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Global Market Report - 26 October

Lex Hall  |  26 Oct 2020Text size  Decrease  Increase  |  
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Australia

Australian shares are set to rise on Monday despite mixed trading on Wall Street last Friday as stimulus talks continue to weigh on investor sentiment.

The Australian SPI 200 futures contract was up 18 points, or 0.3 per cent, to 6,179 points at 8.30am Sydney time on Monday, suggesting a positive start to trading.

The S&P 500 and Nasdaq closed modestly higher on Friday in choppy trading, with investors keeping a close eye on negotiations on a US stimulus package that would ease the economic shock caused by the coronavirus pandemic.

The Dow Jones Industrial Average closed 28.09 points lower, or 0.1 per cent, to 28,335.57, the S&P 500 gained 11.9 points, or 0.34 per cent, to 3,465.39 and the Nasdaq Composite added 42.28 points, or 0.37 per cent, to 11,548.28. The communication services sector rose 1.1 per cent, the highest gainer among the major S&P sectors.

Locally, Australia's largest non-alcoholic beverage bottler Coca-Cola Amatil is said to be in "advanced" talks with its European counterpart for a merger or asset sales, the AFR reports.

After a good US lead, the S&P/ASX200 benchmark index closed lower by 6.8 points, or 0.11 per cent, to 6,167.0 on Friday. The index fell to a session low of 6,148.4 shortly after US President Donald Trump and Democratic rival Joe Biden began bickering but gradually improved. The index finished the week lower by 0.16 per cent but is ahead for the month by 6.04 per cent. The All Ordinaries finished down by 10 points, or 0.16 per cent, to 6,373.7.

Gold was down 0.1 per cent at $US1,902.05 an ounce; Brent oil was down 1.6 per cent to $US41.77 a barrel; Iron ore was down 3.6 per cent to $US115.60 a tonne.

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Meanwhile, the Australian dollar was buying 71.35 US cents at 8.30am, up from 71.07 US cents at Friday’s close.

Asia

China stocks ended lower on Friday, posting weekly losses, as investors locked in profits in consumer and healthcare stocks on concerns over lofty valuations.

At the close, the Shanghai Composite index was down 1.04 per cent at 3,278.00, while the blue-chip CSI300 index lost 1.25 per cent.

Hong Kong stocks closed higher on Friday to post their fourth consecutive weekly advance, underpinned by heavyweight financial firms, though gains were checked by uncertainties including the US election.

At the close of trade, the Hang Seng index was up 132.65 points, or 0.54 per cent, at 24,918.78. The Hang Seng China Enterprises index rose 0.4 per cent to 10,125.59.

Around the region, MSCI's Asia ex-Japan stock index was weaker by 0.26 per cent, while Japan's Nikkei index closed 0.18 per cent higher.

Europe

European stocks rose on Friday, boosted by positive earnings updates from Barclays and a surge in Airbus, but nagging worries about the economic impact of surging covid-19 cases saw markets post their biggest weekly decline in a month.

Breaking a four-day losing streak, the pan-European STOXX 600 index advanced 0.6 per cent, with London's FTSE 100 outperforming its European peers after Barclays jumped 7 per cent on strong results.

That lifted regional banks, putting them on course for their best monthly performance in over a year. Other sectors considered more economically sensitive such as automakers and oil & gas also found favour.

“Better than expected results from Barclays triggered renewed interest in banking shares, most of which are trading on depressed levels so value investors will be particularly interested,” said Russ Mould, investment director at AJ Bell.

Meanwhile, data on Friday showed euro zone economic activity fell this month, while the German manufacturing sector expanded at a faster rate in October. But German services activity shrank, suggesting Europe’s largest economy is operating at two speeds.

“Opposite forces are in play at the moment,” said Emmanuel Cau, head of European equity strategy at Barclays. “Globally you’ve these two main sources of growth—US and China—that are still recovering, so part of the European market will still benefit from the strength outside of Europe.”

