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Global Market Report - 30 September

Lewis Jackson  |  30 Sep 2021Text size  Decrease  Increase  |  
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Australia

The ASX is set to rise after US stocks pared Tuesday’s losses to end mixed. The Aussie dollar continued to weaken against the greenback as oil prices pulled back from record highs.

The Australian SPI 200 futures contract was up 23 points or 0.3 per cent at 7,199 near 7.30 am AEST on Thursday, suggesting a positive start to trading.

US stocks mostly rose Wednesday, recovering some of their losses from the prior day's rout as traders scooped up discounted shares.

The S&P 500 added 0.2%, regaining a portion of the ground lost Tuesday when the equities benchmark dropped 2% in its worst one-day performance since May. The Dow Jones Industrial Average advanced 0.3%, while the tech-heavy Nasdaq Composite lost 0.2%.

The stock market has rocketed higher in 2021 and is up 17% for the year even after the recent volatility. One big reason: When worries about the spread of Covid-19, the surprising uptick in inflation or potential rollbacks in monetary stimulus have threatened to derail the rally, investors have stepped in to buy.

The Australian dollar was buying 71.74 US cents near 7.30am AEST, down from the previous close of 72.36. The WSJ Dollar Index, which measures the US dollar relative to 16 foreign currencies, increased to 88.9 as rising bond yields attracted capital to the US.

Locally, the S&P/ASX 200 closed 1.1% lower at 7196.7 amid broad-based losses. It is the first time the benchmark has lost more than 1% on consecutive days since mid-June 2020.The ASX 200 lost 1.5% on Tuesday and is now 5.7% off the record it set in mid-August.

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Tech stocks led losses, as they had in a weak US session. Afterpay slumped 4.2%, its value now closely tethered to that of Square, which is using shares to buy the Australian buy-now-pay-later company.

The energy and materials sectors fell by 1.8% and 1.0%, respectively. ANZ, Westpac, NAB and Commonwealth banks lost between 0.5% and 1.3%.

CNN said it has restricted access to its Facebook pages in Australia following a ruling from the high court that makes news organizations legally liable for comments on their Facebook posts.

Gareth Aird, the head of Australian Economics at the Commonwealth Bank of Australia, expects inflation to spike in coming years, triggering interest-rate increases from early 2023, and pushing up mortgage lending rates at a time of rapid growth in household debt. He points to the deluge of fiscal stimulus financed by central bank money creation.

Gold futures fell 0.8% to $US1722.90 an ounce; Brent crude fell 0.6% at $US78.64 a barrel; Iron ore was up 1.8% US$114.13.

The yield on the Australian 10-year bond was flat at 1.48%; The yield on the US 10-year note rose to 1.52%.

Asia

On Wednesday, Chinese stocks closed lower amid concerns over China's electricity crunch. The Shanghai Composite Index fell 1.8%, the Shenzhen Composite Index dropped 2.3% and the ChiNext Price Index declined 1.1%. Energy-related stocks were among the worst performers, tracking lower oil prices. Market focus will likely be on China's upcoming PMI data later this week, IG said.

Hong Kong shares saw broad-based gains, with property stocks advancing, leading the benchmark Hang Seng Index 0.7% higher. Shares of property companies gained, as Evergrande-related fears eased.

Japanese stocks retreated, dragged by sharp falls in tech and bank shares, as caution grew about the sustainability of policy stimulus, especially in the US The Nikkei Stock Average fell 2.1%. Investors are focusing on policy-related developments after Fumio Kishida, a former foreign minister, was elected ruling party leader, assuring him of becoming the next prime minister.

Europe

European markets rose Wednesday as investors stay upbeat despite looming economic concerns. The pan-European STOXX 600 index, which tracks the performance of companies across 17 European companies, gained 0.7%.

"Stocks are back in positive territory Wednesday, paring some of Tuesday's losses that suggested cracks are appearing in the markets," Oanda analyst Craig Erlam says.

"The list of downside risks has been growing in recent months and it seems it's finally become impossible to ignore. The debate over averting a U.S. government shutdown, the debt ceiling, infrastructure package and social-spending bill is heating up as key deadlines draw nearer," Erlam says.

In London, the FTSE 100 closed 1.2% higher.

North America

US stocks rose Wednesday, recovering some of their losses from the prior day's rout as traders scooped up discounted shares.

The S&P 500 added 0.2% as of the 4 pm close of trading in New York, regaining a portion of the ground lost Tuesday when the equities benchmark dropped 2% in its worst one-day performance since May. The Dow Jones Industrial Average advanced 0.3%, while the tech-heavy Nasdaq Composite lost 0.2%.

The stock market has rocketed higher in 2021 and is up 17% for the year even after the recent volatility. One big reason: When worries about the spread of Covid-19, the surprising uptick in inflation or potential rollbacks in monetary stimulus have threatened to derail the rally, investors have stepped in to buy.

"At some point, buy the dip is not going to work and we're going to have a correction," said Hank Smith, head of investment strategy at Haverford Trust. "Our view has been fairly consistent, and we're not changing it, that this will be a buyable dip."

Stocks hit a rough patch in recent days after the Federal Reserve signalled it would start to reduce its bond-buying as soon as November—and possibly begin to raise interest rates next year. Higher prices for oil and other commodities also helped push bond yields up as investors prepared for higher inflation.

Higher yields have hit shares of fast-growing tech companies, which carry a heavy weighting in major stock indexes. These stocks are especially sensitive to changes in bond yields, because much of the value investors ascribe to them is based on far-off future profits. When yields rise, bonds become more attractive to hold compared with stocks.

Tech stocks had a mixed showing Wednesday, with Apple shares adding 1.3% while Alphabet Class A shares lost 0.7%.

The stock market's gains were broad-based. All but one of the S&P 500's 11 sectors were higher in afternoon trading.

Investors say the abrupt moves of recent days should be considered in the context of the market's longer-term gains.

"We're wobbling around," said Linda Duessel, senior equity strategist at Federated Hermes. "That's fine. We had such a great run this year to date."

Global benchmark Brent crude oil fell 0.6% to $78.64 a barrel Wednesday, after hitting a three-year intraday high Tuesday. An unexpected drop in a gauge of US consumer confidence and higher-than-expected inventories suggested near-term energy demand could weaken, according to analysts.

"Ultimately what caused this big shoot-up in yields has been this huge rise in oil prices over the past few days, it has a massive impact on inflation," said Fahad Kamal, chief investment officer at Kleinwort Hambros. "The fact that oil has stopped rising means that yields can also stop rising. The selling pressure has abated."

The US dollar rose again, with the WSJ Dollar Index edging up to the highest level since November.

The uptick in government bond yields is attracting capital flows, pushing up the dollar, said Georgina Taylor, a multiasset fund manager at Invesco.

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

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