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Global Market Report - 24 June

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

Australian shares are set to edge lower, weighed by falling commodity prices as US stocks rallied following a second day of testimony from Federal Reserve Chairman Jerome Powell.

ASX futures were down 8 points or 0.1% at 6416 as of 8.00am on Friday, pointing to a small dip at the open.

Overseas, the S&P 500 rose 1%. The technology-heavy Nasdaq Composite Index gained 1.6%. The blue-chip Dow Jones Industrial Average rose 0.6%.

Investors have mostly shed riskier assets in recent days, prompted by growing concerns that efforts by the Federal Reserve to bring inflation under control will take a toll on the economy. Investors are growing less optimistic that the Fed can engineer a so-called soft landing, where interest rates rise to curb inflation without pushing the economy into a recession.

Mr. Powell acknowledged those risks in two days of testimony to lawmakers, saying that a recession was possible and that a soft landing would be "very challenging." During Thursday's testimony before the House Financial Services Committee, Mr. Powell said the Fed would be reluctant to cut interest rates until there is clear evidence inflation is coming down.

Locally, the S&P/ASX 200 closed 0.3% higher on Thursday at 6528.4 despite renewed selling of commodity stocks.

Gains among tech, financial and consumer staples helped the benchmark index bounce from Wednesday's 0.2% slip and move 0.8% higher so far this week.

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Banks Commonwealth, Westpac, NAB and ANZ put on between 0.2% and 1.1%, while WiseTech, NextDC and Block added between 3.1% and 4.7%.

Investors sold off shares of lithium, gold and iron-ore miners amid a series of target-price cuts and ratings downgrades from Goldman Sachs, Morgan Stanley and Macquarie analysts.
Iron-ore heavyweights BHP, Fortescue and Rio Tinto fell by between 1.3% and 2.1%.

In commodity markets, Brent crude oil fell 1.8% to US$109.75 a barrel. Iron ore rebounded 6.1% to US$116.05. Gold futures dipped 0.5% to US$1829.80.

Local bonds continued to rally on uncertain growth prospects and the yield on Australian 2 Year government bonds declined to 2.85% while the 10 Year closed dropped to 3.85%. The yield on 2 year US Treasury notes eased to 3.01% and the yield on the 10 year US Treasury notes fell to 3.09%.

The Australian dollar fell to 68.94 US cents, down from 69.26 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 97.17.

Asia

Chinese stocks closed higher after President Xi reiterated his commitment to meet China's 5.5% GDP growth target this year amid mounting macroeconomic headwinds, Oanda senior market analyst Jeffrey Halley said in a note. The Shanghai Composite Index ended 1.6% higher at 3320.15, the Shenzhen Composite Index advanced 2.1% to 2164.01 and the ChiNext Price Index rose 3.1% to 2760.10. Multiple sectors rose amid improved sentiment, including autos and financials. Great Wall Motor advanced 6.4% and Dongfeng Motor gained 7.4%, while China International Capital Corp. was up 4.3% and CSC Financial Co. rose 10%.

Hong Kong stocks ended higher, with the benchmark Hang Seng Index rising 1.3% to 21273.87. Investor sentiment was helped by the city's incoming leader John Lee saying he was working on a strategy to reopen the city's borders, SPI Asset Management managing partner Stephen Innes said in a note. Chinese President Xi Jinping reiterating his commitment to support economic growth was also broadly supportive, he added. Gains were broad-based, led by Geely Automobile's 7.4% rise. Alibaba Group advanced 6.4%, BYD Co. was 4.5% higher and Longfor Group gained 4.4%. The Hang Seng Tech Index ended 2.3% higher at 4655.91.

The Nikkei Stock Average closed 0.1% higher at 26171.25, supported by gains in insurance stocks. Insurer Sompo Holdings rose 1.7% and Tokio Marine added 2.6%. Economic worries continue to linger after the US Fed Reserve Chair Powell acknowledged that higher interest rates could lead to a recession. Toshiba advanced 3.5% on a report that bidders may offer up to Y7,000 a share to take the Japanese conglomerate private. Auto maker Toyota extended early losses to end 1.4% lower after cutting its global production plan for July.

