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Global Market Report - 24 February

Lewis Jackson  |  24 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to fall after stocks tumbled on Wall Street and the S&P 500 moved deeper into correction territory as Ukraine declared a state of emergency and began mobilising reservists.

ASX futures were down 93 points or 1.3% at 7025 near 8.00 am AEST, suggesting a negative start to trading.

Overnight, the S&P 500 ended 1.8% lower on Wednesday. It came a day after the benchmark closed down more than 10% from its 3 Jan record following Russia's deployment of soldiers in Ukraine's Donbas region. The Dow Jones Industrial Average fell 1.4% while the technology-heavy Nasdaq Composite retreated 2.6%.

Investors say the effects of the tensions on Eastern Europe on stocks and bonds are hard to predict. The implications depend on rapidly moving diplomatic and military developments as well as the possible spillover of higher energy prices into inflation in Western economies.

Yesterday, the S&P/ASX 200 closed 0.6% higher at 7205.7, recovering some of the prior day's losses despite continued worries over Russia's actions in Ukraine.

The benchmark opened lower following a negative lead from the US, where the S&P 500 entered correction territory. It bounced around above the gain-line through the afternoon before finishing at its session high.

Beaten-down tech stocks led gains, with Altium, Life360 and Tyro Payments adding between 5.55% and 8.6%.

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The heavyweight financial sector edged 0.3% higher despite banks Macquarie, NAB and ANZ all dragging.

Commodity stocks showed strength, with buyers pivoting from gold stocks to iron-ore and lithium miners.

In Asia, the Shanghai Composite Index rose 0.9%, while Hong Kong's Hang Seng added 0.6%.

Turning to commodities, gold futures added 0.2% to $US1911.50; Brent crude advanced 0.2% to $US97.06; Iron ore added 0.7% to US$141.50.

In bond markets, the yield on the Australian 10-year bond rose to 2.26%. US 10-Year Treasury note yields advanced to 1.98%. Yields fall when prices rise.

The Australian dollar was buying 72.30 US cents near 7.00am AEST, up from the previous close of 72.16. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, was mostly flat at 89.66.

Asia

Turning to Asian markets, Chinese stocks ended the session higher, picking up from a muted performance earlier this week. The benchmark Shanghai Composite Index rose 0.9%, while the Shenzhen Composite Index added 1.8%. The ChiNext Price Index, a measure for emerging markets and startups, rose by the most, ending 2.8% higher. The upturn was driven by chip companies, including chip equipment makers, assemblers and semiconductor materials suppliers, amid growing investor optimism on the sector over an industrywide supply shortage and China's latest policy to boost data center development, which should further raise chip demand.

In Hong Kong, shares closed higher, reversing a three-day losing streak, supported by broadly rebounding tech stocks. Meituan added 3.1% after a state-owned newspaper called Friday's selloff of the food-delivery giant an overreaction. JD.com rose 3.6% and Alibaba Group was 0.9% higher, but NetEase slipped 2.1%. Galaxy Entertainment added 3.0% after the casino operator's 2021 net profit beat consensus estimates. Among laggards, Lenovo Group slipped 2.7% following its fiscal 3Q results. Other notable decliners included Techtronic Industries, which shed 4.6%, and BOC Hong Kong, down 3.1%. The Hang Seng Index climbed 0.6% higher.

Japanese markets were closed for the Emperor’s Birthday public holiday.

Europe

European stocks traded mostly lower on worries about a possible full-scale Russian invasion of Ukraine. The pan-European Stoxx 600 fell 0.3%.

Reports of cyberattacks on several Ukraine state websites have raised fears that an outright attack by Russian troops may be imminent, IG analyst Chris Beauchamp says.

"As well as coping with the actual conflict itself, should it come, investors have to worry about headline risk in the form of retaliatory sanctions from the Russian side and further sanctions on Moscow by the West.”

