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Global Market Report - 28 March

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

Australian shares look set to rise after US shares extended their rally into a second week against the backdrop of an ongoing selloff in bond markets.

ASX futures were up 33 points or 0.4% at 7413 as of 8.00am AEST, suggesting a positive start to the day.

Major indexes traded lower for much of the session before climbing late in the day and finishing mixed. The S&P 500 added 0.5%, while the Dow industrials rose 0.4%. The Nasdaq dropped 0.2%. For the week, the S&P 500 climbed 1.8%, extending its gains over the past two weeks to 8.1%, the strongest run since late 2020. The technology-heavy Nasdaq Composite rose 2%, extending its two-week rise to more than 10%. The Dow Jones Industrial Average was up 0.3% for the week.

Equities are rallying amid optimism about the strength of the US economy and its ability to shrug off higher interest rates and blowback from the war in Ukraine. The Nasdaq Composite is up 9.4% since US Federal Reserve Chairman Jerome Powell stressed the strength of the US economy and labour market during the 16 March press conference following the bank’s decision to raise interest rates for the first time since 2018.

"An additional rally from here could prove to be self-correcting because it could bring out the possibility of more and larger rate hikes," said Doug Ramsey, chief investment officer at Leuthold Group.

Higher rates have accelerated a historic selloff in bond markets that has seen yields jump to levels not seen since early 2019. Interest-rate sensitive short-term debt has been hit hardest. Higher yields may have contributed to less enthusiasm for technology stocks on Friday.

Locally S&P/ASX 200 closed 0.3% higher at 7406.2 as continued strength from commodity stocks carried the benchmark index to a fourth consecutive gain. The ASX 200 rose 1.5% for the week.

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This followed a positive lead from US equities, with Australian materials stocks emulating the outperformance of their US counterparts. The sector--the index's second-largest by market capitalization--added 1.3% as iron-ore and gold miners rose.

Building-products manufacturer Brickworks put on 4.8% after a largely positive analyst response to its 1H results.

Energy explorers Santos, Woodside and Beach added between 0.6% and 1.2%, but the heavyweight financial sector slipped 0.5% on weakness from banks ANZ, NAB, Westpac and Commonwealth.

Australian consumers are continuing to spend strongly as the economy tries to pull clear of the pandemic, according to Westpac. The Westpac Card Tracker Index, which measures electronic card transactions, rose 6.7 points to a new high of 113.3 over the week to March 19.

In commodity markets, iron ore rose 3% to US$150.80 per tonne; Brent Crude added 1.4% to US$120.65; gold futures slipped 0.4% to $1959.80.

The worst bond market rout in years continued on Friday, with the US 10-Year Treasury Note yield rising to 2.47%. The yield on the Australian 10-year bond edged up to 2.77%. Yields rise when prices fall.

The Australian dollar ended the week at a 5-month high, buying 75.14 US cents as of Saturday morning AEST, up from the previous close of 75.12. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, slipped to 91.43.

Asia

Chinese stocks ended lower, following broad losses in Asian equities. The Shanghai Composite Index lost 1.2%, while the Shenzhen Composite Index was down 1.4%. The tech-heavy ChiNext Price Index was the worst performer among the key indices, dropping 2.5%. Drug makers and medical services providers led the downturn, as the sector retreated from soaring gains recently, driven by optimism over Covid-19 oral treatment development licenses. Consumer goods firms further weighed on the market amid persisting concerns over China's latest pandemic outbreak.

Hong Kong stocks closed lower, following losses in regional equities. The benchmark Hang Seng Index lost 2.5%. Tech stocks led the downturn, as the sector continued to weaken from a recent sharp rebound driven by Beijing's message of support for the sector. The Hang Seng TECH Index fell 5.0%. Alibaba Health slumped 9.2%, and Meituan lost 8.2% ahead of its earnings expected this evening. Consumer firms added further pressure, as Haidilao plunged 7.7% and Li Ning dropped 5.6%.

The Nikkei Stock Average finished 0.1% higher, led by gains in chemical and pharmaceutical stocks, despite weakness in banks and insurers. Mitsubishi Chemical Holdings gained 2.6% and Nippon Paint Holdings rose 2.5% as some falls in crude oil prices eased concerns about higher costs of raw materials. Investors remain focused on the war in Ukraine and its impact on commodity prices.

