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Global Market Report - 30 June

Lewis Jackson  |  30 Jun 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to open slightly lower after US stocks struggled for direction as traders weighed comments from central bank chiefs on growth and inflation.

ASX futures were down 1 point at 6650 as of 8.00am on Wednesday, pointing to a listless opening.

Overseas, the Dow Jones Industrial Average added 0.3%. The S&P 500 fell less than 0.1%, and the Nasdaq Composite Index lost 0.03%.

Stocks started the week on a shaky note as a series of data releases showed higher prices weighing on consumer sentiment. Investors remained concerned about central banks tightening policy too aggressively while fighting inflation, potentially causing a recession.

Federal Reserve Chairman Jerome Powell, speaking at the European Central Bank's annual economic-policy conference in Portugal, said the pandemic had disrupted the economy in ways that might continue to fuel more inflation or volatility in price pressures than before.

"Is there a risk we would go too far? Certainly there's a risk," Mr. Powell said on Wednesday. "The bigger mistake to make -- let's put it that way -- would be to fail to restore price stability."

Locally, the S&P/ASX 200 closed 0.9% lower at 6700.2 amid weakness in mining stocks.

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Shares of iron-ore, lithium and gold miners finished lower as the benchmark index followed a soft lead from US equities to give back all the prior session's gains and more.

Iron-ore heavyweights BHP, Rio Tinto and Fortescue slipped between 0.5% and 0.9%, while gold miners Regis, St Barbara, Evolution and Silver Lake gave up between 6.5% and 8.15%.

Liontown Resources outperformed its lithium peers, rising 5.2% and finishing as the best-performing ASX 200 component after announcing an offtake with Ford.

Tech stocks fell, with Block shedding 6.2%. The ASX 200 is 1.85% higher so far this week.

In commodity markets, Brent crude oil lost 1.9% to US$115.78. Iron ore declined 2.2% to US$121.50. Gold futures were down 0.2% at US$1817.50.

In local bond markets the yield on Australian 2 Year government bonds slipped to 2.67% while the 10 Year declined to 3.69%. Overseas, the yield on 2 Year US Treasury notes slipped to 3.04% and the yield on the 10 Year US Treasury notes lost ground to 3.09%.

The Australian dollar slipped to 68.76 US cents, down from 69.03 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies gained to 97.74.

Asia

China stocks ended the session lower, as the market retreated from a recent rebound driven easing pandemics curbs domestically, as well as Beijing's latest move on Tuesday to loosen quarantine requirements for inbound travelers from overseas. The benchmark Shanghai Composite Index fell 1.4% to settle at 3361.52, while the Shenzhen Composite Index was down 2.2% at 2194.51. The ChiNext Price Index was the worst performer, losing 2.5% to end at 2768.61. Auto companies led the downturn as the sector's soaring gains in recent sessions eased. Home-appliance makers, which also enjoyed a strong rebound since earlier this month, also pulled back.

Hong Kong stocks closed down, in line with overnight losses on Wall Street and a pull-back in the China market today after a broad upturn in recent weeks. The benchmark Hang Seng Index fell 1.9% to settle at 21996.89. Auto makers and electronics suppliers, which had posted soaring gains earlier this month, led the declines. Geely Auto dived 8.2%, Sunny Optical plunged 5.8% and BYD shed 4.9%. Exporters also suffered as investors turned more pessimistic about overseas demand after the latest survey from the Conference Board, a major US think tank, pointed to expectations of high inflation. Techtronic Industries fell 6.5% and Shenzhen International lost 5.5%.

Japanese stocks fell, dragged by weakness in electronics stocks, amid continued concerns about higher costs of operation and the economic outlook. Canon Inc. shed 3.7% and Renesas Electronics dropped 3.6%. The Nikkei Stock Average fell 0.9% at 26804.60. Investors are focused on movements of yen and crude-oil prices as well as economic data.

Europe

European stocks fell in closing trade as investors digested remarks from Federal Reserve Chair Jerome Powell and other central bankers at a European Central Bank forum in Sintra, Portugal. The pan-European Stoxx Europe 600 dropped 0.7%, the German DAX slipped 1.7% and the French CAC 40 shed 0.9%.

