Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Global Market Report - 27 January

Lewis Jackson  |  27 Jan 2022Text size  Decrease  Increase  |  
Email to Friend

Australia

Australian shares are poised to open lower after US shares reversed early gains to close mixed as the US Federal Reserve signalled a rate hike in March.

ASX futures were down 26 points or 0.4% at 6894 near 9.15 am AEST, suggesting a negative start to trading.

US stocks fell after the Federal Reserve indicated plans to start raising interest rates in March, winding down its pandemic stimulus efforts and fighting rising inflation.

The Fed's Wednesday afternoon (Thursday morning AEST) statement and subsequent news conference kicked off a wild end to a trading day that reversed big early gains. The S&P 500 closed down 0.1%, with the broad index now falling in six of the past seven trading days. The tech-focused Nasdaq Composite Index ticked up less than 0.1%, while the Dow Jones Industrial Average fell 0.4%.

Stocks rose to start the day, but trimmed gains after Fed Chairman Jerome Powell said the central bank's rate-setting committee is ready to raise rates at its mid-March meeting. The Fed also said it approved a final round of asset purchases, which will conclude its stimulus program by March, and discussed plans to reduce its $9 trillion securities portfolio, which has more than doubled since March 2020.

Locally, the S&P/ASX 200 fell 2.5% to 6961.6 on Tuesday, its lowest in around eight months, driven by declines in energy and technology stocks which fell 4.1% and 3.2%, respectively. All sectors finished in the red.

The heavyweight financials sector lost 2.7%, while materials sector fell 3.0%. Beach Energy closed 7.8% lower after reporting a 7% drop in 2Q oil and natural gas production, while Fortescue fell 5.0% after reporting that its quarterly costs rose 20% on year. Rio Tinto fell 0.8% after its Oyu Tolgoi partners reached agreements to advance a copper project.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

Zip lost 2.1% after telling investors it's in early talks to acquire North America-focused buy-now-pay-later provider Sezzle. Australia's major banks closed between 2.0% and 3.6% lower.

Also Tuesday, new data showed inflation surged past Reserve Bank forecasts in the December quarter, putting pressure on the central bank to consider rate hikes this year. The RBA’s preferred measure jumped 2.6%, above the bank’s own forecast of 2.25% and firmly in its target range of 2%-3%.

Overseas, the pan-continental Stoxx Europe 600 rose 1.7%, with the biggest gains in the travel and leisure sector. Stock indexes in Asia closed mixed. China's Shanghai Composite and Hong Kong's Hang Seng added 0.7% and 0.2%, respectively. Japan's Nikkei 225 and South Korea's Kospi each declined 0.4%.

Turning to commodities, gold futures fell 1.2% to $US1832.00 an ounce; Brent crude rose 1.7% to $US89.74; Iron ore added 0.2% to US$138.10 a tonne.

Bond markets sold off as the US Federal Reserve signalled a March rate hike. The yield on the Australian 10-year bond surged to 2.05%, while the benchmark US 10-year Treasury yield jumped to 1.86%. Yields fall when prices rise.

The Australian dollar was buying 71.10 US cents near 9.00am AEST, down from the previous close of 71.52. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 90.13.

Asia

Chinese stocks closed higher, recovering from Tuesday's slump, supported by renewables and auto makers. The market's recent weakness could be attributed to risk-off sentiment ahead of the Lunar New Year (LNY) holiday, but A-shares may rebound if Beijing steps up policy moves post-LNY, Huatai Securities says. Solar-panel maker LONGi Green Energy rose 3.8%, Jinko Solar more than doubled in its Shanghai trading debut, while electric-vehicle battery maker CATL gained 3.9% and BYD Co. rebounded 3.8%. Healthcare shares declined. WuXi AppTec lost 5.0% and Hangzhou Tigermed shed 6.1%. The Shanghai Composite Index climbed 0.7%, the Shenzhen Composite Index added 0.7% and the ChiNext Price Index was 1.0% higher.

Hong Kong's Hang Seng Index closed 0.2% higher, tracking a positive performance in the U.S. ADR market overnight. Sentiment was also supported by Chinese Premier Li Keqiang's reiteration that the country will launch more measures to stabilize economic growth. Consumer stocks were higher ahead of the Lunar New Year holiday. Budweiser Brewing gained 1.6% and ANTA Sports Products rose 0.1%. China Railway Group added 1.9% after its consortium secured a CNY17.55 billion contract from the Philippines Transportation Department. Market focus remains on the outcome of the US Federal Reserve meeting.

Japan's Nikkei Stock Average fell 0.4%, led by losses among a mixed bag of companies. The possibility of a 50 bps rate increase in March by the Fed continues to keep the markets on edge, while simmering geopolitical tensions between the West and Russia over Ukraine continues to add to jitters, OCBC says. Shionogi & Co. slipped 5.8% and Unicharm Corp. lost 3.7%, while Nidec Corp. dropped 3.2% and Fanuc Corp. shed 3.3% ahead of their earnings due later in the day.

Europe

European stocks rise in closing trade ahead of the Federal Reserve's interest-rate decision later. The pan-European Stoxx 600 added 1.7%.

"The latest Fed decision is only hours away, but the allure of buying the dip remains too strong for many to resist," IG analyst Chris Beauchamp says, noting that stocks are trading at more "attractive valuations" after a recent pullback. The Bank of Canada's decision to leave rates unchanged today, against some expectations it would raise rates, provides a guide for what might come from the Fed's meeting, he says.

