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Global Market Report - 31 January

Lewis Jackson  |  31 Jan 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to fall despite Friday’s rally on Wall Street where technology stocks erased a week of losses amid record earnings from Apple.

ASX futures were down 16 points or 0.2% at 6896 near 8.00 am AEST, suggesting a negative start to trading.

Stocks climbed on Friday, buoyed by strong earnings from Apple and other big companies, as the S&P 500 and Dow Jones Industrial Average snapped a three-week losing streak.

The move—capped off with a late-afternoon rally—was good news for investors after a nerve-racking January. Stocks sold off in recent weeks as expectations mounted that the Fed would pivot from juicing economic growth to combating inflation. Fed Chairman Jerome Powell signalled on Wednesday that the central bank would start a series of rate increases in March, ending a long period of rock-bottom interest rates.

The S&P gained 2.4% on Friday. The Dow rose 1.7%, after a volatile day in which it swung between gains and losses, then surged in the last hour and a half of trading. The technology-heavy Nasdaq Composite jumped 3.1%, erasing all its losses for the week. The Dow and S&P ended the week with gains of 1.3% and 0.8%, respectively, while the Nasdaq was roughly flat for the week.

Locally, the S&P/ASX 200 closed 2.2% higher at 6988.1, with all sectors finishing in the green. Consumer discretionary stocks were the best performers, up 3.3%, with telecom services stocks also climbing 2.9%.

Breville rose 6.8%, while Premier Investments gained 4.8% and Wesfarmers added 4.2%. Newcrest Mining fell 6.4% even as it said it was on track to achieve annual guidance.

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BHP gained 2.7% while Ramelius Resources, which lost 8.0%, was the biggest loser for the day.

The ASX 200 lost 2.6% over the week, its third consecutive weekly finish in the red.

European markets dropped, with the pan-continental Stoxx Europe 600 falling 1%. Asian markets were mixed. Hong Kong's Hang Seng fell 1.1%, while the Shanghai Composite Index was down about 1%. Japan's Nikkei 225 rose 2.1%.

Turning to commodities, gold futures fell 0.5% to $US1786.60 an ounce; Brent crude rose 0.8% to $US90.03; Iron ore added 6.6% to US$147.90 a tonne.

Buyers returned to long-term bond markets and the yield on the Australian 10-year bond edged down to 1.94%, while the benchmark US 10-year Treasury yield slipped to 1.77%. Yields fall when prices rise.

The Australian dollar was buying 69.90 US cents near 8.00am AEST, down from the previous close of 70.31. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 90.76.

Asia

Chinese stocks closed mixed ahead of the week-long Lunar New Year holiday, with losses among coal miners, liquor makers and lenders. Large investors' sentiment may be dampened by uncertainty in overseas markets over the holiday, Soochow Securities says. Sliding thermal coal futures weighed on miners, with Yankuang Energy, China Shenhua and China Coal Energy down 4.0%-5.8%. Index heavyweight Kweichow Moutai lost 4.0% and Wuliangye Yibin dropped 2.5%, while China Merchants Bank was 3.1% lower and Ping An Bank fell 2.9%. The Shanghai Composite Index ended at its lowest level since March, down 1.0%, the Shenzhen Composite Index was flat and the ChiNext Price Index edged up 0.1%.

Hong Kong's Hang Seng Index closed 1.1% lower. Auto stocks declined, with BYD Co. falling 9.0%, Great Wall Motor shedding 2.8% and SAIC Motor off 0.9%. A sharp decline in Tesla's shares overnight might have weighed on sentiment in the electric-vehicle sector, KGI Securities said. Other notable losers included property developer Country Garden, which fell 2.3%, despite news that it has repaid outstanding amount of notes that matured 27 Jan.

Japanese stocks ended broadly higher, led by strong gains in chemical and electronics stocks, thanks partly to earnings recovery hopes and following Thursday's selloffs. The Nikkei Stock Average rose 2.1%. Shin-Etsu Chemical soars 7.6% after it raises fiscal-year revenue and net profit views. Sony Group climbs 4.0% and chemical company Asahi Kasei gains 3.8%.

Europe

European stocks fell ahead as traders expected a lower open on Wall Street. The pan-European Stoxx 600 finished 1% lower, ending in the red for a fourth consecutive week.

