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Global Market Report - 23 June

Lewis Jackson  |  23 Jun 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to rise in defiance of slumping commodity prices and a dip on Wall Street after Federal Reserve Chairman Jerome Powell acknowledged the possibility of a US recession.

ASX futures were up 23 points or 0.4% at 6412 as of 7.30am on Thursday, although gains may be short lived with US stock futures in the red.

The broad market S&P 500 fell 0.1% on Wednesday, snapping a two-day rally. The Dow Jones Industrial Average slipped 0.2%. The tech-heavy Nasdaq Composite declined 0.1%. Bonds rallied amid a pivot to safety.

Mr. Powell testified before Congress on Wednesday and is scheduled to testify again on Thursday (Friday AEST). He said the central bank plans to continue raising interest rates until it sees clear evidence that inflation is slowing to its 2% target.

An economic downturn is "certainly a possibility," Mr. Powell said Wednesday during the congressional hearing. "We are not trying to provoke and do not think we will need to provoke a recession, but we do think it's absolutely essential" to curtail inflation.

Separately, Federal Reserve Bank of Philadelphia President Patrick Harker said Wednesday that the US economy may see a modest contraction in growth, but that he expects the job market to remain strong.

Locally, the S&P/ASX 200 closed 0.2% lower at 6508.5, resuming its downward trajectory following a mid-session turnaround.

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The benchmark was ahead by as much as 0.5% an hour after open, following a positive lead from US equities. It then dropped as US stock futures declined, with tech, consumer discretionary and real-estate stocks worst hit amid fears of recession.

Xero, WiseTech and Computershare gave up between 0.7% and 3.0%.

Shares in former red-hot buy now, pay later company Zip Co fell another 11.4% to 46.5c, from an all-time high of more than $14 last year. Co-founder and chief executive Larry Diamond released a statement saying the company was well-funded and continuing to execute on its business plan to seize a strong market opportunity.

Travel agents Webjet, Flight Centre and Corporate Travel Management fell by between 2.0% and 4.1%.

Banks Commonwealth, NAB, ANZ and Westpac edged lower by between 0.1% and 0.9%.

The ASX 200, which rose 1.4% on Tuesday to snap a seven-day losing streak, is up 0.5% so far this week.

In commodity markets, Brent crude oil fell 4% to US$110.07 a barrel. Iron ore continued its decline, down 5.6% to US$109.40. Gold futures dipped 0.02% to US$1838.40.

Bond markets rallied here and overseas as fears of an economic slowdown mount. The yield on Australian 2 Year government bonds declined to 2.96% while the 10 Year closed dropped to 3.98%. The yield on 2 year US Treasury notes eased to 3.06% and the yield on the 10 year US Treasury notes dipped back to 3.16%.

The Australian dollar fell to 69.23 US cents, down from 69.68 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged down to 97.12.

Asia

Chinese stocks ended lower, weighed by electronics and software companies, while the solar-energy industry gained. The Shanghai Composite Index slipped 1.2% to 3267.20, ending lower for the third straight session. Worsening US economic data and monetary tightening by global central banks could hurt the market's risk appetite and put pressure on the A-share market, Shanxi Securities says in a note. Luxshare Precision shed 5.2% and iFlytek lost 3.8% while polysilicon producer Tongwei added 2.6%. The Shenzhen Composite Index gave up 1.3% and the ChiNext Price Index was 0.6% lower.

Hong Kong stocks closed lower, with the benchmark Hang Seng Index down 2.6% at 21008.34 amid broad-based losses led by energy companies. Oil majors tracked sharp declines in crude-oil benchmarks as macroeconomic uncertainties weighed. PetroChina slid 4.2%, Cnooc fell 3.8% and Sinopec dropped 2.8%. Other decliners included Alibaba Health Information Technology, which slipped 14%, and Sunny Optical Technology, down 7.4%. That said, there could be positives to lower oil prices, as it "will provide a massive inflationary reprieve [and] provide a parachute for the global soft landing," SPI Asset Management managing partner Stephen Innes said in a note.

The Nikkei Stock Average closed 0.4% lower at 26149.55, giving up early gains amid persistent concerns about interest rates and inflation. The markets will be focused on Fed Chairman Jerome Powell's testimony to Congress later in the day, where he will outline his views on inflation. Energy stocks led losses as oil prices fell on inflation worries. Japan Petroleum Exploration slipped 3.0%, Inpex dropped 3.9% and Idemitsu Kosan fell 3.3%. USD/JPY was at 136.34 after earlier touching 136.72, its highest intraday level since 1998, according to FactSet, compared with 136.62 late Tuesday in New York.

Europe

European markets dropped after downbeat Asian trading and ahead of an expected lower US open. The pan European Stoxx Europe 600 slipped 0.7%, the French CAC 40 dropped 0.8%, and the German DAX slumped 1.1%.