Europe

European markets fell, dragged down by mining, metals and banking stocks, while Wall Street traded flat. The pan-European Stoxx Europe 600 dropped 0.8%, the French CAC 40 shed 0.6% and the German DAX headed 1.8% lower.

London’s FTSE 100 closed 1% down, led by a fall in oil and mining companies as commodity prices suffered on continuing concerns over a global recession. Miner Antofagasta was the day's biggest faller, down 5.8%, as continued weakness in base metals amid concerns of slowing demand drags on the company, CMC Markets analyst Michael Hewson said in a note.

"Continued weakness in base metals, particularly copper due to worries about slowing demand, is dragging on Antofagasta," CMC Markets analyst Michael Hewson writes. "The slide in yields, along with concerns about a UK economic slowdown, is hurting financials, with Barclays, NatWest and Lloyds Banking Group all sliding back."

British Land Co and Rolls-Royce were close behind, down 5.5% and 5% respectively. The day's biggest risers were Ocado, up 4.3%, Hikma Pharmaceuticals, up 2.9%, and BT Group, up 2%.

North America

US stocks advanced amid a second day of testimony from Federal Reserve Chairman Jerome Powell after he warned that rapidly rising interest rates threatened a recession.

On Thursday, the S&P 500 rose 1%. The technology-heavy Nasdaq Composite Index gained 1.6%. The blue-chip Dow Jones Industrial Average rose 0.6%.

Investors have mostly shed riskier assets in recent days, prompted by growing concerns that efforts by the Federal Reserve to bring inflation under control will take a toll on the economy. Investors are growing less optimistic that the Fed can engineer a so-called soft landing, where interest rates rise to curb inflation without pushing the economy into a recession.

Mr. Powell acknowledged those risks in two days of testimony to lawmakers, saying that a recession was possible and that a soft landing would be "very challenging." During Thursday's testimony before the House Financial Services Committee, Mr. Powell said the Fed would be reluctant to cut interest rates until there is clear evidence inflation is coming down.

Gerald Goldberg, chief executive officer of advisory firm GYL Financial Synergies, said the Fed has "a limited window of opportunity" to raise rates.

A significant slowdown in the economy would put the Federal Reserve in an "impossible position" in navigating their goal to achieve price stability while lowering the rate of inflation and increasing employment, Mr. Goldberg said.

Quincy Krosby, chief equity strategist for LPL Financial, said second-quarter earnings will provide clarity on the market's direction.

"The market is waiting for indications that inflation is plateauing so that it can assess the Fed's reaction, but also how corporations are managing with a slower economic backdrop," Ms. Krosby said.

Jobless claims -- one of the earliest indicators of weakness in the labour market -- remain at historically low levels. The Labor Department said 229,000 Americans applied for unemployment benefits last week. New figures show US and European economies slowed this month due to soaring energy and food prices, sparking greater threats of a global recession amid sky-high inflation and rising interest rates facing major economies.

"Markets are in a real state of flux right now," said Stephen Innes, managing partner at SPI Asset Management. "I don't think the market is moving into bullish territory by any means."

In bond markets, Treasury yields declined for a second day though they remained close to their highest levels in more than a decade. The yield on the benchmark 10-year US Treasury note fell to 3.068% from 3.155% on Wednesday. Bond yields fall as prices rise.

In commodity markets, oil prices wavered after sharp losses Wednesday. Brent crude, the international oil benchmark, weakened 1.5% to $110.05 a barrel. Other commodities whose demand is closely correlated to the economy also slipped. Copper prices fell 4.9%.

Soaring energy prices have been a key contributor to the multidecade-high inflation currently roiling global economies. Concern that a recession would cause demand for oil to fade was prompting investors to sell the commodity, said Mr. Redha.

"I have said for a while there will be no bottom in equities without also a sustainable top in oil prices and bond yields," he said. "I think that is potentially under way."

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

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