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Global Market Report - 28 February

Lewis Jackson  |  28 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are poised for a major jump following a Friday rebound on Wall Street, according to futures contracts that last traded early Saturday morning and do not reflect additional sanctions announced over the weekend.

ASX futures were up 166 points or 2.4% at 7118 as of Saturday morning, suggesting a positive start to trading.

Wall Street rallied Friday as investors returned to risk assets amid expectations the conflict in Ukraine could cause the US Federal Reserve to adjust the pace of interest rate hikes.

The Dow Jones Industrial Average added 2.5% on Friday. It was the Dow's best day since November 2020. The S&P 500 gained 2.2%. The Nasdaq Composite advanced 1.6%.

The pan-European Stoxx Europe 600 rose 3.3%, but remained down 1.6% for the week.

Western powers stepped up pressure on Russia over the weekend with sanctions targeting its central bank and leadership. President Vladimir Putin responded by putting Russian nuclear forces on high alert on Sunday.

"I do not think that this highly volatile period is already coming to an end," said Daniel Egger, chief investment officer at St. Gotthard Fund Management. "Right now we have to focus on what's happening in Kyiv, how bloody the coming days will be, and I would say definitely the Russian sanctions still can be stepped up."

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The S&P/ASX 200 closed 0.1% higher at 6997.8 on Friday, but fell 3.1% over the week to post its biggest weekly loss since October 2020. The benchmark jumped 0.8% at the open but gave back almost all its gains against the backdrop of the conflict in Ukraine.

The financial and material sectors, which together comprise about 50% of the ASX 200's market capitalization, fell by 1.0% and 0.1%, respectively.

Banks Commonwealth, Westpac, NAB and ANZ dropped by between 0.9% and 2.2%.

The tech sector helped offset the losses, surging 8.1% following the prior session's savage selloff. Block's ASX-listed securities jumped 32% after the US payments firm reported a stronger-than-expected 4Q profit.

Turning to commodities, gold futures fell 2% to $US1887.60; Brent crude declined 1.2% to $US97.93; Iron ore lost 2.1% to US$138.50.

In bond markets the yield on the Australian 10-year bond rose to 2.23%. US 10-Year Treasury note yields were flat at 1.96%. Yields rise when prices fall.

The Australian dollar was buying 72.29 US cents as of Saturday morning, down from the previous close of 71.60. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, slipped to 90.01.

Asia

Turning to Asian markets, Chinese stocks ended the session higher, as the market rebounded from steep losses on Thursday, when the Ukraine-Russia conflict sparked a regional selloff in equities markets. The benchmark Shanghai Composite Index rose 0.6%, while the Shenzhen Composite Index added 1.2%. The ChiNext Price Index, a measure for emerging industries and startups, performed the best, ending 2.6% higher. Medical companies led gains, as drug developers, hospital operators and medical-equipment suppliers jumped. Energy and commodities stocks provided further support, amid strong appetite for havens and elevated oil prices.

In Hong Kong, Hong Kong shares fell amid an uncertain outlook for the Russia-Ukraine crisis. The Hang Seng Index closed 0.6% lower. But the Hang Seng TECH Index rose 0.8%, led by technology stocks that rebounded in the US ADR market overnight. It's impossible to tell what direction the market will take in the next five minutes, Swissquote said, adding that the only certainty is uncertainty, and this is how it will be for the next couple of sessions. Among the HSI's worst performers, PetroChina slid 3.8% and China Resources Land dropped 3.3%. Meanwhile, Alibaba Health Information Technology climbed 4.9% and Techtronic Industries added 4.2%.

Japan's Nikkei Stock Average closed 1.95% higher on relief over the West's less aggressive sanctions against Russia. Gains on the Nikkei were led by semiconductor-industry-related names such as Advantest climbing 7.7%, Lasertec adding 7.1% and Disco Corp. gaining 6.6%. Industrial gas supplier Iwatani Corp. rose 1.7% after news that a unit will be working with Chevron to build hydrogen fuelling stations in California by 2026.

Europe

European stocks rose in closing trade, recovering from sharp losses in the previous session after Russia launched a full-scale invasion of Ukraine. The pan-European Stoxx 600 rose 3.3%.

"With oil trading back below $100 a barrel and gas prices falling after yesterday's surge, it would appear traders are anticipating minimal disruption to Russian exports either directly as a result of the invasion or from sanctions imposed," Oanda analysts say. "The latter is understandable as the proposed measures so far have underwhelmed, to say the least."

In London, the FTSE 100 gained 3.9%.

Russia's Moex stock-market gauge, which tumbled Thursday, rose around 19%. Russia's ruble gained almost 3% to trade at 82 a dollar, having shed almost 8% Thursday.

