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Global Market Report - 28 January

Lex Hall  |  28 Jan 2021Text size  Decrease  Increase  |  
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Australia

Australian shares are set to follow Wall Street lower as a fall in Boeing and a short squeeze failed to offset the Fed keeping rates near zero.

The Australian SPI 200 futures contract was down 40 points, or 0.6 per cent, at 6,665 points at 8.30am Sydney time on Thursday, suggesting a negative start to trading.

US stocks dropped more than 1 per cent on Wednesday, showing little reaction to the latest Fed statement, as major indexes were weighed down in part by a slump in Boeing and hedge funds selling off long positions to cover a short squeeze.

The Dow Jones Industrial Average fell 475.41 points, or 1.54 per cent, to 30,461.63, the S&P 500 lost 74.39 points, or 1.93 per cent, to 3,775.23 and the Nasdaq Composite dropped 223.16 points, or 1.64 per cent, to 13,402.91.

Locally, energy giant ExxonMobil has lashed manufacturers demanding gas at unrealistically cheap prices and has revealed plans to scour fields for new supply after canning the multi billion dollar sale of its 50 per cent stake in Victoria’s Bass Strait, The Australian reports.

The S&P/ASX200 benchmark index closed lower by 44.1 points, or 0.65 per cent, to 6,780.6 on Wednesday.

The All Ordinaries closed down by 51.2 points, or 0.72 per cent, at 7,060.2.

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The energy sector had the steepest decline, 3.41 per cent, after US crude oil prices fell on rising coronavirus infections.

The larger materials sector dropped 2.96 per cent after a drop in iron ore prices.

Gold was down 0.3 per cent at $US1,845.27 an ounce; Oil was up 0.2 per cent at $US56.02 a barrel; Iron ore was up 0.9 per cent to $US166.59 a tonne.

Meanwhile, the Australian dollar was buying 76.92 US cents at 8.30am, down from 77.36 US cents at Wednesday's close.

Asia

China stocks closed higher on Wednesday, with banking and manufacturing shares leading the gains, as upbeat industrial data suggested a sustained recovery while the manufacturing sector rapidly emerged from its COVID-19 slump.

At the close, the Shanghai Composite index was up 0.11 per cent at 3,573.34, shrugging off concerns that policy makers would shift to a tighter stance to cool gains in share prices.

Official data on Wednesday showed that profits at China's industrial firms grew for the eighth straight month in December. The Asian country is the only major economy in the world to avoid a contraction in 2020, with gross domestic product up 2.3 per cent for the full year, while many countries remain crippled by the pandemic.

The blue-chip CSI300 index was up 0.27 per cent, with its banking sector sub-index higher by 1.41 per cent, and the industrial sub-index jumped by 2.07 per cent.

Hong Kong shares closed lower on Wednesday as investors sold tech and material stocks after a sharp rally recently.

At the close of trade, the Hang Seng index was down 93.73 points or 0.32 per cent at 29,297.53.

Around the region, MSCI's Asia ex-Japan stock index was weaker by 1.57 per cent, while Japan's Nikkei index closed up 0.31 per cent.

Europe

European stocks tumbled on Wednesday as extended coronavirus lockdowns drove the German government to slash its growth forecast for 2021, while talk of further interest rate cuts by the European Central Bank hit banking stocks.

After holding largely unchanged in morning trade, the pan-European STOXX 600 fell into the red and closed down 1.2 per cent—its biggest single-day percentage fall in over five weeks.

The global mood also soured as investors turned more cautious about mounting coronavirus cases around the world and about stretched stock valuations after retail investors piled into some niche US stocks, causing an eye-popping surge in their market value within just days.

The German DAX underperformed major regional indexes, falling 1.8 per cent, after the growth forecast for Europe’s largest economy was cut to 3 per cent for this year, a sharp revision from last autumn’s estimate of 4.4 per cent.