In London, the FTSE 100 climbed 0.05% boosted by strong earnings from Barclays—who reported a better-than-expected rise in fourth quarter pretax profit—despite the geopolitical tension between Ukraine and Russia.

"So far the sanctions imposed by the West aren't as heavy as might have been expected and the market is apparently taking this as a win amid hints Putin might be open to a diplomatic solution," AJ Bell said. Furthermore Andrew Bailey, governor of the Bank of England, said that sanctions against Russia posed no threat to the UK's financial stability.

North America

US stocks fell Wednesday, deepening to their losses after concerns over the Ukraine crisis helped push the S&P 500 into correction territory.

The threat of war in Ukraine has added to uncertainty in global markets. The US stock benchmark ended 1.8% lower, a day after closing down more than 10% from its 3 Jan record following Russia's deployment of soldiers in Ukraine's Donbas region.

On Wednesday, Ukraine declared a state of emergency and began to mobilize reservists, calling on its citizens to immediately leave Russia.

The Dow Jones Industrial Average fell 1.4% while the technology-heavy Nasdaq Composite retreated 2.6%.

The losses were broad-based with 10 of the S&P 500's 11 sectors down for the day. The consumer discretionary segment fell 2.9%, while the tech segment dropped 2.1%. Only the energy group defied the trend, rising 1.1%.

Investors say the effects of the tensions on Eastern Europe on stocks and bonds are hard to predict. The implications depend on rapidly moving diplomatic and military developments as well as the possible spillover of higher energy prices into inflation in Western economies.

Money managers already were grappling with looming interest-rate increases by the Federal Reserve. Investors are closely watching for signs of how quickly the central bank will raise interest rates as it seeks to counter inflation. It is expected to begin raising rates in March.

"Geopolitical events tend to spike volatility," said Michael Antonelli, market strategist at Baird. "They tend to be noisy. Those aren't real signal. The real signal in the stock market is what the Fed is doing and what interest rates are doing."

Traders have been reassessing how much stocks are worth given expectations that interest rates will rise. Higher rates tend to weigh on stock valuations because they lower the value investors place on companies' future cash flows.

Their calculations have been especially hard on technology and other so-called growth stocks, which often trade at pricey valuations based on expectations of growth far into the future.

The tech selloff has helped pull down the pricetag of the US stock market as a whole. The S&P 500 traded this week at 19 times its projected earnings over the next 12 months, down from the 21.5 multiple at which it ended last year.

"Stocks, especially growth stocks, are priced for a lower interest rate environment than we're likely to have over the next few years," said Stephen Auth, chief investment officer of equities at Federated Hermes. "There's a kind of reset going on in stock market valuations."

On Tuesday, the US laid out an initial round of sanctions against Moscow for what President Biden called the start of an invasion of Ukraine. The European Union, the UK Canada, Australia and Japan also imposed or proposed restrictions on Russian companies, individuals and financial markets.

"Until the market sees boots on the ground we may not see the reaction that maybe we would have expected," said Brian O'Reilly, head of market strategy at Mediolanum Asset Management. "We're probably now in a wait-and-see mode to see how this develops."

Mr. O'Reilly added that data pointing to strong economic growth was helping the stock market largely take the crisis in its stride. Private data firm IHS Markit said Tuesday its composite Purchasing Managers Index for the US rose to a two-month high in February, suggesting the economy gained momentum.

Among individual stocks, shares of Overstock.com jumped 23% after the company beat earnings expectations. TJX Cos. stock fell 4.1% after the retailer missed expectations for sales and earnings.

In the bond market, the yield on the benchmark 10-year US Treasury note rose to 1.976% from 1.947% Tuesday. Yields rise as bond prices fall.

US-listed stocks of Russian-linked companies declined, with shares of energy company Gazprom PJSC falling 12% and shares of Yandex NV, a search-engine company that provides services in Russia, Ukraine and other countries in the region, also dropping 12%.

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

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