Friday’s rebound came before further waves of sanctions targeting Russia’s central bank and leadership were announced over the weekend. There are reports that ATMs in Moscow are running low on foreign currency as citizens rush to exchange rubles for dollars and euros.

North America

The stock market capped a turbulent week by rallying Friday, as investors furiously shifted bets on how the Federal Reserve will proceed with interest-rate increases in the wake of Russia's invasion of Ukraine.

Investors bought the dip across markets over the last two days, wading back into risky assets from shares of rapidly growing companies to bitcoin. They poured about $3.6 billion into US stock exchange-traded funds alone for the week through Thursday, with more than $3 billion going into the broad SPDR S&P 500 ETF Trust, according to FactSet.

The gains pushed indexes sharply higher, undoing much of the damage stocks suffered following Russia's incursion into Ukraine earlier in the week. The S&P 500 ended up adding 0.8% for the four-day trading week. However, the broad benchmark remained stuck in a correction after tumbling more than 10% from its January high on Tuesday.

The Nasdaq Composite ended up adding 1.6% over the last four days, while the Dow Jones Industrial Average clawed itself out of a big loss, ending the week roughly flat.

Bitcoin, meanwhile, gained 1.6%, as the cryptocurrency neared $40,000. Oil prices fell. Investors sold bonds, pushing the yield on the benchmark 10-year US Treasury back near 2%. Other safe-haven assets, such as gold and silver, fell.

Despite the rebound, investors say they are bracing for further turbulence. Even after Moscow suggested it was open to negotiations, which helped send the stock market higher Friday, Kyiv came under renewed bombing and land attacks.

"I do not think that this highly volatile period is already coming to an end," said Daniel Egger, chief investment officer at St. Gotthard Fund Management. "Right now we have to focus on what's happening in Kyiv, how bloody the coming days will be, and I would say definitely the Russian sanctions still can be stepped up."

On Friday, the Dow Jones Industrial Average added 834.92 points, or 2.5%, to 34058.75. It was the Dow's best day since November 2020. The S&P 500 gained 95.95 points, or 2.2%, to 4384.65. The Nasdaq Composite advanced 221.04 points, or 1.6%, to 13694.62.

Some analysts and investors said the end-of-week rally had more to do with investors pricing in expectations that the Fed will take a less aggressive path on interest-rate increases. Several said they believe the conflict in Ukraine adds too much uncertainty to the economic picture, making a 0.25% rate increase more likely next month rather than the 0.50% increase some officials had previously suggested.

"Ultimately, the long-term path for risk assets will remain broadly unaltered," said Seema Shah, chief strategist at Principal Global Investors. "A modest path higher -- but one that could be hit with significant volatility and uncertainty."

Stocks initially appeared set for major losses this week. On Monday, while markets were closed for a holiday, Russian President Vladimir Putin deployed troops into an eastern region of Ukraine. Stocks sold off sharply Tuesday as investors pondered how the fighting, its effect on commodity markets and retaliatory Western sanctions would ripple through a world economy already grappling with elevated inflation and coming interest-rate increases by major central banks.

By Tuesday's close, the S&P 500 shed 1%, leaving it down more than 10% from its early-January record in its first correction in more than two years. The selling continued into Wednesday and most of Thursday as Russia began its invasion of Ukraine. However, stocks staged a turnaround midday Thursday after President Biden outlined additional sanctions on Russia.

Other markets have also been roiled by the conflict. Before falling Friday, oil prices reached their highest level in nearly a decade. Wheat futures also have surged.

So far, investors have responded positively to stiffening restrictions on Russian companies and individuals, with markets either recovering some losses or rallying after the unveiling of sanctions this week. Given the scale of Moscow's attack, investors are preparing for potentially stricter restrictions, such as cutting off Russia from vital international financial infrastructure.

Most sectors of the stock market registered gains over the week. Technology stocks, which have played a major role in the market's twists and turns in recent sessions, added 1.3% over the last four trading days, with Google parent Alphabet rising 3.1% over that span.

The utilities, healthcare and real-estate sectors all added more than 2% over the week, with manufacturers and material firms edged higher. Consumer staples, consumer discretionary firms and financial firms all notched minor weekly losses despite participating in Friday's rally.

Futures for Brent crude, the global oil benchmark, edged down 1% to $94.45 a barrel, while European natural-gas prices retreated by more than one-fifth after rocketing Thursday. Brent topped $100 a barrel early Thursday before falling back.

Rapid inflation and the prospect of tighter monetary policy were complicating the outlook for some traditional safe-haven assets such as Treasury bonds, the US dollar and gold, said Yung-Yu Ma, chief investment strategist for BMO Wealth Management in the US

Gold prices slipped 2% to $1,886 a troy ounce.

"It looks like the military action in Ukraine could be protracted," said Mr. Ma, adding that this would make short-term market movements difficult to predict.

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

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