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Global Market Report - 3 February

Lewis Jackson  |  03 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares is set to edge higher in line with gains on Wall Street as investors cheered a raft of positive corporate earnings.

ASX futures were up 4 points or 0.05% at 6986 near 8.00 am AEST, suggesting a positive start to trading.

US stocks rose Wednesday, extending their recent winning streak as investors weighed strong earnings reports from technology companies against weak economic reports.

The Dow Jones Industrial Average rose 0.6%. The S&P 500 added 0.9% as traders pushed the index to a fourth consecutive day of gains. The index rose 5.1% in the three prior sessions.

The Nasdaq Composite added 0.5%. The tech-heavy index had risen more than 1% earlier in the session, buoyed by a surge in profit from Google parent Alphabet, but struggled to maintain those gains.

Locally, the S&P/ASX 200 closed 1.2% higher at 7087.7 as it continued to rebound from its worst January since 2008. The benchmark built on momentum from US stocks, with nine of 11 sectors finishing higher.

BHP, Rio Tinto and Fortescue put on between 1.6% and 3.7%, helping the materials sector rise 2.0%.

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Financials added 1.05% as Reserve Bank Governor Philip Lowe acknowledged the chance of a 2022 interest-rate rise. Banks NAB, Commonwealth, Westpac and ANZ gained between 0.8% and 1.4%.

The tech sector finished flat even though Computershare added 4.55% after UBS upgraded the stock to buy.

The ASX 200 is up 1.7% so far in February after falling 6.35% in January.

Overseas, the pan-continental Stoxx Europe 600 climbed 0.5%. In Asia, Chinese markets were closed for the Lunar New Year holiday. Japan's Nikkei 225 climbed 1.7%, buoyed by strong earnings reports from financial firm Nomura and electronics company Keyence.

Turning to commodities, gold futures added 0.3% to $US1806.80 an ounce; Brent crude rose 0.5% to $US89.63 after Wednesday's OPEC meeting, where major producers stuck to their plan of moderate output increases; Iron ore not available due to the Lunar New Year holidays.

In bond markets the yield on the Australian 10-year bond edged up to 1.91%, while the benchmark US 10-year Treasury yield dipped at 1.77%. Yields fall when prices rise.

The Australian dollar was buying 71.41 US cents near 8.00am AEST, up from the previous close of 71.26. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, declined for a second day to 89.76.

Asia

Chinese and Hong Kong share markets are shut for the Lunar New Year holidays.

Japan's Nikkei Stock Average rose 1.7%, led by gains across almost all sectors in the wake of Wall Street's advance overnight. Keyence climbed 6.2% after its nine-month net profit rose 65% on year. ANA Holdings rose 6.2% after it posted 3Q operating profit. Nomura Holdings added 6.8% after its 3Q net profit beat an analysts' consensus estimate.

Europe

European stocks eked out gains following a volatile morning of trading on US indices. The pan-European Stoxx 600 gained 0.45%.

In London, the FTSE 100 rose 0.75%, pushing back above 7,600 points, as the flood of buying seen earlier this week continued but at a more sedate pace.

"After leaping higher in previous sessions, gains are becoming a little harder to come by for equity markets, but the overall outlook still seems positive, IG Group says.

"The tech and telecoms sector has led the gains in the UK today, led by the likes of Auto Trader Group PLC, which is higher on the back of broker upgrade from Jefferies, while Vodafone Group PLC and BT Group PLC are doing well, as investors weigh up today's results from Vodafone, and ahead of BT's results tomorrow," CMC Markets UK says.

North America

US stocks rose Wednesday, extending their recent winning streak as investors weighed strong earnings reports from technology companies against weak economic reports.

The Dow Jones Industrial Average rose 0.6%. The S&P 500 added 0.9% as traders pushed the index to a fourth consecutive day of gains. The index rose 5.1% in the three prior sessions.

The Nasdaq Composite added 0.5%. The tech-heavy index had risen more than 1% earlier in the session, buoyed by a surge in profit from Google parent Alphabet, but struggled to maintain those gains.

Stocks have staged a recovery in recent days after suffering their worst month since the pandemic began. Signals from Federal Reserve officials about plans to tighten monetary policy faster than previously expected to fight inflation weighed on sentiment and prompted a selloff in growth stocks.

"The focus has clearly turned to earnings. We've seen strong results from big tech companies. But at some point, we might have sentiment turning back to macro data and the Fed—we think we will oscillate between these two points," said Luc Filip, head of investments at SYZ Private Banking. "For financial markets, this means more volatility."

With earnings season about halfway through, the number of companies that have beaten Wall Street's expectations on sales and profit is above average, although lower than earlier in the recovery, according to an analysis from Deutsche Bank.

Corporate earnings have been good enough, but that is being weighed against not only the Fed's change in monetary policy, but the fact that the central bank is hiking in an economy that looks soft, said Barclays Capital Managing Director Maneesh Deshpande. "Both those things are a problem right now," he said. "Earnings may not save the day this time."

Shares of Alphabet, Google's parent company, rose 8.1% after profit rose by a third in the latest quarter. The search giant also unveiled plans for a 20-for-1 stock split. Chip maker Advanced Micro Devices gained 4.8% after it reported revenue and a sales outlook above analysts' forecasts, also sending shares of Xilinx, a semiconductor firm it is planning to acquire, up 4.4%.

"This has helped turn things around. It reminds people that earnings growth isn't just about the future and tomorrow's gravy. Some of these companies are delivering today," said John Roe, head of multiasset funds at Legal & General Investment Management. Investors are buying the dip after the Nasdaq entered correction territory last month, falling more than 10% from its recent high, he added.

PayPal tumbled 25%, on track for its worst one-day performance on record, after the company posted lower earnings and higher expenses and scrapped an ambitious growth strategy. It's a stark reversal from the past two years, when PayPal was an investor favourite, given the rise in pandemic-induced online shopping.

PayPal shares are trading at their lowest level since May 2020 and other consumer-facing stocks were down as well. Square parent Block declined 11%, and Starbucks fell 1.3% after it said rising costs will continue to weigh on its profits in the months ahead.

Alphabet gained about $115.8 billion in market cap on Wednesday, a little more than twice as much as PayPal lost ($52.9 billion). Because Alphabet is in the S&P 500's communication-services sector, its gains have made that sector the index's strongest on the day, up 3.3%. In fact, the sector has risen almost 11% over the past five sessions, including Wednesday, its best five-day stretch since 2009, according to Dow Jones Market Data.

Meta Platforms, formerly known as Facebook, Spotify, T-Mobile US and Qualcomm are scheduled to report results after markets close.

The yield on the benchmark 10-year Treasury note ticked down to 1.765% from 1.799% on Tuesday.

The nonfarm private sector in the US lost about 301,000 jobs in January, according to a release from ADP. Economists were expecting an increase. Data on the labour market has been mixed in recent days, with a report on Tuesday showing that job openings rose and the quit rate remained high in December.

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

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