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Global Market Report - 23 March

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

Australian shares are poised to open higher for a third day after technology stocks led a rally on Wall Street.

ASX futures were up 31 points or 0.4% at 7343 as of 8.00am AEST, suggesting a positive start to trading.

Tuesday's moves had all three US indexes up at least 2.6% for the month so far, building on last week's gains. The Dow Jones Industrial Average rose 0.7%. The S&P 500 climbed 1.1%. The Nasdaq Composite gained 2.0%.

Equity markets spooked by Chair Powell’s hawkish comments on Monday have about-faced amid optimism about the strength of the US economy. For some market participants, the Fed’s confidence in the US economy’s ability to withstand higher rates is a stronger signal than the rising rates themselves.

"The message that came out of the [Fed] meeting last week is that they are going to be tightening [monetary policy] but the US economy is resilient enough to withstand that," said Huw Roberts, head of analytics at Quant Insight, a data analytics firm. "The equity market chose to emphasize the economic resilience portion."

Technology stocks notched big gains early in the trading session, with shares of Apple, Facebook-owner Meta Platforms and Amazon closing more than 2% higher.

"You're beginning to see a little bit of the revenge of growth stocks," said Wayne Wilbanks, co-founder and chief investment officer of Wilbanks Smith & Thomas Asset Management LLC. "Prices have collapsed, so valuations have gotten much better, to the point where that outweighs interest-rate concerns."

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Locally, S&P ASX/200 closed 0.9% higher at 7341.1, led by gains among commodity stocks. The benchmark shrugged off a negative lead by US equities, which slipped amid rising bond yields.

The heavyweight-materials sector rose 3.3% amid strength in lithium and iron-ore stocks. Stronger oil prices helped the energy sector add 1.7%.

Westpac, ANZ, Commonwealth and NAB rose between 0.3% and 1.1%. Tech stocks pared overall gains, as Block led the sector lower, dropping 5.1%.

It is the seventh gain in the last 10 sessions for the ASX, a run that has lifted the benchmark by 5.2%.

RBA Governor Philip Lowe told a journalism awards lunch on Tuesday that he's willing to delay increasing the official interest rates until there is clear evidence in the data of rising wages and inflation. He admitted that there are increased hints that psychology around inflation is moving higher.

In commodity markets, iron ore lost 3% to US$143.40 per tonne; Brent Crude jumped eased 1% to US$114.41; gold futures fell 0.45% to $1926.10.

The US bond market selloff entered its second day following Monday’s hawkish comments from Fed Chairman Powell. Yields on the US 10-Year Treasury Note jumped to 2.38%. The yield on the Australian 10-year bond also rose to 2.71%. Yields rise when prices fall.

The Australian jumped to 74.69 US cents as of 8.00am AEST, up from the previous close of 73.99. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, edged down to 91.23.

Asia

Chinese stocks ended the session mixed, weakening slightly from a recovery since late last week. The benchmark Shanghai Composite Index rose 0.2%, while the Shenzhen Composite Index edged down 0.4%. The tech-heavy ChiNext Price Index was the worst performing, losing 1.4%. Property developers and property-management companies were among the top gainers, as the sector continued to rise on a recent local policy support measures. But the momentum was offset by declines in the pharmaceutical sector, as drug makers eased from surging gains over the past few sessions on Covid-19 drug license optimism.

Hong Kong stocks closed sharply higher, as tech and property sectors soared. The benchmark Hang Seng Index rose 3.1%, with Alibaba surging 11% to become the top winner on the index. The Chinese e-commerce giant earlier in the day raised its share-buyback program to $25 billion from $15 billion, which analysts say likely makes it the largest-ever share repurchase in China's internet sector. Property developers also jumped on signs of sales recovery and several developers' progress on fundraising. Country Garden rose 8.1%.

Japanese stocks finished higher, led by big gains in energy and financial stocks, as higher prices of oil and other commodities raised the prospects of Fed's more aggressive tightening. Oil explorer Inpex surged 8.6% and Dai-ichi Life Holdings gained 6.0%. The Nikkei Stock Average rose 1.5% to 27224.11. USD/JPY is at 120.43 after hitting 120.47 earlier, its highest level since February 2016, compared with 119.47 as of Monday 5 pm Eastern Time. Investors remain focused on headlines on Ukraine and their impact on commodity prices.

Europe

European markets rose as investors became more positive after digesting upbeat outlook comments from the US Federal Reserve. The pan-European Stoxx Europe 600 gained 0.8%, its fifth consecutive rise.

"A risk-on mood dominates the day in financial markets and equities have found the strength to move higher once more," says IG analyst Chris Beauchamp. "Jerome Powell's rosy outlook on the US economy has continued to provide the necessary balm for the troubled souls of investors."

In London, the FTSE 100 closed 0.5% higher on Tuesday, as shares in major banks and insurance companies rose. The largest contributor to the index's gains was HSBC, which closed 3.2% higher. In addition, Lloyds Banking Group increased 3.3%, NatWest rose 3.1%, Prudential jumped 4.1% and Aviva was up 3.4%.