In London, the FTSE jumped 1.3% on the back of travel, retail and energy stocks, with IAG, Ocado and Shell the top risers. The index managed to temporarily recover its losses for the week as stronger energy prices and yields drove gains, with the market awaiting the outcome of the U.S. Federal Reserve's latest meeting.

"We've also seen a belated bounce in travel shares after the uncertainty at the beginning of this week, as the imminent dropping of testing for fully vaccinated passengers sees a sharp rally in the likes of IAG, easyJet and Holiday Inn owner IHG," Michael Hewson at CMC Markets said.

North America

Stocks fell after the Federal Reserve indicated plans to start raising interest rates in March, winding down its pandemic stimulus efforts and fighting rising inflation.

The Fed's Wednesday afternoon statement and subsequent news conference kicked off a wild end to a trading day that reversed big early gains. The S&P 500 closed down 6.52 points, or 0.1%, to 4349.93, with the broad index now falling in six of the past seven trading days. The tech-focused Nasdaq Composite Index ticked up 2.82 points, or less than 0.1%, to 13542.12, while the Dow Jones Industrial Average fell 129.64 points, or 0.4%, to 34168.09.

Stocks rose to start the day, but trimmed gains after Fed Chairman Jerome Powell said the central bank's rate-setting committee is ready to raise rates at its mid-March meeting. The Fed also said it approved a final round of asset purchases, which will conclude its stimulus program by March, and discussed plans to reduce its $9 trillion securities portfolio, which has more than doubled since March 2020.

Wednesday's trading leaves all three major indexes down more than 5% in 2022 so far, with the Nasdaq declining 13%.

"It's definitely a wild start to the year," said Josh Chastant, a senior investment analyst at GuideStone Capital Management. "That's to be expected when you go from a stimulative Fed to a less accommodative Fed."

Concerns about the pace of Fed interest rate increases and their likely toll on some stocks popular with individual investors were evident Wednesday. Before the announcement, shares of AMC Entertainment and GameStop rose 13% and 17%, respectively, reflecting in part expectations that the market had shaken off the worst of its January jitters. Shares of those companies fell after the Fed's announcement: AMC ended down $0.08, or 0.5%, to $15.94, while GameStop closed ahead $3.47, or 3.5%, at $103.26. The ARK Innovation exchange-traded fund dropped $1.77, or 2.5%, to $69.03.

"We might have had a little bit more exuberance in the morning than we should have," said Jeff Klearman, portfolio manager at GraniteShares.

The S&P 500's tech sector rose as much as 4% early in the trading day, ending up 0.7%. Microsoft shares rose $8.22, or 2.9%, to $296.71 after the software giant said its earnings continued to grow as its cloud-services business stayed strong. Semiconductors also advanced: Nvidia rose $4.48, or 2%, to $227.72, Micron Technology added $1.25, or 1.6%, to $81.97 and AMD gained $0.42, or 0.4%, to $110.71.

Mark Luschini, chief investment strategist at Janney Montgomery Scott, said early Wednesday that investors should consider stocks in economically sensitive sectors, rather than tech stocks, which can be less attractive during times of rising interest rates.

"It's premature to say, 'OK, that flush was it, and now we just get back into the bull market steaming ahead,'" Mr. Luschini said of the declines earlier in January.

In bond markets, the yield on the benchmark 10-year Treasury note finished Wednesday at 1.845%, while the 2-year Treasury note settled at 1.089%, the highest level since February 2020. Yields move inversely to prices.

The Fed's statement noted the continued spread of the Omicron variant of Covid-19, saying that "the path of the economy continues to depend on the course of the virus." US data showed daily average deaths from the disease exceeding the peak of the Delta variant.

Investors are also monitoring rising tensions between Russia and Ukraine that have drawn the focus of NATO allies. Geopolitical turbulence has buoyed oil in recent days, pushing it to the highest levels since 2014.

The VIX, a measure of expected volatility that is sometimes dubbed Wall Street's fear gauge, has climbed this week as stock markets fell.

In other stocks, Mattel gained $0.85, or 4.3%, to $20.46 after The Wall Street Journal reported that it won the license to produce toys based on Walt Disney's princess lineup, and from the "Frozen" franchise. Texas Instruments gained $4.37, or 2.5%, to $178.33 after the company reported higher revenue. AT&T shares fell $2.23, or 8.4%, to $24.25 after the company swung to a profit as it improved its wireless revenue and shed the burden of its customer-losing pay-TV business in 2021.

Bitcoin's dollar value fell 0.4% from its 5 pm New York time level Tuesday to $36,740. The world's largest cryptocurrency by market value has recently sagged alongside broader markets, shedding nearly half its value from its November peak.

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

AAP logo

© 2022 Australian Associated Press Pty Limited (AAP) or its Licensors. This is the Morningstar service with content provided by AAP where indicated. AAP reserves all rights, including copyright, in services provided by it. The information in the service is for personal use only, does not constitute financial product advice (whether general or personal) and may not be re-written, copied, re-sold or re-distributed, framed, linked or otherwise used whether for compensation of any kind or not, without the prior written permission of AAP. You should seek advice from a professional financial adviser before making decision to acquire or dispose of a financial product.

This service is published for general information purposes only without assuming a duty of care. AAP is not in the business of providing financial product advice (whether personal or general advice), and gives no warranty, guarantee or other representation about the accuracy of the information or images contained in this service. AAP is not liable for errors, omissions in, delays or interruptions to or cessation of the services through negligence or otherwise. The globe symbol and "AAP" are registered trademarks.

Email To Friend