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Global Market Report - 26 May

Lewis Jackson  |  26 May 2022Text size  Decrease  Increase  |  
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Australian shares are set to rise in line with gains on Wall Street as minutes from the US Federal Reserve’s latest meeting broadly matched market expectations for future interest rate hikes.

ASX futures were up 13 points or 0.2% at 7157 as of 7.30am AEST on Thursday, pointing to a small increase at the open.

Overseas, the S&P 500 closed 1% higher after the broad-market index closed down 0.8% on Tuesday. The Nasdaq Composite Index rose 1.5%, a reversal from a sharp selloff in tech stocks the day before. The Dow Jones Industrial Average climbed 0.6%.

US stocks rose in late-afternoon trade following the release of minutes from the Federal Reserve’s May meeting. The records showed officials discussed “restrictive” monetary policy but worried how more aggressive interest rate hikes could slow the booming labour market.

The Fed minutes offered few, if any, surprises on officials' thinking, said Phillip Toews, chief executive of Toews Asset Management. Wednesday's rally, which gained strength throughout the afternoon, may reflect more than anything the sense that many stocks had already fallen enough. "I think we may be in a slight bear market here," he said.

Locally, the S&P/ASX 200 closed 0.4% higher at 7155.2 on Wednesday, recovering the prior session's losses on gains by heavyweight financial and materials stocks.

Shares in 10 of the 13 biggest companies by market capitalization gained ground--all rising by 1% or more--as the benchmark index moved 0.1% higher for the week.

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Banks ANZ, Commonwealth, Westpac and NAB added between 1.0% and 1.8%, while iron-ore miners BHP and Rio Tinto gained 1.1% and 1.35%, respectively.

Tech stocks pared the overall gains, with the sector falling 3.0% for a 33% loss so far in 2022. Block fell 5.5%, while WiseTech and Xero gave up 3.2% and 1.1%, respectively.

Fisher & Paykel Healthcare slid 2.3% to $18.29 after the Kiwi respiratory products company declined to give any guidance for fiscal 2023, given the uncertainty over further COVID surges and the possibility its hospital customers might face more personnel shortages.

In commodity markets, Brent crude oil rose 0.7% to US$114.31 a barrel. Iron ore jumped 2.2% to US$133.40. Gold was down 1% to US$1852.50.

Local bond markets rallied in line with similar moves overseas. The yield on Australian 2 Year government bonds dropped to 2.35% while the 10 Year dipped to 3.24%. US bond markets closed mostly flat after rising on Tuesday a flight to safety. The yield on US Treasury 2 Year notes edged down to 2.49%, while the 10 Year steadied at 2.75%. Yields fall as prices rise.

The Australian dollar traded at 70.85 US cents as of 7.00am AEST, down from the previous close of 71.06 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies rose to 94.74.


China stocks ended higher, staging a recovery from Tuesday's substantial losses. While most analysts warn of continued near-term fluctuations as China's pandemic resurgence is yet to be fully contained, China Fortune Securities analysts reckon the market could sustain a broad upturn from here, as more policy support measures are likely to be rolled out. The Shanghai Composite Index rose 1.2% to settle at 3107.46, while the Shenzhen Composite Index was up 1.2% at 1944.88.The ChiNext Price Index edged up 0.3% to 2325.60. Auto services providers, car makers and oil engineering companies led gains.

Hong Kong's Hang Seng Index edged 0.1% higher to 20141.08. Despite the continuation of the downtrend in risk assets, signs of consolidation are spurring hopes that equity markets may be approaching a bottom, says Tina Teng, markets analyst at CMC Markets, in an email, noting S&P 500 has bounced off session lows for the past few sessions. Best performers on the HSI include HSBC, which gains 3.4%, Xinyi Solar adding 3.2% and BOC Hong Kong 1.7% higher. Meanwhile, Li Ning is down 2.8% and JD.com declines 2.2%. The Hang Seng TECH Index is 0.4% lower at 4014.66.

Japanese shares ended lower, dragged by declines in auto and e-commerce stocks, as concerns continued about higher costs of operations and slower economic growth. Mitsubishi Motors dropped 3.5% and Rakuten Group lost 4.2%. The Nikkei Stock Average fell 0.3% to 26677.80.


European markets rose as investors edged back into stocks ahead of the release of the latest US Federal Reserve minutes. The pan-European Stoxx Europe 600 and German DAX gained 0.6% while the French CAC 40 advanced 0.7%.

"After yesterday's modest falls, markets in Europe have had a more positive bias today, edging higher on a day with little in the way of drivers," CMC Markets analyst Michael Hewson says.

