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Global Market Report - 26 February

Lex Hall  |  26 Feb 2021Text size  Decrease  Increase  |  
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Australia

Australian shares are set to follow Wall Street lower as tech-related stocks remained under pressure following a rise in US bond yields.

The Australian SPI 200 futures contract was down 73 points, or 1.1 per cent, at 6,720 points at 8.30am Sydney time on Friday, suggesting a negative start to trading.

Wall Street’s main indexes ended sharply lower on Thursday, with the Nasdaq index posting its largest daily percentage fall in four months, as technology-related stocks remained under pressure following a rise in US bond yields.

The Dow Jones Industrial Average fell 561.36 points, or 1.76 per cent, to 31,400.5, the S&P 500 lost 96.12 points, or 2.45 per cent, to 3,829.31 and the Nasdaq Composite dropped 478.54 points, or 3.52 per cent, to 13,119.43.

Locally, Australia’s aviation industry will have received more than $1 billion in coronavirus subsidies by the end of the JobKeeper scheme next month as airlines struggle amid continued international border closures and restrictions on interstate travel, The Australian reports.

Australia's share market closed higher on Thursday, helped by the commodity-based sectors of materials and energy, as well as health.

The S&P/ASX200 benchmark index closed higher by 56.2 points, or 0.83 per cent, to 6834.0.

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The All Ordinaries was higher by 56.3 points, or 0.8 per cent, at 7,105.7.

There were gains of more than one per cent for the materials, energy and health sectors.

The Australian dollar continued to climb towards 80 US cents and at one stage was buying 79.78 US cents.

Gold was down 1.7 per cent at $US1,773.76 an ounce; Brent oil was down 0.6 per cent to $US66.62 a barrel; Iron ore was down 0.9 per cent to $US174.24 a tonne.

Meanwhile, the Australian dollar was buying 78.85 US cents at 8.30am, up from 79.71 US cents at Thursday’s close.

Asia

China shares rebounded on Thursday, as strong gains in the property sector helped the market recover from sharp losses made a day earlier.

At the close, the Shanghai Composite index was up 0.59 per cent at 3,585.05, while the blue-chip CSI300 index was ended 0.59 per cent higher at 5,469.56.

In Hong Kong, the Hang Seng closed up 1.20 per cent at 30.074.17.

Japan’s Nikkei index closed above the 30,000-mark on Thursday after Federal Reserve Chair Jerome Powell views signalled that interest rates will remain low for an extended period.

The Nikkei share average ended up 1.67 per cent at 30,168.27. The broader Topix rose 1.22 per cent to 1,926.23.

Europe

European shares ended lower on Thursday, as higher bond yields and volatility in US markets offset optimism about a euro zone economic recovery, while weak earnings from Standard Chartered and Anheuser-Busch also weighed.

The pan-European STOXX 600 index settled 0.4 per cent lower after rising as much as 0.5 per cent, with a jump in euro zone and US bond yields—on expectations of increased inflation—weighing on major stock sectors.

Euro zone economic sentiment rose more than expected in February, buoyed by more optimism in industry, services and among consumers, boosting inflation expectations which have fed into higher bond yields in recent weeks.

“Concerns about a resurgence of inflation only seem to have strengthened, judging by the relentless bear steepening of the US Treasury curve and the newfound popularity of traditional inflation hedges such as commodities,” analysts at Rabobank said.

“At this juncture, the pro-reflation arguments—and particularly the fear of inflation induced by ultra-loose monetary and fiscal policies—are clearly resonating with markets.”

Sectors such as healthcare, utilities and other staples, which are considered bond proxies, fell on the day amid continued pressure from higher yields.

But commodity-linked sectors were among the best performers, boosted by multi-year highs in crude oil and base metal prices.

Weakness in US markets due to profit taking in technology stocks also spilled over into Europe late in the session.

Easy money stimulus from major central banks last year has helped the benchmark STOXX 600 surge more than 50 per cent since a coronavirus-driven crash in March 2020.

Although the European index has so far underperformed the US S&P 500, which is scaling record highs, fund managers expect a rebound in corporate profits to send European stocks to all-time peaks by the end of 2021, according to a recent Reuters poll.

In company news, Standard Chartered slipped 6.2 per cent after posting a drop in its annual profit.

Anheuser-Busch InBev, the world’s largest brewer, tumbled 6.2 per cent even as it reported a higher-than-expected core quarterly profit, while Bayer dropped 6.4 per cent after posting a drop in fourth-quarter core earnings due to competition in the North American agriculture market.

In a bright spot, steel pipe maker Tenaris jumped 13.7 per cent to the top of the STOXX 600 as quarterly sales rose from the previous quarter due to a pick up in drilling activity.

Shares of heavily-shorted airline Air France KLM rose nearly 2 per cent, with traders saying a short squeeze was driving gains.

North America

Wall Street’s main indexes ended sharply lower on Thursday, with the Nasdaq index posting its largest daily percentage fall in four months, as technology-related stocks remained under pressure following a rise in US bond yields.

The benchmark 10-year Treasury yields hit a one-year high of 1.614 per cent, prompting investors concerned about rich valuations to lock in profits on some high-flying growth stocks.

The Treasury note yield rose above S&P 500 dividend yield, wiping out the stock market yield’s strong advantage.

“Rates matter. At 1.5 per cent, the yield is comparable to S&P 500 dividend yield,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “And there’s no capital risk with a 10-year, you’ll get your principal back. All of a sudden it’s competitive with stocks,”

Apple Inc, Amazon.com Inc, Microsoft Corp, Alphabet Inc, Facebook Inc and Netflix Inc all fell.

Despite the broad market slide, GameStop Corp shares soared again after doubling in the previous session, triggering a series of NYSE trading halts and leading a surprise resurgence of so-called “stonks” championed online by retail investors.

The Dow Jones Industrial Average fell 561.36 points, or 1.76 per cent, to 31,400.5, the S&P 500 lost 96.12 points, or 2.45 per cent, to 3,829.31 and the Nasdaq Composite dropped 478.54 points, or 3.52 per cent, to 13,119.43.

The S&P 500 technology sector fell, as did communication services, among the sectors that powered the market’s rally in 2020.

The S&P 500 growth index is nearly unchanged in February, sharply underperforming the value index, which has gained more than 7 per cent on optimism related to a post-pandemic reopening of the economy.

“You’ve had an equity market that’s hit record highs many times this year and it’s expensive relative to historic norms,” said Chase’s Tuz. “We were primed for a sell-off.”

Meanwhile, data showed fewer Americans filed new claims for unemployment benefits last week as covid-19 infections fell, but the near-term outlook remained unclear after winter storms wreaked havoc in the South this month.

Optimism about more US stimulus and a quicker pace of vaccinations at the beginning of the month have positioned the Dow Jones index for its best monthly gain since November.

However, the lack of significant new developments around the fiscal package and the winding down of the earnings season have caused uncertainty.

“In the beginning of February, the stimulus news was the driving force but now that it has been priced in, there is nothing on the distant horizon for equity investors to be excited about and there is a concern that upside is limited,” said Mike Zigmont, head of trading and research at Harvest Volatility Management.

Tesla Inc fell after a media report that the electric-car maker told workers it would temporarily halt some production at its California assembly plant.

Moderna Inc jumped after the drugmaker said it was expecting US$18.4 billion in sales from its covid-19 vaccine this year.

With Reuters

is senior editor for Morningstar Australia

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