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Global Market Report - 31 March

Lewis Jackson  |  31 Mar 2022Text size  Decrease  Increase  |  
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Australian shares are poised to edge higher, shrugging off a negative lead from Wall Street as US stocks fell and oil rose amid mixed signals from ongoing peace talks between Russia and Ukraine.

ASX futures were up 10 points or 0.1% at 7494 as of 8.00am AEST, suggesting a positive start to the day that could be volatile given the lower close in the US.

The S&P fell 0.6%, while the tech-focused Nasdaq Composite Index lost 1.2%. The Dow Jones Industrial Average was down 0.2%. Small-cap stocks fared worse, as the Russell 2000 index slid 2%.

A powerful rally starting in the second half of March has US and Australian equities on track for big gains this month as investors looked through war in Ukraine, higher interest rates and elevated commodity prices. The S&P/ASX 200 is up 6.6% this month, buoyed by soaring prices for Australian commodity exports.

Volatility returned this week as traders shifted bets in response to news from Eastern Europe. Hopes a diplomatic solution could be in the offing rose on Tuesday as Russia announced it would reduce military operations around Kyiv. Sentiment soured the following day as Kremlin officials talked down progress in ongoing peace talks in Turkey.

Locally the S&P/ASX 200 closed 0.7% higher on Wednesday at 7514.5, completing a seven-session winning streak for the first time since December 2020.

Tech, health and consumer stocks led the way as the benchmark index took its gains to 3.2% across seven sessions. Three of the top four performing ASX 200 components were tech stocks.

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Block, Megaport and Life360 rose between 6.1% and 9.6% after Tuesday's outperformance by the tech-heavy Nasdaq Composite.

Fisher & Paykel led healthcare gains, rising 4.2% as it continued to bounce from a heavy selloff.

Consumer stocks rose after the federal government's budget included tax offsets and cuts to fuel duty.

In commodity markets, iron ore rose 3.4% to US$158.20 per tonne; gold futures rose 1.1% to $1939.00; Brent Crude added 2% to US$112.39

Bond markets rallied for a second day on Wednesday. The US 10-Year Treasury Note yield fell to 2.35%. The yield on the Australian 10-year bond slipped to 2.79%. Yields rise when prices fall.

The Australian dollar steadied overnight was buying 75.09 US cents as of 8.00am AEST, up from the previous close of 75.06. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, continued to fall, hitting 90.88.


Chinese stocks closed higher, tracking broad gains among other Asian equities. The Shanghai Composite Index was 2.0% higher, the Shenzhen Composite Index rose 2.5% and the ChiNext Price Index advanced 4.0%. Market sentiment was supported by some progress in the Russia-Ukraine peace talks, as well as good performances from some Chinese companies in the US ADRs market overnight, KGI Securities says. Investors will continue to keep a close watch on China's coronavirus developments as one of its biggest cities, Shanghai, remains on a temporary lockdown. Bank stocks were higher, with Bank of China advancing 0.9% and Agricultural Bank of China gaining 0.7%.

Hong Kong's Hang Seng Index closed 1.4% higher, buoyed by some positive sentiment following signs of progress in Russia-Ukraine peace talks. Great Wall Motor was among the top gainers, rising 10% after posting a jump in 2021 net profit. Among other auto stocks, BAIC Motor and Dongfeng Motor each rose 1.5%. Kunlun Energy ended 3.7% lower, despite posting a more than tripled increase in its 2021 net profit. China Minsheng Banking lost 3.9% after saying it expects China to face increasing economic downward pressure caused by the pandemic and other factors in 2022.

Japanese stocks ended lower as a number of stocks traded ex-dividend. Nippon Yusen dropped 8.6% and JFE Holdings lost 6.2% among high-dividend stocks. Nintendo shed 5.7% following a delay of the latest "Legend of Zelda" game release. Some energy and mining stocks declined as expectations of rising commodity prices eased due to signs of progress in Russia-Ukraine peace talks. The war in Ukraine remained in focus. The Nikkei Stock Average fell 0.8%.


European markets fell amid ongoing concerns about rising energy prices and the conflict in Ukraine. The pan-European Stoxx Europe 600 fell 0.4%.

"Stocks in Europe are retreating this afternoon as investors worry about rising energy costs that will hit consumers hard," IG analyst Chris Beauchamp says. Meanwhile, Russian claims to be reducing military operations in Kyiv and elsewhere faced scepticism as attacks on Ukrainian cities continued, according to reports.

In London, the FTSE 100 closed up 0.6% on Wednesday thanks to rising commodity prices, which masked losses across most of the rest of the index and continental indexes, IG says.
"While the FTSE 100 has escaped the losses so far today, with UK bills set to head in the same direction there are big questions about whether economies across the continent will be able to avoid a recession," IG says.