"After a solid day for US markets yesterday, the picture in Asia was much less optimistic. Sentiment remains fragile and a weaker open is expected for US markets," IG analysts say in a note. "The main event will be the first day of testimony in front of US lawmakers by Fed president Jerome Powell."

London’s FTSE 100 closed down 0.9% on Wednesday as investors took in May's 9.1% rise in consumer price inflation in the UK--compared with 9% the previous month--in what is the highest level since 1982.

"Today's inflation numbers from the UK came across as rather mixed in the same way as the US inflation numbers a couple of weeks ago, with core prices softening, however PPI prices continued to push higher, suggesting that there is still a lot of price pressure still in the pipeline," Michael Hewson, an analyst at CMC Markets UK, said in a note.

Glencore was the day's biggest faller, down 6.9%, followed by miner Antofagasta, down 6.4%, and Rolls-Royce, who saw its latest pay offer rejected by Unite the union, and was down 5.2%.

North America

US stocks edged lower Wednesday after Federal Reserve Chairman Jerome Powell acknowledged that the central bank's rate-raising campaign could cause an economic downturn.

Investors have been watching closely for signs of how the Fed will proceed in its campaign to bring down high inflation by raising interest rates. Central bank officials last week agreed to raise their benchmark interest rate by 0.75 percentage point, their largest increase since 1994. The S&P 500 notched its worst week since March 2020.

On Wednesday, the broad US stock index fell 0.1%. The Dow Jones Industrial Average slipped 0.2%. The tech-heavy Nasdaq Composite declined 0.1%.

Mr. Powell testified before Congress on Wednesday and is scheduled to testify again on Thursday . He said the central bank plans to continue raising interest rates until it sees clear evidence that inflation is slowing to its 2% target.

An economic downturn is "certainly a possibility," Mr. Powell said Wednesday during the congressional hearing. "We are not trying to provoke and do not think we will need to provoke a recession, but we do think it's absolutely essential" to curtail inflation.

Separately, Federal Reserve Bank of Philadelphia President Patrick Harker said Wednesday that the US economy may see a modest contraction in growth, but that he expects the job market to remain strong.

Stocks have gyrated in recent weeks as twin fears -- soaring inflation and slowing growth -- hang over markets. The S&P 500 is on track for its worst first half of a year since 1962, according to Dow Jones Market Data. US stocks rallied Tuesday, offering investors a reprieve from a stretch of whipsaw trading that had sent stocks and cryptocurrencies falling.

Investors sought assets viewed as safer to hold Wednesday, such as US government debt. In bond markets, the yield on the benchmark 10-year US Treasury note declined to 3.155% from 3.304% Tuesday. Yields fall when prices rise.

"Folks are really reckoning with the fact that probabilities of recession seem to be increasing," said Gavin Stephens, director of portfolio management at Goelzer Investment Management.

In energy markets, Brent crude, the international benchmark for oil prices, dropped 2.5% to $111.74 a barrel, its lowest settlement value in a month.

Oil prices have been weighed down by fears that the Fed's efforts to fight inflation will slow the economy and reduce demand for fuel. Still, energy prices remain near historically high levels as Russia's invasion of Ukraine has caused Western nations to move rapidly away from Moscow's supplies.

The subsiding of oil prices from their highs may help stocks stabilize in the short term, as investors look for clues that inflation could begin to ease.

"For the stock market to stop going down, we need to catch a break here in terms of inflation," said Brian Barish, chief investment officer at Cambiar Investors.

The move lower in crude prices dinged shares of energy companies. Shares of Occidental Petroleum declined $2.10, or 3.6%, to $55.77. Halliburton shares fell $1.46, or 4.4%, to $32.09. The S&P 500's energy sector dropped 4.2% on the day.

Investors are worried that worsening economic data could precede a slowdown in US growth, limiting nonessential spending. Economists surveyed by The Wall Street Journal have substantially raised the probability of recession, now putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.

"This narrative of recession is starting to lead the market," said Sebastien Galy, a macro strategist at Nordea Asset Management.

Concerns about a recession have also hit prices for base metals. Copper fell 2.3% to $3.95 a pound, its lowest settle value since February 2021.

"There is certainly an anxiousness in markets and that's playing through in volatility," said Edward Park, chief investment officer at UK investment firm Brooks Macdonald, adding that investors are likely awaiting fresh inflation data or a central bank meeting to assess their future trades.

The dollar value of bitcoin, the world's largest cryptocurrency by market value, fell 4.2% from its 5 pm New York level Tuesday to trade at about $19,967, according to CoinDesk. Cryptocurrencies have fallen recently amid broad investor desire to get out of speculative assets and concerns about the future of some crypto companies.

Shares of cryptocurrency exchange Coinbase Global declined $5.58, or 9.7%, to $51.91.

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

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