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Global Market Report - 27 June

Lewis Jackson  |  27 Jun 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to pop following a major rally on Wall Street as new economic data suggested the US Federal Reserve could temper its rate hikes.

ASX futures were up 103 points or 1.6% at 6573 as of 8.00am on Monday, pointing to a rally at the open.

Overseas, the Dow Jones Industrial Average surged 2.7%. The S&P 500 climbed 3.1%, in its biggest one-day gain in percentage terms in more than two years. The technology-heavy Nasdaq Composite added 3.3%. All three indexes recouped their losses from the previous week.

Stocks tumbled earlier this month on concerns that the Fed could push the economy into a recession as it tightens monetary policy to combat inflation. Market indexes rebounded this week after bargain-hunters swooped in to buy cheap stocks and -- in a paradoxical twist where bad news was good news -- some worse-than-expected economic figures fuelled investors' hopes that the Fed might become less hawkish.

"It's clear that economic activity is cooling, which should cool down inflation. That together is rather positive," said Luc Filip, head of investments at SYZ Private Banking.

The University of Michigan's index of consumer sentiment dropped in June to its lowest-ever recorded level, according to survey data released on Friday. The drop highlighted the grim mood among Americans as inflation eats into their purchasing power and recession fears loom.

The university also revised its May reading of inflation expectations over the next five to 10 years, lowering them to 3.1% from 3.3%. The revision fuelled some optimism that the Fed wouldn't be as aggressive about hiking interest rates, analysts said.

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Locally, the S&P/ASX 200 closed 0.8% higher at 6578.7, stitching together consecutive daily gains for the first time in almost a month. Surging technology stocks helped the benchmark index overcome weakness in shares of commodity companies and round out a 1.6% weekly rise.

The volatile tech sector added 6.0% as Block, Novonix and Megaport jumped between 11% and 16%. Life360 surged 25%, though it is still 69% lower in 2022.

Beaten-down consumer discretionary stocks also rose, with IDP Education, ARB and City Chic adding between 6.9% and 8.8%.

The heavyweight financial sector edged 0.1% higher, while materials slipped 0.1% lower and energy lost 1.45%.

In commodity markets, Brent crude oil fell 0.8% to US$112.16 a barrel. Iron ore slipped 0.9% to US$115. Gold futures added 0.4% to US$1838.20.

Local bond markets continued to rally and the yield on Australian 2 Year government bonds declined to 2.75% while the 10 Year retreated to 3.71%. Overseas, markets moved in the opposite direction and the yield on 2 year US Treasury notes rose to 3.06% and the yield on the 10 year US Treasury notes advanced to 3.13%.

The Australian dollar rose to 69.41 US cents, up from 68.91 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged down to 96.91.

Asia

Chinese stocks closed higher amid broad-based gains, tracking overnight advances on Wall Street. Lower yields on US Treasurys amid recession fears were also helping equities, Oanda senior market analyst Jeffrey Halley said in a note. The Shanghai Composite Index ended 0.9% higher at 3349.75, the Shenzhen Composite Index rose 1.3% to 2192.66 and the ChiNext Price Index gained 2.3% to 2824.44. Sectors including liquor-makers, renewable-energy companies and airlines closed higher. Kweichow Moutai rose 2.7%, Wuliangye Yibin gained 2.5%, Arctech Solar was 7.1% higher and Air China advanced 0.8%.

Hong Kong stocks ended higher, with the benchmark Hang Seng Index rising 2.1% to 21719.06, following gains on Wall Street overnight. Chinese President Xi Jinping's hints of more forceful stimulus to come as well as a possible Hong Kong border reopening continue to support investor sentiment, SPI Asset Management managing partner Stephen Innes says in a note. Gains were led by Wuxi Biologics, jumping 10%, followed by Sunny Optical Technology, up 8.6%, and Budweiser Brewing, 6.9% higher. The technology sector also gained, with the Hang Seng Tech Index advancing 4.1% to 4844.58.

Japan’s Nikkei Stock Average extended early gains to close 1.2% higher at 26491.97. Overnight gains in US equities following Fed Chairman Powell's second day of testimony to lawmakers supported sentiment. Investors will likely remain focused on inflation, after Japan's overall consumer prices, which hit 2.5% in May, exceeded the BOJ's 2% target for a second consecutive month. Shipping stocks were higher, with Nippon Yusen advancing 2.0% and Mitsui O.S.K. Lines gained 3.9%. Auto maker Toyota closed 0.7% lower after recalling its new battery-powered sport-utility vehicles due to a potential safety risk.

Europe

European markets rose as bond yields fell, though airlines and automotive stocks headed lower. The pan-European Stoxx Europe 600 gained 2.6%, the French CAC 40 advanced 3.2% and the German DAX was up 1.6%. Deutsche Lufthansa, TUI, easyJet and other air travel-related stocks are among the biggest pan-European fallers as the industry faces problems such as crew shortages, flight delays and cancellations and strike action.

"US markets opened higher today as they look to break a run of three successive weekly losses, with lower yields on the week helping to support some of the more over-sold parts of the market," CMC Markets analyst Michael Hewson writes.

London’s FTSE 100 closed up 2.7% on Friday, boosted by positive sessions in the US and Asian markets as investors took in the latest consumer confidence and retail sales data.