Money managers say the risk of recession is greater in Europe than in the US, in part because of the continent's relative reliance on Russian exports. Russia supplies around 40% of the European Union's natural gas.

A European recession is "within our baseline scenario," said Seema Shah, chief strategist at Principal Global Investors. In addition to the continent's dependence on Russia for gas and other goods, Europe is also contending with significant inflation, she said.

On Wednesday, fresh data showed that consumer prices in Germany for March rose 7.3% year over year.

North America

US stocks fell and oil prices climbed on Wednesday, as concerns about rising commodity prices and uncertain progress in cease-fire talks between Russia and Ukraine weighed on markets.

With a day to go, stocks remained on track to lose ground in 2022's first quarter, but were poised to finish March with solid gains after a rally in recent weeks.

As the month winds down, investors are still contending with war in Ukraine, surging inflation and a Federal Reserve that has begun raising interest rates for the first time since 2018. Yet traders have continued to pile into US equities, with the S&P 500 up 5.2% for the month.

Wednesday's trading slightly trimmed that gain. The S&P fell 0.6%, while the tech-focused Nasdaq Composite Index lost 1.2%. The Dow Jones Industrial Average was down 0.2%. Small-cap stocks fared worse, as the Russell 2000 index slid 2%.

Strategists and investors say the recent rebound is fragile -- especially as hopes for a speedy end to the war remain dim.

"It just seems like markets are still trying to digest the rally they've seen since Russia invaded Ukraine," said Jake Manoukian, the US head of investment strategy for J.P. Morgan Private Bank.

Big swings in everything from oil prices to Treasury bonds have at times weighed on sentiment this month. On Wednesday, rising oil prices helped pull stocks lower. Brent crude, the international benchmark for oil prices, rose 2.9% to $113.45 a barrel. In Europe, natural-gas prices, which are often volatile, jumped after Germany indicated it was bracing for a possible reduction of Russian gas supplies.

Oil and gas were already growing more expensive even before Russian tanks crossed the Ukrainian border last month, as the recovery from the Covid-19 pandemic fuelled greater demand. Now, some investors worry that higher fuel costs and energy-market volatility are straining budgets for consumers and businesses, dimming the outlook for economic growth.

"Sharp movements in oil prices can really drive up the cost at the pump and take away our ability to spend on other items," said Luke Tilley, the chief economist at Wilmington Trust Investment Advisors.

Investors were also digesting increasing scepticism about peace talks in Eastern Europe on Wednesday. Kremlin spokesman Dmitry Peskov said that talks with Ukrainian negotiators in Istanbul had not moved the two countries closer to an agreement that would end Russia's invasion.

"I think those hopes have faded away," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Energy stocks -- some of the market's best performers so far this year -- traded higher. Valero Energy added $3.82, or 4%, ending the day at $100.50. Phillips 66 gained $3.97, or 4.8%, winding up at $87.44. The S&P 500's energy sector rose 1.2%.

Meanwhile, shares of Lululemon Athletica climbed $32.95, or 10%, to $376.92 after the company posted higher revenue and profit for the fourth quarter. Robinhood fell $1.35, or 8.5%, to finish at $14.56, giving up some of the large gains that came Tuesday after the brokerage app said it was extending the hours users could trade.

Several meme stocks dropped too. Bed Bath & Beyond was down $4.48, or 16%, ending the day at $22.75. Movie-theater chain AMC Entertainment and GameStop, a videogame retailer, also declined.

In the bond market, traders kept a careful watch on the difference between short- and long-term interest rates. When they converge, it is often taken as a sign of pessimism about economic growth. On Tuesday, these rates briefly inverted, with yields on two-year US Treasurys surpassing those on the 10-year benchmark note for the first time since 2019. Some investors consider that pattern, known as an inverted yield curve, a signal of coming recession.

On Wednesday, the yield on the 10-year Treasury note traded higher than the yield on the two-year note again. The 10-year settled at 2.357%, down from 2.399% Tuesday, according to Tradeweb. The two-year yield settled at 2.326%, down from 2.349% Tuesday. Yields fall when prices rise.

"The yield curve is telling you the bond market thinks the Fed tightening that's priced in is enough to cause a growth slowdown," Mr. Manoukian said.

Bond yields have risen this year as markets brace for a widely predicted series of interest-rate increases by the Fed. Strong hiring and high inflation have set the stage for the central bank to wind down some of its pandemic-era support for the economy. On Wednesday, data from ADP showed the private sector adding 455,000 jobs in March, slightly ahead of economists' forecasts as reflected in a Wall Street Journal poll.

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

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