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Global Market Report - 24 February

Lex Hall  |  24 Feb 2020Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to decline when it opens this week due to fears coronavirus is spreading across Asia and will increasingly impact global economic activity.

US and European markets fell on Friday on the back of increasing concerns over COVID-19 as more companies face disruptions and issue profit warnings.

Locally, the SPI futures contract was down 47 points, or 0.7 per cent, at 7039 at 8am Sydney time on Monday.

“People are increasingly concerned about the number of cases outside of China particularly in places like Korea and Japan,” AMP Capital chief economist Shane Oliver said.

“There’s a concern that if there are more cases in Asia that will further hit global economic activity.”

The Dow Jones fell 227.6 points or 0.8 per cent at the close on Friday and the S&P 500 declined 1.1 per cent while European shares shed 0.6 per cent.

The benchmark S&P/ASX 200 index closed 0.3 per cent lower at 7,139 on Friday but recorded its third weekly gain benefiting from company earnings and domestic expectations for monetary stimulus.

Local construction data out on Wednesday for the December quarter will probably show a fall, the economist predicts.

Business investment figures to be released on Thursday are more likely to be mixed but still soft overall.

Both sets of figures will be watched closely because they’ll suggest how GDP performed in the December quarter.

Credit data published on Friday could be boosted by the pick-up in housing lending.

Reporting season continues domestically with Rio Tinto and Woolworths among those to reveal their earnings this week.

Dr Oliver says if the results are better than feared it could again help support the Australian market.

Asia

Shanghai stocks closed higher on Friday, with the index marking its best week since last April, as Chinese policymakers vowed to help companies hurt by the fast-spreading coronavirus outbreak.

At the close, the Shanghai Composite index was up 0.3 per cent at 3,039.67. The index climbed 4.2 per cent this week, its biggest weekly gain since April 2019.

The blue-chip CSI300 index firmed 0.1 per cent on Friday. It posted a weekly gain of 4.1 per cent, the most since last June.

In Hong Kong, The Hang Seng Index declined 1.1 per cent Friday to 27,308, losing 1.8 per cent over the week, as sentiment weakened that Beijing is taking strong enough steps to boost the economy.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.9 per cent, while Japan’s Nikkei index closed down 0.4 per cent.

Europe

European shares fell on Friday after data showing stalling business activity in the United States exacerbated a fall spurred by a spike in the number of coronavirus cases within and outside China.

Investors worry about a prolonged impact on business after China reported an uptick in cases of the virus on Friday and South Korea reported 100 new cases, while more than 80 people tested positive for the virus in Japan.

The pan-European STOXX 600 index shed 0.5 per cent, ending a volatile week 0.6 per cent lower after two weeks of gains.

On the day, STOXX 600 deepened losses after a survey showed the US services sector dropped to its lowest level since October 2013 in February, signalling a contraction for the first time since 2016, while the manufacturing sector also clocked its lowest reading since August.

The was preceded by similar data from the euro zone that showed business activity expanded at a better-than-expected pace, although expansion remained slow.

Europe’s main index had scaled record highs earlier in the week as data signalled a slight slowdown in the outbreak, lending weight to forecasts that the crisis might blow over by April.

The outbreak has killed more than 2,000 people and upended industrial activity in China, causing disruptions for several European manufacturers that supply and source products from one of the EU’s largest trading partners.

Auto stocks led losses, down 1.9 per cent in their worst session in four weeks.

With losses of more than 8 per cent so far this year, the sector is the worst performing among major sectors in Europe, steepening losses since the outbreak as Hubei - the epicenter of the epidemic in China - is an auto manufacturing hub.

Frankfurt's main index .GDAXI, stacked with car and truck makers, dropped 0.6 per cent.

A slide in oil prices knocked the energy sector.

Among technology stocks, software firm SAP lost 1.3 per cent, while chipmakers AMS, STMicroelectronics and ASML all fell more than 0.9 per cent.

Among individual movers, British luxury brand Burberry Group fell 2.6 per cent after Jefferies cut the stock’s price target, saying it was one of the most exposed brands to the coronavirus outbreak.

French consultancy Sopra Steria Group SA topped the STOXX 600 after it reported strong annual results and announced plans to buy software developer Sodifrance.

North America

US stocks sold off and the Nasdaq had its worst daily percentage decline in about three weeks on Friday as a spike in new coronavirus cases and data showing a stall in US business activity in February fueled investors’ fears about economic growth.

Declines were led by the technology sector for a second straight session. Tech-related heavyweights Microsoft Corp, Amazon.com Inc and Apple Inc were the biggest drags on the S&P 500.

The S&P technology index dropped 2.3 per cent. Chipmakers, which have strong ties to China, also fell sharply. The Philadelphia Semiconductor index ended down 3 per cent.

China reported a jump in new cases on Friday, while South Korea became the latest hot spot, with 100 new cases, and more than 80 people tested positive for the virus in Japan.

Apple earlier this week issued a sales warning, citing the impact of the virus outbreak.

The worries pushed up Wall Street’s fear gauge, the CBOE volatility index , and caused investors to seek safe-haven assets. The VIX hit its highest closing level since 3 February.

Gold and bond prices rose and some defensive equity sectors, including staples, ended the day higher.

The IHS Markit Purchasing Managers’ index of services sector activity dropped to its lowest level since October 2013, signalling a contraction for the first time since 2016. The manufacturing sector also clocked its lowest reading since August.

The Dow Jones Industrial Average fell 227.57 points, or 0.78 per cent, to 28,992.41, the S&P 500 lost 35.48 points, or 1.05 per cent, to 3,337.75 and the Nasdaq Composite dropped 174.38 points, or 1.79 per cent, to 9576.59.

For the week, the Dow was down 1.4 per cent and the S&P 500 lost 1.3 per cent. The Nasdaq shed 1.6 per cent, its biggest weekly percentage decline in three weeks.

Hopes of monetary easing by major central banks had propelled the S&P 500 and the Nasdaq to all-time highs earlier this week.

Also on Friday, Dropbox jumped 20 per cent after it raised its outlook for operating margin, and Deere & Co rose 7 per cent after an unexpected rise in first-quarter profit.

Sprint Corp climbed 6 per cent as it announced new merger terms with T-Mobile US showing a reduction in the stake of major Sprint shareholder SoftBank. T-Mobile shares dipped 0.9 per cent.

is content editor for Morningstar Australia

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