Hikma Pharmaceuticals was the biggest riser of the session, up 5.9%, followed by Ashtead Group and Croda International, both up 5.7%. Centrica, Rolls-Royce and Aveva Group were the biggest fallers, down 2.1%, 1.1%, and 0.4%, respectively.

North America

Stocks rallied on Friday after fresh economic data tempered investors' expectations of steep Federal Reserve interest-rate hikes, as major market indexes notched their first weekly gains after three consecutive weeks of losses.

The Dow Jones Industrial Average surged 2.7%. The S&P 500 climbed 3.1%, in its biggest one-day gain in percentage terms in more than two years. The technology-heavy Nasdaq Composite added 3.3%.

Indexes have bounced back after the S&P 500 last week tumbled into a bear market, defined as a 20% drop from a recent high. The broad market index finished the week up 6.4%, though it is still down about 18% from its last record close in January.

The Dow industrials gained 5.4% for the week, while the Nasdaq rallied 7.5%. All three indexes recouped their losses from the previous week.

Stocks tumbled earlier this month on concerns that the Fed could push the economy into a recession as it tightens monetary policy to combat inflation. Market indexes rebounded this week after bargain-hunters swooped in to buy cheap stocks and -- in a paradoxical twist where bad news was good news -- some worse-than-expected economic figures fuelled investors' hopes that the Fed might become less hawkish.

"It's clear that economic activity is cooling, which should cool down inflation. That together is rather positive," said Luc Filip, head of investments at SYZ Private Banking.

The University of Michigan's index of consumer sentiment dropped in June to its lowest-ever recorded level, according to survey data released on Friday. The drop highlighted the grim mood among Americans as inflation eats into their purchasing power and recession fears loom.

The university also revised its May reading of inflation expectations over the next five to 10 years, lowering them to 3.1% from 3.3%. The revision fuelled some optimism that the Fed wouldn't be as aggressive about hiking interest rates, analysts said, and added to market gains after the survey's release at 10 am New York time. Fed Chairman Jerome Powell had cited the survey's May reading for long-term inflation expectations in explaining last week's 0.75 percentage point rate increase.

Earlier, the US composite purchasing managers index, which measures activity in manufacturing and services, fell to a five-month low on Thursday.

Data from interest-rate derivatives markets suggests that traders think the Fed could be cutting rates by the second half of next year. "Growth is coming down, maybe even sooner than expected. That should allow the Fed to soften at some point," said Esty Dwek, chief investment officer at FlowBank.

Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management, warned that this week's rebound doesn't mean the market has hit bottom. The Fed will need more evidence that it is winning the fight against inflation before it steps back from raising interest rates, he said.

"Financial conditions are going to continue to be tighter rather than looser, in my opinion," Mr. Stucky said. "Even with a couple of encouraging data points this week, it's not going to be enough for the Fed to say, 'OK, we're going to back off and see what happens next.'"

All 11 sectors of the S&P 500 ended Friday in positive territory, with materials, financials, technology and consumer-discretionary stocks among the strongest performers. Bank stocks got a boost from the Fed's annual stress tests, released late Thursday, which gave the country's biggest lenders a clean bill of health. Shares of Wells Fargo rose $2.86, or 7.5%, to $40.76 on Friday, while Goldman Sachs added $16.58 per share, or 5.8%, to $302.75.

Among other stocks, software firm Zendesk surged $16.22 a share, or 28%, to $74.17 after it said it would be acquired by a group of investors including Permira and Helman & Friedman for $10.2 billion. FedEx shares rallied $16.26, or 7.2%, to $243.24 after reporting a rise in revenue driven by higher shipping rates and fuel surcharges.

Carnival shares jumped $1.20, or 12%, to $10.85 after the cruise-line operator reported it was on track for a nearly 50% increase in quarterly revenue compared with the first three months of the year. Its competitors also rallied, with Norwegian Cruise Line Holdings and Royal Caribbean both posting double-digit gains.

Shares of LendingTree tumbled $4.32, or 7.9%, to $50.55 after the online financial marketplace lowered its earnings outlook for the current quarter, saying that rising interest rates had weakened demand for home loans.

The close of trading saw heavy volumes Friday as index provider FTSE Russell rebalanced its stock benchmarks, an annual event in which it adds and removes companies from indexes tied to trillions of dollars of investments. The managers of passive funds tied to those indexes generally buy or sell those stocks around 4 pm New York on the day of the so-called Russell rebalance, to ensure their funds track their benchmarks accurately.

The New York Stock Exchange said 2.3 billion shares, worth $79.3 billion, changed hands in the closing auction that sets official end-of-day prices for NYSE-listed stocks, making it the fourth-largest close in NYSE history.

Oil prices climbed, with futures on benchmark Brent crude rising 2.8% to settle at $113.12 a barrel. Still, they are down nearly 8% this month.

The recent decline in commodity prices is an encouraging signal, said Ms. Dwek, of FlowBank. "That's exactly what the Fed would want to see, since commodities are part of the reason why inflation is so high," she said.

The yield on the benchmark 10-year Treasury note climbed to 3.125% from 3.068% on Thursday. Bond yields rise when prices fall.

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

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