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Global Market Report - 23 November

Lewis Jackson  |  23 Nov 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to edge lower after mixed trading on Wall Street as Fed Chair Jerome Powell is tapped for a second term.

The Australian SPI 200 futures contract was down 5 points at 7,348 near 8.00 am AEST on Tuesday, suggesting a negative start to trading.

The S&P 500 pared gains and finished lower after news that President Biden would nominate Jerome Powell for a second term as chairman of the Federal Reserve, paving the way for the continuation of the current policy framework.

The S&P 500 slipped 0.3%, while the Dow Jones Industrial Average advanced less than 0.1%. The tech-heavy Nasdaq Composite Index lost 1.3%. Stocks have benefited from stimulus the Fed, under Mr. Powell, has lavished on the economy since the early days of the pandemic.

Mr. Powell's nomination "keeps monetary policy relatively stable and takes one of the potential catalysts for disruption off the table," said Jason Pride, chief investment officer of private wealth at Glenmede.

The Australian dollar was buying 72.22 US cents near 8.00am AEST, down from the previous close of 72.33. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 90.17.

Locally, the S&P/ASX 200 closed 0.6% lower at 7353.1, dragged by major banking stocks. The benchmark followed a negative lead by US stocks amid concerns over the potential impact of renewed Covid-19 restrictions on the global economic recovery.

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Macquarie, NAB, Commonwealth and ANZ, which between them represent about 22% of the ASX 200's market capitalization, lost between 1.0% and 2.1%.

Travel stocks Webjet, Qantas and Flight Centre were also weak, losing between 3.7% and 7.1%, even as the federal government announced it would reopen the border to skilled workers and some tourists from 1 December.

Tech was the worst performing sector, losing 2.1%.

Gold futures fell 2.5% to $US1807.30 an ounce; Brent crude rose 0.7% to $US79.39 a barrel; Iron ore was up 4.3% US$95.63.

The yield on the Australian 10-year bond edged down to 1.78%; The US 10-year Treasury yield rose to 1.62%.

Asia

Chinese stocks ended higher amid gains from baijiu and auto makers. Chinese equities are appealing as they will likely prove defensive in any Fed-tightening-triggered selloff, Jefferies said. "China is at a different point in the cycle from the G7 countries since China has been tightening for the past year and is only starting to ease," it said. The Shanghai Composite Index closed 0.6% higher, the Shenzhen Composite Index advanced 1.4% while the ChiNext Price Index rose 2.5%.

Hong Kong stocks ended higher, extending their winning streak for the third straight day. The benchmark Hang Seng Index rose 1.0%. Chinese developers continued to lead gains after reports Beijing may relax financing policies in the property sector. China Resources Land added 5.5%, Country Garden grew 5.4%, and Longfor rose 5.1%. The three stocks were among Wednesday's top risers as well.

The Nikkei Stock Average ended 0.1% higher, helped by gains in shipping stocks. Positive sentiment over strong logistics demand ahead of the festive season helped support shipping shares. Developments relating to Japan-China relations will be in focus, after Japanese Foreign Minister said on Sunday that his Chinese counterpart has invited him for an official visit.

Europe

European stocks closed lower as lockdowns recommenced across the continent. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies edged 0.1% lower.

In London, the FTSE 100 index rose 0.4%, rebounding from last week’s poor performance. The reappointment of Jerome Powell as the Federal Reserve chair was the likely culprit, providing the continuity markets craved and proved the trick for a market bounce this afternoon, IG Group PLC Chief Market Analyst Chris Beauchamp says.

North America

The S&P 500 pared gains and finished lower after news that President Biden would nominate Jerome Powell for a second term as chairman of the Federal Reserve, paving the way for the continuation of the current policy framework.

The decision, revealed Monday before the stock market opened, ended a guessing game over who would lead the Fed during a period in which the central bank is expected to unwind coronavirus-era stimulus measures. The Fed this month approved plans to scale back its bond-buying program, and elevated inflation has prompted market participants to expect higher interest rates next year.

The S&P 500 slipped 0.3%, while the Dow Jones Industrial Average advanced less than 0.1%. The tech-heavy Nasdaq Composite Index lost 1.3%. Stocks have benefited from stimulus the Fed, under Mr. Powell, has lavished on the economy since the early days of the pandemic.

Mr. Powell's nomination "keeps monetary policy relatively stable and takes one of the potential catalysts for disruption off the table," said Jason Pride, chief investment officer of private wealth at Glenmede.

Mr. Biden also said he would nominate Fed governor Lael Brainard as vice chair of the central bank's board of governors. In recent weeks, Mr. Powell, a Republican, and Ms. Brainard, a Democrat, emerged as Mr. Biden's two candidates for Fed chair. The decision to nominate Mr. Powell comes amid pushback from some Democrats who wanted someone tougher on bank regulations. Ms. Brainard has supported Mr. Powell's monetary policy decisions while dissenting on moves to ease certain banking regulations.

The continuation of the Fed's current regulatory framework, especially for banks, and the vacancy for the Fed position of vice chair for supervision suggest less strict regulation of banks will continue for the meantime, said Clifton Hill, global macro portfolio manager at Acadian Asset Management.

Investors broadly expect further market gains as the economy continues its recovery. Some, however, are preparing for an increase in volatility as central banks globally gear up to respond to higher inflation by raising borrowing costs.

Mr. Powell is expected to win bipartisan Senate confirmation.

Yields on benchmark 10-year Treasury notes rose to 1.625% from 1.535% Friday. Yields move inversely to bond prices and skidded last week when lockdowns in Europe knocked the outlook for the world economy.

The WSJ Dollar Index, which tracks the greenback against a basket of currencies, rose 0.4%.

Among the gainers in the S&P 500 were the energy, financials, industrials and materials sectors. Investors seem to be rotating away from technology stocks with high valuations into economically sensitive sectors as the recovery continues, said Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors.

"The economy has recovered, and interest rates should start to normalize, and policy from the Fed should normalize," Ms. Link said. "As they do that, you don't really want to own high-multiple stocks."

Earlier, Tesla shares rose 3.7% after Chief Executive Elon Musk said on Twitter that the Model S Plaid might come to China "around March."

Activision Blizzard fell 0.6% after The Wall Street Journal reported that Chief Executive Bobby Kotick has told senior managers he would consider leaving the company if he couldn't quickly fix its culture problems.

Rivian Automotive shares fell 10% after Ford Motor and Rivian backed away from an electric-vehicles pact late last week.

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

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