Global Market Report - 28 June

Australia

Australian shares are set to open with no clear direction after the Wall Street rally petered out in a low-volume trading day ahead of the end of financial year.

ASX futures were flat at 6593 as of 8.00am on Tuesday, pointing to a lack of momentum in either direction at the open.

Overseas, the S&P 500 lost early gains and closed down 0.3%. The Dow Jones Industrial Average lost 0.2%, while the technology-focused Nasdaq Composite Index retreated 0.7%.

Traders described a quiet day, with low volumes and investors in a holding pattern, with few moving around money.

"It's very sleepy today," said Justin Wiggs, managing director in equity trading at Stifel Nicolaus, contrasting the anaemic volumes with those last week. "Friday's close was a bit frenetic," he added, referring to FTSE Russell's rebalancing of its stock benchmarks, adding and deleting companies from indexes tied to trillions of dollars of investments.

US shares lost momentum following record gains last week, where the broad-market S&P 500 index jumped 6.5% and lifted out of bear market territory. Traders piled back into equity markets amid expectations that a slowing US economy could lead the Federal Reserve to scale back its campaign of rate hikes. 

Locally, the S&P/ASX 200 closed 1.9% higher at 6706.0, marking its biggest percentage gain since January.

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The benchmark index jumped at the open following a strong lead by US equities, and continued to rise. All 11 sectors gained, although large-cap stocks outperformed.

An index of the 20 largest companies added 2.2%. Banks Westpac, ANZ, NAB and Commonwealth put on between 2.3% and 4.0%.

Suncorp also added to the heft after the country's second-largest insurer said it is reviewing options for its banking business which could include a demerger or sale. Its stock ended 3.6 per cent higher at $11.23.

Recently beaten-down mining shares recovered ground on expectation of a recovery in demand after Chinese President Xi Jinping pledged to take more effective measures to achieve his country's economic goals.

Iron-ore miners Rio Tinto, BHP and Fortescue added between 2.4% and 3.5%.

Gold miners pared the materials sector's overall gains, led by Evolution's 22% tumble on lower production guidance.

The tech sector rose by 2.4% as Link, Block and Megaport gained between 4.1% and 9.1%.

In commodity markets, Brent crude oil added 1.7% to US$115.09 a barrel amid expectations of a price-cap imposition to Russian oil by the Group of Seven nations. Iron ore jumped 5.7% to US$120.60. Gold futures slipped 0.1% to US$1823.70.

In local bond markets the yield on Australian 2 Year government bonds rose to 2.76% while the 10 Year added to 3.77%. Overseas, the yield on 2 year US Treasury notes advanced to 3.12% and the yield on the 10 year US Treasury notes gained to 3.20%.

The Australian dollar slipped to 69.21 US cents, up from 68.41 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged down to 96.87.

Asia

China stocks ended the session higher, in line with a broad equities upturn in Asia following a rebound on Wall Street on Friday driven by hopes for less aggressive interest rate increases by the Fed. The benchmark Shanghai Composite Index rose 0.9% to settle at 3379.19 and the Shenzhen Composite Index closed 1.1% higher at 2216.98. The ChiNext Price Index underperformed the other two indexes, edging up 0.2% to 2830.60. Consumer goods and services companies led the gains, as investor sentiment on the sector continued to pick up amid a host of consumption stimulus measures from the Chinese government.

Hong Kong stocks ended the session higher, riding on upbeat sentiment over Asian equities today following a rebound on Wall Street last Friday, as investors expect less aggressive interest-rate increases by the Fed amid US economic weakness. The benchmark Hang Seng Index rose 2.4% to settle at 22229.52. Tech companies led gains. Xiaomi jumped 12%, Alibaba Health soared 11% and Sunny Optical gained 9.6%. The Hang Seng TECH Index advanced 4.7% to 5072.89.

Japanese stocks end higher, led by gains in electronics and tech stocks, as fears of aggressive tightening from the Fed ease a little. Industrial robot maker Fanuc gains 4.1% and SoftBank Group climbs 3.7%. The Nikkei Stock Average rises 1.4% at 26871.27. Investors are focusing on a Group of Seven meeting and its implications for trade and commodity prices.

Europe

European markets mostly rose after upbeat Asia trading and ahead of an expected slightly higher US open. The pan-European Stoxx Europe 600 and the German DAX both gained 0.5%, though the CAC 40 dipped 0.4%. Markets in Australia, Hong Kong, mainland China and Japan all closed in positive territory.