“But the domestic part of the market exposed to mobility and restrictions are impacted by the second wave.”

Surging covid-19 cases in the region have led to more curbs of late, with France looking set to widen a curfew to more than two thirds of its population.

Finance Minister Bruno Le Maire said GDP will likely contract in the fourth quarter, adding that curfew measures would cost around two billion euros ($2.8 billion).

With some optimism this week stemming from new fiscal stimulus in the UK, markets now look to the European Central Bank meeting next week when analysts expect the bank to signal policy support in December.

Globally, the mood was one of caution with less than two weeks to go before the US presidential election.

Planemaker Airbus jumped 5.6 per cent after it told suppliers to be ready for an output hike once demand recovers from the coronavirus crisis.

Luxury group Kering fell 3.2 per cent as its star Gucci brand underperformed rivals.

Swiss engineering company ABB was among the biggest drags on the STOXX 600 after saying it expects its orders and revenue to remain under pressure for the rest of 2020.

North America

The S&P 500 and Nasdaq closed modestly higher on Friday in choppy trading, with investors keeping a close eye on negotiations on a US stimulus package that would ease the economic shock caused by the coronavirus pandemic.

The Dow ended lower on the day, moving within tight ranges.

Uncertainty over the timeline of the relief legislation has been weighing on Wall Street’s major indexes in recent sessions, with all three indexes posting declines for the week.

US House Speaker Nancy Pelosi said it still was possible to get another round of covid-19 aid before the 3 November election, but that it was up to President Donald Trump to act, including talking to reluctant Senate Republicans, if he wants it.

Trump and Treasury Secretary Steven Mnuchin countered that Pelosi must compromise to get an aid package, saying significant differences remained between the Republican administration and Democrats.

Still the market believes a stimulus deal is going to get done: The only question would be size and timing, analysts said.

The Dow Jones Industrial Average closed 28.09 points lower, or 0.1 per cent, to 28,335.57, the S&P 500 gained 11.9 points, or 0.34 per cent, to 3,465.39 and the Nasdaq Composite added 42.28 points, or 0.37 per cent, to 11,548.28. The communication services sector rose 1.1 per cent, the highest gainer among the major S&P sectors.

“This has been a stimulus-driven market for several weeks—today is more evidence of that,” said Lindsey Bell, chief investment strategist at Ally Invest, in Charlotte, North Carolina.

“The market believes we are getting a stimulus. But it wants to know when it’s going to pass because it’s going to take time for the money to flow out,” she added.

Meanwhile, a record 50 million Americans cast ballots, eclipsing total early voting from the 2016 election.

Trump and Democratic rival Joe Biden debated on Thursday for the last time to persuade the few remaining undecided voters 11 days before their contest, but while the debate was more toned down and substantive, it hardly moved the needle.

Trump still trailed former vice president Biden in national polls after the debate, although the contest is much tighter in some battleground states where the election will likely be decided.

A sharp 10 per cent fall in chipmaker Intel Corp after it reported a drop in margins earlier weighed on the market. Intel’s results were pressured as consumers bought cheaper laptops and pandemic-stricken businesses and governments clamped down on data centre spending.

The third-quarter earnings season, meanwhile, chugged along, with about 84 per cent of the 135 S&P 500 companies that have reported so far topping quarterly profit estimates, according to Refinitiv data.

Next week’s focus will be on results from Big Tech companies Apple Inc, Facebook Inc, Amazon.com Inc and Google-parent Alphabet.

Gilead Sciences Inc rose 0.2 per cent as its antiviral drug remdesivir became the first and only drug approved for treating patients hospitalized with covid-19 in the US.

American Express Co fell 3.6 per cent as it missed estimates for third-quarter profit after its customers spent less during the covid-19 fuelled economic slowdown and it set aside money for potential payment defaults.

For the week, the Dow ended down 0.9 per cent, the S&P 500 fell 0.5 per cent and Nasdaq declined 1.1 per cent.

is senior editor for Morningstar Australia

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