Economy-linked stocks bore the brunt of Wednesday’s selloff, with miners, banks and automakers falling between 2 and 3.6 per cent.

Euro zone banks came under pressure as a member of the ECB’s governing council, Klaas Knot, said the central bank could decide to cut its deposit rate further below zero if that proved necessary to keep its inflation target in sight.

Precious metal miner Fresnillo Plc slumped 13.0 per cent after it forecast lower gold output for the current year.

French luxury group LVMH slipped 0.3 per cent even as booming sales at fashion brands like Louis Vuitton, particularly in China, helped to cushion the impact of the pandemic.

Danish medical device maker Ambu surged 23.6 per cent after upbeat quarterly results, while German health technology company Siemens Healthineers gained 3.1 per cent after it raised its 2021 outlook for sales and earnings.

Echoing the retail trading fever that has gripped Wall Street, drugmaker Evotec jumped 9.6 per cent with other heavily shorted stocks like British publisher Pearson and cinema chain Cineworld soaring without any clear reason.

North America

US stocks dropped more than 1 per cent on Wednesday, showing little reaction to the latest Fed statement, as major indexes were weighed down in part by a slump in Boeing and hedge funds selling off long positions to cover a short squeeze.

Shares of videogame retailer GameStop Corp and movie theater operator AMC Entertainment Holdings Inc each more than doubled on Wednesday, continuing a torrid run higher over the past week, as amateur investors again piled into the stocks, forcing short-sellers such as Citron to abandon their losing bets.

“Fears are circulating that some investment funds might be quickly closing out positions as a way of shoring up their cash positions. It is early days yet but we might see selling pressure ramp up for fear there could be a stampede for the exit,” said David Madden, market analyst at CMC Markets UK.

Stocks largely held losses in the wake of the statement from the Federal Reserve. The central bank kept overnight interest rate near zero and made no change to its monthly bond purchases, as was widely expected, and pledged to keep that support intact until a full economic rebound is in place.

“The statement itself really did not contain much new information, but it did put a lid on fears that the Fed may be considering tapering asset purchases sooner than expected. If anything, the Fed added a statement recognising that the pace of recovery has moderated in recent months,” said Jason Pride, chief investment office for private wealth at Glenmede in Philadelphia.

The Dow Jones Industrial Average fell 475.41 points, or 1.54 per cent, to 30,461.63, the S&P 500 lost 74.39 points, or 1.93 per cent, to 3,775.23 and the Nasdaq Composite dropped 223.16 points, or 1.64 per cent, to 13,402.91.

Both the Dow and S&P 500 were on track for their biggest daily percentage decline since 28 October.

Meanwhile, Boeing Co fell 2.56 per cent and was among the top drags on the Dow after the planemaker took a hefty US$6.5 billion charge on its all-new 777X jetliner due to the COVID-19 pandemic and the aftermath of a two-year safety crisis over its 737 MAX.

In a week packed with quarterly earnings from mega-cap companies, Microsoft Corp rose 0.83 per cent after its results as the software maker continues to benefit from remote working and learning trends globally.

Microsoft’s results set a positive tone for other technology-related companies including Apple Inc and Facebook Inc, which are set to report quarterly numbers later in the day.

These heavyweight majors have recently come back into favor after blowout results from streaming giant Netflix Inc, and as investors dumped economy-linked banks, energy and small-cap stocks.

However, concerns about heightened stock market valuations, rising coronavirus cases and uneven distribution of vaccine rollouts have heightened investor worry about a pullback and increase in volatility in the near-term.

Shares of Apple were little changed, while Facebook slipped 2.56 per cent.

The CBOE Market Volatility index, often used as a gauge for investor anxiety, rose as high as 29.65, its highest level since 21 December.

Walgreens Boots Alliance Inc jumped 4.80 per cent after the drugstore chain named the outgoing chief operating officer of Starbucks, Roz Brewer, as its CEO.

With Reuters

is senior editor for Morningstar Australia

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