"US durable goods orders and pending home sales provide the main interest on the economic calendar Monday," IG analysts say in a note.

London’s FTSE 100 closed 0.7% up, at 7,258.3, its third consecutive session in positive terrain lifted by mining sector amid positive trading in the US. Copper miner Antofagasta led the gains, up 3.25%, followed by financial Standard Chartered with an increase of 2.8%. Among the top fallers, Abrdn and Burberry Group fell 2.4% and 2%, respectively.

North America

US stocks slipped Monday, losing some momentum after rallying last week on easing expectations for the path of the Federal Reserve's interest-rate increases.

The S&P 500 lost early gains and closed down 0.3%. The Dow Jones Industrial Average lost 0.2%, while the technology-focused Nasdaq Composite Index retreated 0.7%.

Traders described a quiet day, with low volumes and investors in a holding pattern, with few moving around money.

"It's very sleepy today," said Justin Wiggs, managing director in equity trading at Stifel Nicolaus, contrasting the anaemic volumes with those last week. "Friday's close was a bit frenetic," he added, referring to FTSE Russell's rebalancing of its stock benchmarks, adding and deleting companies from indexes tied to trillions of dollars of investments.

On Friday, the S&P 500 posted its largest one-day percentage gain in two years. Weaker-than-expected US economic data have caused investors to reassess their expectations for a blistering pace of monetary-policy tightening from the Federal Reserve.

The Fed's plans to raise rates and tame inflation have sparked volatility in global markets this year and sent the S&P 500 into a bear market, or a 20% drop from a recent peak, earlier this month.

But recent reports have indicated that the US economy -- and potentially inflation -- is beginning to cool off. The latest evidence came Friday as the University of Michigan revised lower its June reading of inflation expectations over the next five to 10 years -- to 3.1% from 3.3%.

In other economic news, Monday's data showed durable-goods orders for May had risen more than expected. And US pending-home sales rose in May by 0.7%, according to the monthly index released by the National Association of Realtors. The increase breaks a six-month decline and comes even as mortgage rates keep climbing.

"Every good macroeconomic news is interpreted as bad market news," said Florian Ielpo, head of macro at Lombard Odier Investment Managers in Geneva. "If we keep seeing strong growth, strong inflation, then the Fed and the ECB will hike rates and we will enter a recession."

In the near term, he said stocks are likely to get additional support as investors rebalance portfolios ahead of Thursday, which marks the end of the second quarter.

The combination of bearish market positioning and new signs of inflation having peaked, he said, "creates a double whammy that is pushing equities up."

Treasury yields have fallen in recent weeks as investors bet the Fed's plans for raising rates will be derailed by a weakening economy. Investors are increasing bets that the Fed will start cutting rates in mid-2023, according to analysts at UBS.

Investors have also pared back expectations for rate increases this year. On Monday, futures bets showed traders assigned a roughly 52% probability that the Fed will raise interest rates by another 2 percentage points this year, according to CME Group. That is down from a probability of 74% a week ago.

The yield on the benchmark 10-year Treasury note traded at 3.193% Monday, up from 3.125% on Friday but well off its peak of 3.482% this month. Bond yields rise when prices fall.

Consumer stocks were some of the worst performers. Spirit Airlines shares lost $1.95, or 8%, to $22.57 after proxy advisory firm Institutional Shareholder Services recommended that the airline's investors vote for a proposed merger with Frontier Airlines. Frontier on Friday sweetened its offer for Spirit, which has also received multiple offers from JetBlue Airways. Spirit's shareholders are slated to vote on the offers at a special meeting on Thursday.

Shares of oil and gas companies were a bright spot, with energy companies in the S&P 500 rising 2.8%. Futures for Brent crude, the global oil benchmark, gained 1.7% to $115.09 a barrel.

Over the weekend, the Group of Seven countries said they are moving toward an agreement on expanding sanctions against Russia by looking for a mechanism to cap the purchase price of Russian oil.

Details of the oil purchase price cap are expected to be completed ahead of the summit's conclusion on Tuesday. Officials said they would create a buyers' cartel of Western nations that would seek to restrict Russia's revenues from oil sales while also keeping supply on the market.

G-7 countries also announced a ban on Russian gold imports. Russia's central bank has a stash of gold worth roughly $140 billion, representing the world's fifth-largest stash, according to the World Gold Council. The import ban is expected to constrain global supply and push up prices, according to analysts. Gold prices slipped 0.3% to $1,820.90 a troy ounce.