London’s FTSE 100 ended Wednesday up 0.51%, reaching its highest level since May 5. Outperformers included energy supplier SSE PLC, with shares rebounding after a sharp fall yesterday over concerns about the imposition of a windfall tax by the UK government, says CMC Markets UK's chief market analyst Michael Hewson.

"Reports that a windfall tax would be too problematic to implement were also helping sentiment today after yesterday's falls, with Centrica PLC and Drax Group PLC also higher," Mr. Hewson says. The pound also recovered some ground lost yesterday, particularly against the euro as scepticism sets in that the ECB will be able to follow through on its pledge to raise rates twice by September, he adds.

North America

US stocks ended higher as investors studied the release of minutes from the Federal Reserve's most recent policy meeting for details on the path of coming interest-rate rises.

After briefly opening lower, stock indexes turned green in early trading. The benchmarks moved higher after 2 pm New York, when the Fed minutes from earlier this month were released.

The S&P 500 closed 1% higher after the broad-market index closed down 0.8% on Tuesday. The Nasdaq Composite Index rose 1.5%, a reversal from a sharp selloff in tech stocks the day before. The Dow Jones Industrial Average climbed 0.6%.

Consumer-discretionary stocks paced the S&P 500's gain, rising 2.8%. Several retail companies, including Nordstrom and Express, raised their 2022 forecasts, while others such as Dick's Sporting Goods indicated business wasn't getting worse. The brighter outlooks offered investors a welcome change from last week, when Target and Walmart reported disappointing results.

"Some investors were expecting retail Armageddon," said Matt Peron, director of research at Janus Henderson Investors. "The narrative was that this could be another bruising week. Now the market is having a relief rally around the consumer sector."

Stocks have had a bumpy start to the week, buffeted by concerns about the Fed tightening monetary policy to combat the bout of high inflation and how sharp of a slowdown in growth it could cause. The S&P 500 is down nearly 18% from its last record high in January and briefly fell into bear-market territory last Friday before paring losses.

"It's been really volatile, to say the least. This is linked to the question of recession, whether that's coming or not. That's effectively what the market has been pushing and pulling between," said Fahad Kamal, chief investment officer at Kleinwort Hambros.

Minutes from the Federal Reserve meeting earlier this month came out at 2 pm New York and provided more signals for investors about policymakers' outlooks on the economy and inflation. US durable goods orders for April increased by 0.4%, a slower pace than economists expected.

The Fed minutes offered few, if any, surprises on officials' thinking, said Phillip Toews, chief executive of Toews Asset Management. Wednesday's rally, which gained strength throughout the afternoon, may reflect more than anything the sense that many stocks had already fallen enough. "I think we may be in a slight bear market here," he said.

Stocks have tumbled in 2022 as investors have adjusted to surging consumer prices and the Fed's response. As rates have climbed and the economy's outlook dimmed, the shares of many companies have looked increasingly expensive, at least relative to their earnings, said Sean O'Hara, president of Pacer ETFs Distributors.

"When one goes up," Mr. O'Hara said, "the other has to go down."

The yield on the benchmark 10-year Treasury note fell to 2.746% from 2.758% on Tuesday. It has declined for five of the past six trading sessions. Yields fall when prices rise.

"The market is pricing the slowdown that will eventually come from the Fed tightening. It also forecasts that inflation in 2023 will slow to much more reasonable levels," said Antonio Cavarero, head of investments at Generali Insurance Asset Management.

Government debt tends to perform well during times of slower economic growth, which has led to a stabilization in the bond market in recent days.

Oil prices climbed with global benchmark Brent crude rising 0.4% to $114.03 a barrel. The US energy secretary said the Biden administration hasn't ruled out a ban on oil exports to tame domestic fuel prices, Reuters reported.

In individual stocks, Snap shares were up 11% in 4 pm trading. The Snapchat maker's stock plunged 43% on Tuesday after it issued a profit warning, citing macroeconomic conditions that have deteriorated faster and further than expected.

"Clearly there's been a revaluation of tech valuations. It's impossible to know how far it goes, but some of these are quality businesses and significantly cheaper than they have been trading recently," Mr. Kamal said. "If you're a long-term investor, that's going to be something of interest."

Retailer Nordstrom climbed 14% after raising its guidance for full-year revenue growth. Apparel company Express jumped 6.5% after posting a narrower-than-expected loss and raising sales guidance. Dick's rose 9%.

Home builder Toll Brothers rose 8.5% after reporting revenue and profit that beat analysts' expectations.

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

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