"Given the skittish nature of investors right now, Powell's comment about controlling inflation requiring 'some pain' was bound to cause more investors to hit the sell button," IG analyst Chris Beauchamp writes. "Given the greater robustness of the US economy, it is not surprising to see European markets in the red following these comments while Wall Street holds its small gains for now.

London’s FTSE 100 closed down 0.2% on Wednesday with British Land Co. the biggest faller, down 8.7%, followed by Ocado Group which ended the day down 7.2%. The day's biggest gainers were Standard Chartered, which finished up 2.9%, and then AstraZeneca, which ended up 2.5%.

"It's a well-worn phrase that markets don't like uncertainty and at the moment that's all she wrote. Rate hikes are clearly the primary focus with investors trying to second guess when inflation will peak in different nations and how far and fast central banks are likely to raise rates in a bid to make that peak sooner," Danni Hewson, AJ Bell financial analyst, says.

North America

US stocks were little changed as investors digested comments from central bankers at a panel in Europe and looked toward another round of quarterly earnings reports.

The Dow Jones Industrial Average added 0.3%. The S&P 500 fell less than 0.1%, and the Nasdaq Composite Index lost 0.03%.

After three consecutive years of double-digit gains, the market is suffering a bruising first half. The S&P 500 is down about 20% so far this year, putting it on pace for the worst first half in five decades

Stock prices have been hurt by forces that appear in nearly every cycle, such as rising interest rates and slowing growth. The rapid return of inflation, a wobbling Chinese economy and a war in Ukraine that shocked commodity markets have also weighed on stocks.

Investors need to regroup before the second half of the year starts on Friday, said Michael Arone, managing director at State Street. "We're limping into the Fourth of July and the end of the first half," he said.

One silver lining for investors: A bad first half doesn't guarantee a bad second half. In 1970, the S&P 500 fell 21% in the first half and then gained 27% in the second half, ending the year roughly flat.

Stocks started the week on a shaky note as a series of data releases showed higher prices weighing on consumer sentiment. Investors remained concerned about central banks tightening policy too aggressively while fighting inflation, potentially causing a recession.

Federal Reserve Chairman Jerome Powell, speaking at the European Central Bank's annual economic-policy conference in Portugal, said the pandemic had disrupted the economy in ways that might continue to fuel more inflation or volatility in price pressures than before.

"Is there a risk we would go too far? Certainly there's a risk," Mr. Powell said Wednesday. "The bigger mistake to make -- let's put it that way -- would be to fail to restore price stability."

Some investors are growing less optimistic that the Fed can engineer a so-called soft landing, where interest rates rise to curb inflation without pushing the economy into a recession.

"We expect markets to tread water at best until we get a convincing signal that inflation has peaked. Our confidence in a soft landing has gone down even further and the market has headed that way as well," said Arun Sai, a multiasset strategist at Pictet Asset Management.

The yield on the benchmark 10-year Treasury note dropped to 3.091% from 3.206% on Tuesday, reversing direction after three consecutive days of gains. Prices rise when yields fall.

With the second quarter almost over, investors are looking ahead to another round of corporate profit reports. While earnings for the S&P 500 companies are expected to grow a relatively modest 5.8%, according to FactSet, early misses call even that target into question.

"I thought we'd get a rally into month-end, but some earnings reports have unnerved the market," said Andrew Slimmon, a portfolio manager at Morgan Stanley Investment Management.

On Wednesday, retailer Bed Bath & Beyond illustrated the point. The stock fell $1.54, or 24%, to $4.99 after the company posted a bigger quarterly loss than Wall Street expected and said its chief executive is leaving the role.

Shares of General Mills rose $4.46, or 6.3%, to $74.72 after the company said higher prices helped lift sales even as the food maker sold fewer items across the board. Consumer-staples stocks have been standouts in 2022.

Cruise company Carnival fell $1.46, or 14%, to $8.87, accelerating a decline spurred by a series of price-target cuts by equity research analysts.

The price of bitcoin hovered around $20,000. A court in the British Virgin Islands ordered the cryptocurrency hedge fund Three Arrows Capital to liquidate after creditors sued it for failure to repay debts.

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

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