.

Asia

China's blue-chip index posted its biggest daily drop in nearly seven months on Monday after touching record highs last week, as investors fretted over high stock valuations and the risk of policy tightening.

China left its benchmark lending rate for corporate and household loans unchanged for a 10th straight month on Saturday, but speculation has been rising that authorities may begin to adopt a tighter policy stance. "Monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalise the shift with policy rate increases in the next few months," said analysts at Capital Economics.

China's blue-chip CSI300 index slumped 3.14 per cent to close at 5,597.33 points, its biggest daily percentage drop since July 24, 2020. The Shanghai Composite index fell 1.45 per cent to 3,642.44 points.

In Hong Kong, the Hang Seng Index slid 1.1 per cent to 30,319.83 as tech stocks as a group plunged by most since mid-November.

Japanese shares jumped on Monday, snapping a three-day losing streak, as optimism on economic recovery from the pandemic prompted fresh buying in materials, travel-related and other cheap cyclical stocks.

Nikkei share average rose 0.46 per cent to 30,156.03, while the broader Topix gained 0.49 per cent to 1,938.35.

Europe

European shares trimmed early losses on Monday as comments from the region’s central bank brought down treasury yields, though inflation expectations and profit-taking in technology stocks dragged the benchmark index lower.

The pan-European STOXX 600 index settled 0.4 per cent down after dropping as much as 1 per cent, led by declines in technology companies and retail stocks.

A recent rise in sovereign debt yields on forecasts for rising inflation has weighed on risk-driven assets because the higher yields offer safer returns.

But yields in the euro zone dropped on Monday after European Central Bank President Christine Lagarde said the bank was closely monitoring rising borrowing costs, which could point towards future ECB intervention in debt markets.

The current upward trajectory in bond yields it might lead to added pressure on equities, said SocGen strategist Roland Kaloyan.

Regional stocks have rallied sharply off pandemic-driven lows hit last year. But unlike their peers across the Atlantic, they have yet to reach pre-pandemic levels amid concerns over a stalling economic recovery and slow vaccine rollout.

But some industries, such as the technology sector, have flourished in the face of the pandemic.

The tech sector hit a 20-year high last week and Mirabaud analyst Neil Campling attributed recent losses to profit-taking after a “period of positive price action”.

Travel and leisure stocks strengthened on Monday after British Prime Minister Boris Johnson set out a phased plan to end the country’s COVID-19 lockdown.

The FTSE 100 also trimmed losses through the day, with British Airways owner IAG jumping more than 7 per cent after raising its total liquidity by 2.45 billion pounds ($4.3 billion).

Security company G4S, however, tumbled nearly 10 per cent after Canada’s GardaWorld said it would not raise its takeover, handing victory to Allied Universal in their months-long bid battle.

Italy’s Atlantia rose more than 4 per cent on expectations that the infrastructure group would receive a binding offer for its 88 per cent stake in motorway unit Autostrade per l’Italia this week.

French car parts maker Faurecia was another faller, retreating 4.7 per cent after it swung to a net loss in 2020.

Swiss logistics company Kuehne & Nagel, meeanwhile, rose more than 2 per cent after saying it would buy Asian rival Apex International Corp from private equity firm MBK Partners.

North America

The S&P 500 and Nasdaq closed lower on Monday as climbing Treasury yields and prospects of rising inflation triggered valuation concerns, hitting shares of high-flying growth companies.

The Dow industrials ended higher, boosted by a surge in Walt Disney Co shares.

US benchmark 10-year Treasury yields were up at 1.37 per cent on Monday. Since the beginning of February, 10-year yields have risen about 26 basis points, on track for their largest monthly gain in three years.

Still, some analysts noted that the stocks pullback was expected after a torrid rally this year and in 2020.

“This is a small pulback primarily because stocks got a little overheated and there are a few worries out there that people are making mountains of out molehills,” said Brian Reynolds, chief market strategist, at Reynolds Strategy.

He cited worries about the rise in Treasury yields, but noted that junk bond yields hit all-time lows last week, suggesting there has been a shift from the safety of Treasuries to the riskiness of corporates among investors.

“That’s bullish for stocks,” he added.

Federal Reserve Chair Jerome Powell is scheduled to speak before the Senate Banking Committee on Tuesday, and investors are expected to look for any potential changes to the central bank’s dovish outlook.

“What investors are grappling with ... is what does this (higher Treasury yields) mean from an inflation perspective. Because of that, there’s a little bit of tantrum in the market right now,” said Lindsey Bell, chief investment strategist at Ally Invest, in Charlotte, North Carolina.

Shares of Apple Inc, Microsoft Corp, Alphabet Inc, Tesla Inc and Amazon.com Inc resumed their slide from the previous week.

Largely upbeat fourth-quarter earnings had powered Wall Street’s main indexes to record highs early last week, but the rally lost steam, in part due to fears of a potential snag in US vaccination efforts and inflation concerns emanating from stimulus measures.

The Dow Jones Industrial Average rose 29.08 points, or 0.09 per cent, to 31,523.4, the S&P 500 lost 30.2 points, or 0.77 per cent, to 3,876.51 and the Nasdaq Composite dropped 341.42 points, or 2.46 per cent, to 13,533.05.

The S&P 500 declined for five straight sessions, its longest such streak in a year.

Value stocks have outperformed growth shares in February, with investors betting on a rebound in industrial activity and a pickup in consumer demand as countries roll out vaccines to tame the pandemic.

The S&P 500 industrials and financial sector both rose, while energy stocks surged on higher oil prices.

Discovery Inc jumped after the media company said it was expecting 12 million global paid streaming subscribers by the end of February, as coronavirus-led restrictions kept people at home.

Kohl’s Corp gained after a group of activist investors nominated nine directors to the department store chain’s board.

Principal Financial Group Inc added after a media report that activist investor Elliott Management Corp had taken a stake in the life insurance company and planned to push for changes.

With Reuters

is senior editor for Morningstar Australia

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