"Some of the global-market turmoil has subsided, now that the big events of the week are behind us," IG analysts say, adding that the atmosphere is still cautious.

"It looks to be a quieter end to the week, with only US PCE data on the economic ticket for the day, while earnings take on an industrial focus with Chevron and Caterpillar."

In London, the FTSE 100 dropped 1.1%, dragged down by oil, mining and financial stocks.

"Mixed corporate earnings are not helping to lift sentiment," says Richard Hunter, head of markets at interactive investor. "The impact of the Omicron variant, such as it is, will not wash through fully until the first quarter earnings of 2022 become available."

North America

Stocks climbed on Friday, buoyed by strong earnings from Apple and other big companies, as the S&P 500 and Dow Jones Industrial Average snapped a three-week losing streak.

The move—capped off with a late-afternoon rally—was good news for investors after a nerve-racking January. Stocks sold off in recent weeks as expectations mounted that the Fed would pivot from juicing economic growth to combating inflation. Fed Chairman Jerome Powell signalled on Wednesday that the central bank would start a series of rate increases in March, ending a long period of rock-bottom interest rates.

"Cheap money is like a comfort blanket for investors and for markets," said Jane Foley, senior foreign-exchange strategist at Rabobank. "Almost inevitably, you start to withdraw some of that cheap money and you're going to have more volatility in the markets."

The S&P gained 2.4% on Friday. The Dow rose 1.7%, after a volatile day in which it swung between gains and losses, then surged in the last hour and a half of trading. The technology-heavy Nasdaq Composite jumped 3.1%, erasing all its losses for the week. The Dow and S&P ended the week with gains of 1.3% and 0.8%, respectively, while the Nasdaq was roughly flat for the week.

Some upbeat big-name corporate earnings reports cheered investors. Shares of Apple, the world's largest publicly traded company by market capitalization, on Friday rallied $11.11, or 7%, to $170.33, a day after the iPhone maker posted record revenue and profit.

"Apple was the saviour yesterday for the whole market," said Louis Ricci, head trader of Emles Advisors, an investment-management firm.

Still, major stock indexes are still well off their highs. The S&P 500 is down 7% in January.

Government data released Friday showed the upward pressure on prices that has worried policy makers. The Fed's preferred measure of inflation, the core personal-consumption expenditures price index, rose at 4.9% in December over the prior year.

A separate measure showed employers spent 4% more on wages and benefits over the past year—an increase not seen since 2001—as a tight labour market encouraged workers to demand higher pay. Still, employment costs didn't rise as much in the fourth quarter as economists anticipated, easing concerns that the US economy is heading for a "wage-price spiral." In such a scenario, salary hikes and price increases become mutually reinforcing, fuelling inflation.

Going forward, investors can expect more volatility as the Fed grapples with inflation, said Scott Clemons, chief investment strategist for Brown Brothers Harriman's private banking business.

"If the market concludes that the Fed is raising interest rates because they have fallen behind the curve on inflation and are scrambling to catch up, that is a rather disruptive narrative," Mr. Clemons said.

Meanwhile, new Commerce Department data showed consumer spending fell last month amid rising prices and the fallout from the Omicron wave of Covid-19. Some data suggests that the highly contagious variant has peaked in densely populated parts of the US, while continuing to surge elsewhere.

Inflation concerns have filtered into this week's corporate earnings reports. Mondelez International said late Thursday that it would likely raise prices further this year. Its shares fell $1.05, or 1.6%, to $66.42 on Friday after the global food giant said its profitability was being squeezed by rising ingredient and transportation costs.

Corporate earnings have generally been solid. Almost a third of the companies on the S&P 500 have reported fourth-quarter results, and 78% of them have beaten analysts' estimates for earnings per share, according to FactSet.

In commodities, US natural-gas futures shot up 8.3% to settle at $4.64 per million British thermal units as a snowstorm threatened to hit the East Coast and forecasters said February would be colder than anticipated, driving up expected demand for the heating fuel.

Investors bought government bonds on Friday, pushing down yields. The yield on the 10-year Treasury note dropped to 1.779% from 1.807% on Thursday. Bond yields move in the opposite direction from prices.

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

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