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Global Market Report - 29 September

Lewis Jackson  |  29 Sep 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to fall after days of rising bond yields on the prospect of higher rates spilled into US equity markets and sent stocks tumbling.

The Australian SPI 200 futures contract was down 82 points or 1.2 per cent at 7,157 near 8.00 am AEST on Wednesday, suggesting a negative start to trading.

US stocks tumbled as rising bond yields deepened a rout in shares of technology companies.

The S&P 500 fell 2%, a second straight day of losses. The tech-heavy Nasdaq Composite Index slid 2.8%, while the Dow Jones Industrial Average shed 1.6%.

For years investors have piled into shares of fast-growing technology companies, wagering they would deliver relatively robust profit growth even in a sluggish economic environment. This week, that trade hit a roadblock.

With the economy out of the worst of the pandemic-fueled crisis, the Federal Reserve signalled last week that it could start to reverse its pandemic stimulus programs as soon as November. Interest rates could rise sometime next year. That appears to have prompted an unwind of some of the market's most enduring trades, pushing bond yields to their highest level in months and sending investors out of popular technology stocks.

The Australian dollar was buying 72.41 US cents near 8.00am AEST, down from the previous close of 72.83. The WSJ Dollar Index, which measures the US dollar relative to 16 foreign currencies, rose to 88.35.

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Locally, the S&P/ASX 200 closed 1.5% lower at 7275.6 on Tuesday, compounding early losses after retail data showing the continuing impact of Covid lockdowns.

Shares in 19 of the 20 largest companies by market capitalization fell, with only Macquarie eking out a 0.2% gain. Banks NAB, ANZ, Commonwealth and Westpac lost between 0.3% and 0.6%, while miners BHP, Rio Tinto and Fortescue fell between 2.25% and 6.6%.

Consumer stocks slumped after retail sales fell 1.7% in August. Only the energy and utilities sectors defied the gloom.

Energy rose 4.3% amid higher oil prices. Explorer and supplier Origin jumped 5.3%, its classification among the utilities keeping that sector afloat.

Australian retail sales slumped in August with more than half of the country's population in lockdown as state and federal governments battled an outbreak of the Delta variant of the Covid-19 virus.

Retail turnover fell 1.7% in August from July, the third consecutive monthly fall in turnover following falls of 2.7% in July and 1.8% in June.

Gold futures fell 0.8% to $US1737.50 an ounce; Brent crude fell 0.6% at $US79.09 a barrel; Iron ore was down 6.1% US$112.06.

The yield on the Australian 10-year bond rose to 1.48%; The yield on the US 10-year note rose to 1.55%.

Asia

Chinese stocks ended Tuesday mixed, weighed by auto and baijiu stocks. While the Shanghai Composite Index rose 0.5%, the Shenzhen Composite Index slipped 0.2% and the ChiNext Price Index declined 0.6%. Automakers were among the worst performers. Although the Evergrande saga seems to have receded in the minds of financial markets this week, concerns over China's electricity crunch appear to be gathering steam, Oanda said.

Hong Kong shares advanced, as property-related stocks benefited from dissipating Evergrande concerns. Chinese energy majors were helped by rallying energy-commodity prices. The benchmark Hang Seng Index gained 1.2%, while the Hang Seng Tech Index rose 2.1%.

Japanese stocks retreated, dragged by sharp drops in shippers and tech companies, as reports of the potential ending of a Covid-19 state of emergency triggered profit-taking in sectors related to e-commerce. The Nikkei Stock Average fell 0.2%. Investors are focused on Japan's ruling-party chief election, set for Wednesday, which will effectively decide the next prime minister.

Europe

European markets tumbled Tuesday. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies, fell 2.2%, its biggest decline since July.

In London, the FTSE 100 closed 0.5% lower.

North America

US stocks tumbled Tuesday as rising bond yields deepened a rout in shares of technology companies.

The S&P 500 fell 2%, a second straight day of losses. The tech-heavy Nasdaq Composite Index slid 2.8%, while the Dow Jones Industrial Average shed 570 points, or 1.6%, to 34299.

For much of the past decade, many investors had piled into shares of fast-growing technology companies, wagering they would deliver relatively robust profit growth even in a sluggish economic environment. This week, that trade hit a roadblock.

With the economy out of the worst of the pandemic-fuelled crisis, the Federal Reserve signalled last week that it could start to reverse its pandemic stimulus programs as soon as November and raise interest rates sometime next year. That appears to have prompted an unwind of some of the market's most enduring trades—pushing Treasury yields to their highest level in months and sending investors out of popular technology stocks.

Investors agree the economic outlook has improved significantly since 2020. But many wonder how well the market will be able to stand on its own once the Fed begins to taper its monthly asset purchases -- especially since they credit much of the market's rebound from its pandemic low to extraordinary levels of monetary and fiscal support from Washington.

Some investors have also expressed concerns about the economic outlook. Inflation has made a surprising comeback this year, something some worry will start to cut into companies' profit margins. The fast-spreading Delta variant of Covid-19 has also complicated economists' efforts to forecast the global economy's growth outlook.

"People are realizing, or at least remembering, that central banks are going to have to start raising rates," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. "The patient has become used to being given all these drugs, but soon those drugs are going to have to be reduced."

Tuesday's market selloff was broad, pulling all but one of the S&P 500's sectors lower for the day.

Traders yanked money out of the technology sector. Shares of companies like Facebook, Google parent Alphabet and Microsoft, each of which had vastly outperformed the broader market this year, fell more than 2.5% apiece.

Meanwhile, selling pressure accelerated in the government bond market. The yield on the benchmark 10-year Treasury note rose for a sixth consecutive day Tuesday, settling at 1.534%, compared with 1.482% Monday. Bond yields rise as prices fall.

Shares of energy companies avoided the broader selloff.

Schlumberger added 3.4%, while Marathon Oil rose 1.7%. Both benefited from crude oil prices hitting multiyear highs this week, although oil wound up giving up the day's gains to end slightly lower Tuesday. Strategists have attributed the spike to a combination of rising demand and supply shortages.

The jump in commodity prices has ramped up some investors' worries about short-term inflation pressures. Inflation tends to weigh on bond prices, since it erodes the purchasing value of their fixed payments.

Some investors say the stocks' recent setbacks aren't surprising after a long period of relative calm. The S&P 500 has risen seven straight months in a row, its longest such streak since the 10 months through January 2018, according to Dow Jones Market Data.

Data suggests investors were heavily positioned in bets on lower interest rates and subdued inflation earlier this month, another factor that might have exacerbated the speed and scale of Tuesday's pullback. In a survey of global fund managers conducted Sept. 3-9, Bank of America found investors were generally betting on stock prices rising and inflation pressures easing.

"That's often how it happens -- you have quiet and complacent markets and then a gut check," said Keith Lerner, co-chief investment officer of Truist Advisory Services. Mr. Lerner added that he is still optimistic about the market's outlook over the longer term.

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

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