Europe

European stocks mostly rose in closing trade but gains were modest as investors stayed cautious amid the Russia-Ukraine conflict.

"We appear to have hit a point in which the initial shock of the Ukraine invasion has passed and markets have corrected back to a point where the economic risks are deemed to be priced in," Oanda analyst Craig Erlam says. The pan-European Stoxx Europe 600 rose 0.1% on Friday and snapped a two-week winning streak to end the week down 0.2%.

In London, the FTSE 100 ended the week with gains, as shares in oil and mining companies continued to rise, helping the UK index close 0.2% higher on Friday. Shell rose 1.4% and BP was up 0.6%. Commodity majors Glencore, Anglo American and Rio Tinto booked gains too. Conversely, copper producer Antofagasta dropped 2.6% as the stock was downgraded to sell by UBS, with analysts warning of a potential hit from higher taxes in Chile and limited upside to the copper price.

Russian stocks fell 3.7% a day after the Moscow stock exchange partially reopened after a month-long closure, reversing some of Wednesday's 4.4% jump. Gazprom slid 12% and Russia's largest lender Sberbank declined 3.5%.

North America

US stocks rebounded for a second consecutive week as investors gained confidence that the economy can withstand the escalating war in Ukraine and the Federal Reserve's plans to lift interest rates to control inflation.

The S&P 500 climbed 1.8% for the week, extending its gains over the past two weeks to 8.1%, the strongest run since late 2020. The technology-heavy Nasdaq Composite rose 2%, extending its two-week rise to more than 10%. The Dow Jones Industrial Average was up 0.3% for the week.

Still, a renewed surge in bond yields tempered some of the enthusiasm in the stock market Friday.

Major indexes traded lower for much of the session before climbing late in the day and finishing mixed. The S&P 500 added 0.5%, while the Dow industrials rose 0.4%. The Nasdaq dropped 0.2.

Forecasters have been predicting that the Federal Reserve will lift interest rates faster than it currently projects to clamp down on inflation that remains at a multidecade high. Economists at banks including Citigroup and Bank of America this week raised the prospect that the central bank will lift rates by half a percentage point at a time, in contrast to this month's quarter-point increase.

Such forecasts have jolted the government bond market. The yield on the benchmark 10-year Treasury note jumped to 2.491% from 2.340% on Thursday, the highest level in almost three years.

In a sign that investors were ratcheting up their interest-rate expectations, yields on short- and medium-term Treasurys, which are most responsive to Fed policy, were up more than those on longer-term bonds.

The yield on the three-year note climbed to 2.536% from 2.346% on Thursday. Yields on the five- and seven-year notes closed above 2.5%, reflecting growing expectations that the Fed could raise rates as high as 3% next year before lowering them later.

Some investors say that because the recent rebound in the stock market suggests investors are taking rate increases in stride, it may embolden the Fed to act more aggressively in lifting rates.

"An additional rally from here could prove to be self-correcting because it could bring out the possibility of more and larger rate hikes," said Doug Ramsey, chief investment officer at Leuthold Group.

At the same time, the war has driven concerns about inflation and disruptions to commodity supplies. President Biden said the US will respond if Russia uses chemical weapons and called for the country to be expelled from the Group of 20 industrial and developing nations, spurring fears of further escalation.

"Markets are trying to price something that is basically impossible to price, as part of what's going on in the world depends on Putin's thinking, which nobody knows," said Fahad Kamal, chief investment officer at Kleinwort Hambros. "The longer the conflict lasts, the higher the upside to inflation, the lower the downside to growth. It's massively, radically uncertain."

But US companies that are more domestically focused may be shielded from the worst of the war-related ructions. Many of those companies continue to post solid profit outlooks, according to Diane Jaffee, a senior portfolio manager at TCW.

"There's been some degradation in earnings outlooks, but the revisions have been very modest to date," she said.

Some of the biggest gainers on Friday were regional banks. Comerica climbed $3, or 3.2%, to $97.04 and Zions Bancorp climbed $2.50, or 3.6%, to $71.08. Energy companies also rose, with Coterra Energy climbing $1.88, or 7%, to $28.91

Consumer confidence for March was below economists' expectations, according to a University of Michigan survey released Friday. The metric has been slipping in recent months as consumers, particularly lower-income households, hold more pessimistic outlooks on the economy.

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

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