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Global Market Report - 30 May

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

Australian shares are set to pop at the open after US equities lifted in a broad based rally following fresh data showing strong consumer spending and peaking inflation.

ASX futures were up 83 points or 1.2% at 7271 as of last trade on Saturday, pointing to a jump at the open.

Overseas, the S&P 500 gained 2.5% while the Dow Jones Industrial Average added 1.8%. The tech-heavy Nasdaq added 3.3%, with heavyweights Alphabet, Apple and Tesla all rising more than 4%.

A slew of earnings results and economic data has boosted optimism among investors in recent sessions, helping pull major indexes away from their lows of the year. A broad-based rally, with all 11 of the S&P 500's groups rising, helped the index break a seven-week losing streak. All three major indexes jumped at least 6% this week, which hasn't happened since November 2020.

On Friday, new data showed that US households boosted spending for a fourth straight month, though they reached deeply into savings to do so. Meanwhile, a closely watched US inflation reading eased in April. The data, alongside some strong earnings, has pushed shares of retailers sharply higher. Dollar Tree, Ulta Beauty and Ross Stores were among the week's biggest winners in the S&P 500, gaining at least 20% apiece.

Locally, the S&P/ASX 200 closed 1.1% higher at 7182.7, rounding out a consecutive weekly gain amid strength in shares of financial and commodity companies.

The benchmark index built on a positive lead from US equities to finish 0.5% higher for the week.

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The energy sector led gains amid higher oil prices, with Woodside, Beach and Paladin putting on between 3.6% and 4.2%. Iron-ore miners BHP and Rio Tinto gained 2.4% and 2.5%, respectively.

Banks NAB, ANZ, Westpac and Commonwealth rose between 0.35% and 1.1%.

Block jumped 5.9% and Appen shed 21%, making it the worst-performing ASX 200 component after Telus withdrew its takeover proposal.

Consumer discretionary shares rose 2%, bouncing back from four days of losses, with sentiment boosted by strong retail trade figures for April. Wesfarmers was up 1.6%, JB HiFi climbed 2.5% and battered betting company Pointsbet soared 16.4%.

In commodity markets, Brent crude oil rose 0.1% to US$119.54 a barrel. Iron ore declined 1.6% to US$131.25. Gold was down 0.1% at US$1855.60.

Local bond markets sold off as investors pivoted back to risk assets. The yield on Australian 2 Year government bonds rose to 2.37% while the 10 Year advanced to 3.25%. US bond markets were mostly flat. The yield on US Treasury 2 Year notes edged down to 2.48%, while the 10 Year slipped to 2.74%. Yields rise as prices fall.

The Australian dollar traded at 71.55 US cents as of last trade on Saturday, up from the previous close of 70.97 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies slipped to 94.33.

Asia

Chinese stocks finished mixed, with gains in the energy sector offset by losses among property developers. A-shares seem to lack the momentum to rebound amid continued weakness in the domestic economy, Shanxi Securities says. Cnooc surged 10% and PetroChina rose 3.5% as oil prices continued to climb, while coal producer China Shenhua advanced 3.5%. Dragging on the market were property-related industries. Gemdale Corp. and Seazen Holdings each lost more than 3%, while Anhui Conch Cement shed 1.2%. The Shanghai Composite Index gained 0.2% to 3130.24, the Shenzhen Composite Index ended flat while the ChiNext Price Index edged up 0.1%.

Hong Kong's Hang Seng Index rose 2.9% to close at 20697.36 as tech stocks rebounded. In the wake of quarterly earnings and ADR movements overnight, Alibaba Group surged 12%--its biggest one-day percentage gain in almost a month--while Baidu jumped 14%. Peers JD.com, NetEase and Meituan rose 3.3%-5.6%. Chinese energy majors strengthened amid rising oil prices, with Cnooc up 3.4% and PetroChina climbing 2.2%. Among the laggards were Xinyi Solar and Haidilao, which fell 1.6% and 0.6%, respectively. The session's strong gains helped the benchmark index pare its weekly loss down to 0.1%.

Japanese stocks ended higher, led by gains in electronics and shipping stocks, as bond markets regained some stability in recent sessions despite uncertainty over costs of fuel and materials. Lasertec gained 4.2% and major shipper Kawasaki Kisen Kaisha climbed 5.0%. Rival shipper Nippon Yusen jumped 6.4% after it announced a stock split and projected a higher dividend. The Nikkei Stock Average rose 0.7% to close at 26781.68.

Europe

European markets rose after an upbeat start to trading on Wall Street. The pan-European Stoxx Europe 600, French CAC 40 and German DAX gained more than 1%.

"US markets have opened higher today as they look to complete their first positive week since early April, in a welcome respite for battered dip buyers," CMC Markets analyst Michael Hewson says, adding that latest US PCE inflation data declined in April. "Also, encouragingly the latest US personal spending data showed US consumers were still inclined to spend money with a 0.9% rise."

London’s FTSE 100 ended Friday up 0.27%, in line with other global markets, spurring hopes that this stock rally might last longer than other recent bounces.

Investors have been more comfortable about buying into this rally thanks to the lack of any hints of 75 basis points rate hikes in this week's Fed minutes, IG Group PLC chief market analyst Chris Beauchamp says in a note. However, this isn't a return to the old ways of steady gains, Mr. Beauchamp says.