Rising bond yields are helping financial stocks, IG said. "The FTSE 100 is trading higher with 7,500 as the next round number resistance to watch. China-exposed stocks such as Prudential and HSBC are trading at the top of the UK basket bolstered by a rally in Asia overnight," Interactive Investor said.

North America

US stocks rose and government-bond yields jumped, as investors shook off concerns that rising inflation will drag the nation's economy into a recession.

Tuesday's moves had all three US indexes up at least 2.6% for the month so far, building on last week's gains. The Dow Jones Industrial Average rose 0.7%. The S&P 500 climbed 1.1%. The Nasdaq Composite gained 2.0%.

Nike advanced after the apparel maker reported revenue that beat analysts' expectations. Technology stocks also rose, as investors returned to faster-growing companies whose shares were battered earlier this year.

"You're beginning to see a little bit of the revenge of growth stocks," said Wayne Wilbanks, co-founder and chief investment officer of Wilbanks Smith & Thomas Asset Management LLC. "Prices have collapsed, so valuations have gotten much better, to the point where that outweighs interest-rate concerns."

The stock benchmarks closed lower on Monday after Federal Reserve Chairman Jerome Powell said the central bank was prepared to raise interest rates in half-percentage-point steps if needed to tamp down inflation. By Tuesday morning, though, investors were interpreting Mr. Powell's comments as a vote of confidence in the economy's outlook.

"The message that came out of the [Fed] meeting last week is that they are going to be tightening [monetary policy] but the US economy is resilient enough to withstand that," said Huw Roberts, head of analytics at Quant Insight, a data analytics firm. "The equity market chose to emphasize the economic resilience portion."

Tuesday saw gains from shares of banks and other financial firms poised to benefit from higher long-term interest rates. Oil price rose, then fell, then reversed twice more.

A selloff in government bonds intensified, sending the yield on the 10-year US Treasury note to 2.375%, from 2.315% Monday. The yield on the benchmark note is now around its highest level since May 2019, before the Covid-19 pandemic upended financial markets. Yields rise when bond prices decline.

In the energy markets, futures for Brent crude, the international benchmark, fell 0.1% to $115.48 a barrel. Last week, Brent prices fell below $100 before reversing. Support for a European Union-wide ban on the purchase of Russian oil is growing inside the bloc, raising the possibility of continued volatility.

"Looking at the market's leadership today, it's a mixed bag," said John Lynch, chief investment officer for Comerica Wealth Management. "The equity market appears tame, but the bond market doesn't."

Stocks, bonds, commodities and currencies have been whipsawed by volatility for the past month as investors have tried to assess the economic fallout from Russia's war in Ukraine. For the 39th time this year, the tech-heavy Nasdaq Composite closed Tuesday with a move of 1% or more, representing its most-volatile quarter since the first three months of 2009.

Many investors have feared that the war could keep inflation sustained and stunt economic growth in the US and Europe.

This week, though, investors were thrown a new curveball when Mr. Powell, speaking Monday, struck a tougher tone than the one he used when the Fed lifted interest rates from near zero last week. He stressed the uncertainty facing the central bank and said the Fed would shift into a more restrictive stance if needed.

The comments prompted some analysts and investors to reassess interest-rate expectations. Economists at Goldman Sachs said in a note after Mr. Powell's remarks that they now expect half-percentage-point increases at both of the Fed's May and June meetings. That compares with expectations of quarter-percentage-point increases at both of the meetings previously.

Monday's comments heightened investor fears that the Fed could be tightening more quickly just as the economy is slowing. "The big variable now is the economic growth side of things," Mr. Roberts said.

Many investors are keeping a close watch on the so-called yield curve, which measures the spread between short- and long-term rates and is often seen as a strong indicator of sentiment about the prospects for economic growth. Recently, the gap between yields on shorter-term and longer-term US Treasury bonds has been shrinking, stirring anxieties that the bond market is close to signaling a potential recession.

The two-year Treasury yield -- which is especially sensitive to changes in monetary policy -- climbed to 2.152% Tuesday, from 2.132% Monday.

Shares of banks rose. Financial stocks helped lead the S&P 500's gains, with the sector rising about 1.6%. Wells Fargo jumped $2.25, or 4.4%, to $52.39, while Signature Bank rose $10.30, or 3.3%, $321.18.

Nike rose $2.90, or 2.2%, to close at $133.09.

"Nike is the ultimate global company, as they sell and source all over the world," Jack Ablin, chief investment officer at Cresset Capital. "It's a great barometer, and they assuaged a lot of investors' concerns."

Communications and technology stocks also gained. Etsy rose $5.98, or 4.2%, to $148.25, while Match Group jumped $4.28, or 4.3%, to $104.31. Amazon.com climbed for a sixth consecutive day, according to Dow Jones Market Data. The stock closed at $3,297.78, up $67.95, or 2.1%.

Okta fell $2.98, or 1.8%, to $166.43 after a hacking group posted screenshots purporting to show that it had gained access to Okta.com's administrator and other systems. The company said Tuesday that a preliminary investigation found no evidence of any malicious activity, adding that the screenshots were most likely related to a January security incident.

Bitcoin rose about 3.2% from its 5 pm ET level Monday to trade around $42,487. The price of the cryptocurrency has swung sharply within the past month but has largely traded above $40,000 since the middle of last week.

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

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