"A gain of even 10% from here might look like an all-clear signal for investors, but growth and earnings forecasts probably need to come down a bit more, which in turn points towards fresh lows for the market in the months to come," Mr. Beauchamp says.

North America

The S&P 500 raced higher Friday, notching its best week of the year and snapping a punishing losing streak that had almost ended its bull market.

The S&P 500 gained 2.5%. The Dow Jones Industrial Average added 1.8%. The tech-heavy Nasdaq added 3.3%.

A slew of earnings results and economic data has boosted optimism among investors in recent sessions, helping pull major indexes away from their lows of the year. A broad-based rally, with all 11 of the S&P 500's groups rising, helped the index break a seven-week losing streak. All three major indexes jumped at least 6% this week, which hasn't happened since November 2020.

On Friday, new data showed that US households boosted spending for a fourth straight month, though they reached deeply into savings to do so. Meanwhile, a closely watched US inflation reading eased in April. The data, alongside some strong earnings, has pushed shares of retailers sharply higher. Dollar Tree, Ulta Beauty and Ross Stores were among the week's biggest winners in the S&P 500, gaining at least 20% apiece.

Meanwhile, US consumers appear reluctant to let high gas prices and travel costs keep them from their Memorial Day weekend plans and are expected to keep powering the economy.

For months, worries about high inflation and the path of Federal Reserve rate increases have weighed on the market. Investors have grown concerned that interest rate hikes could tip the economy into a downturn. Many of the extended rate-hiking cycles in recent decades have eventually led to contractions, according to Deutsche Bank.

Fears of that worst-case scenario appeared to abate this week. Stocks kept rising after the Fed's latest meeting minutes showed that central bank officials thought they would need to raise interest rates by a half-percentage point at each of the next two meetings. Major indexes built on those gains later in the week and then surged Friday, ending the week near their session highs.

Some investors said stocks had fallen too far, too fast. A deep selloff has made valuations more attractive, encouraging some investors to buy the dip.

"People are loath to abandon a tactic, or strategy, that's worked so well for them," said Steve Sosnick, chief strategist at Interactive Brokers. "We've seen our clients resolutely buying."

Nearly $21 billion flowed into global equity funds in the week through Wednesday, a BofA Global Research analysis of EPFR data show, the largest inflow in 10 weeks.

This week's rally has offered a reprieve from what has felt like a constant battering of portfolios. Last week, the Dow industrials fell for an eighth week in a row, its longest stretch since 1932, while the Nasdaq Composite, like the S&P 500, notched a seventh straight week of losses.

Still, few investors and strategists are willing to call a bottom to a selloff that has sent the S&P 500 falling around 13% for the year. Some traders said the recent gains seemed like a short-term rally during a broader decline.

"I think you're going to see a lot of 'buy the dip' and 'sell the rips, '" said Stephen Solaka, co-founder of Belmont Capital Management.

The turmoil throughout the year and vigorous rally in recent days has left some investors wondering: Is the worst over?

Few of the fundamental factors that have sent stocks falling this year have changed. The Federal Reserve is on course to continue lifting interest rates. Meanwhile, Covid-19 lockdowns in China and the war in Ukraine have exacerbated supply-chain snarls.

"I can't count the times that people have asked me: 'Have I seen capitulation?'" Mr. Sosnick said.

Some of the riskiest bets flourished this week alongside the major indexes. An exchange-traded fund tracking high-yield bonds, the iShares iBoxx $ High Yield Corporate Bond ETF, has risen for five consecutive sessions, its longest winning streak since June 2021, according to Dow Jones Market Data. Meme stocks such as GameStop and AMC Entertainment Holdings have also rocketed higher, adding 43% and 20%, respectively, this week.

Julien Stouff, founder of hedge-fund firm Stouff Capital in Geneva, Switzerland, said that he has put on a position that would profit if the rally continued in the near-term, though he doesn't think the selloff is over yet. He said that market volatility has been edging lower lately and many investors appear to already have dumped their stock-market bets.

"Right now we are bullish" in the short-term, Mr. Stouff said.

For several weeks, investors have also been parsing earnings results, many of which have driven giant swings across the market. Shares of Dell Technologies jumped Friday 13% after reporting a rise in profit and a decline in some operating expenses.

Though shares of retailers have impressed investors this week, other companies have conveyed a gloomier outlook. Snap executives issued a profit warning on Monday, saying that it planned to slow hiring and spending. The company's shares have plunged 33% this week.

Shares of human resources cloud-software company Workday dropped 5.6% Friday after it reported first-quarter adjusted earnings that came up short of expectations.

And there has been a divergence in Americans' behaviour and how they feel about their finances, highlighting the uncertainty regarding the economy right now. The University of Michigan's consumer sentiment index fell to the lowest level since August 2011. High inflation has been chipping away at Americans' wallets and raising concerns about a recession, leading to low levels of confidence.

Concerns about economic growth have lingered, driving government bond yields lower, off the highs hit earlier in May. The yield on the benchmark 10-year US Treasury note dropped to 2.748% Friday and has fallen for three consecutive weeks. Yields and prices move in opposite directions.

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

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