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Global Market Report - 4 February

Lewis Jackson  |  04 Feb 2022Text size  Decrease  Increase  |  
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Australia

Australian shares are set to fall as US tech drops after a collapse in Facebook parent Meta’s share price following disappointing earnings and hawkish moves from central banks in the UK and EU.

ASX futures were down 75 points or 1% at 6903 near 8.00 am AEST, suggesting a negative start to trading.

Major US stock indexes tumbled on Thursday, dragged down by technology and social-media companies, as Facebook owner Meta Platforms plunged after a disappointing earnings report.

The tech-focused Nasdaq Composite Index was down 3.7%. The broader S&P 500 fell 2.4%, while the Dow Jones Industrial Average declined 1.5%.

Locally, the S&P/ASX 200 closed a choppy session 0.1% lower at 7078.0 amid a steep selloff of local tech stocks. The benchmark bounced around after an early 0.6% drop before paring losses in the final couple of hours.

The tech sector shed 5.9% as Xero, Appen, Altium and WiseTech fell between 5.0% and 8.0%, giving back some or all of their strong gains so far this week.

The declines came as Meta shares dropped more than 20% in after-hours trading following a sharper-than-expected decline in profits.

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The heavyweight financial sector edged 0.1% lower, while iron ore miners Rio Tinto, BHP and Fortescue gained between 2.4% and 3.3%.

Overseas, the pan-continental Stoxx Europe 600 slid 1.8%, its worst day in more than a month, as the European Central Bank acknowledged the possibility of a rate hike this year. Across the channel, the Bank of England raised rates to 0.5%. In Asia, Japan's Nikkei 225 fell 1.1%. Chinese markets were closed for a public holiday.

Turning to commodities, gold futures lost 0.2% to $US1806.00 an ounce; Brent crude rose 1.7% to $US90.99 a barrel; Iron ore not available due to the Lunar New Year holidays.

In bond markets the yield on the Australian 10-year bond edged down to 1.86%, while the benchmark US 10-year Treasury yield advanced to 1.83%. Yields fall when prices rise.

The Australian dollar was buying 71.28 US cents near 8.00am AEST, down from the previous close of 71.32. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, declined to 89.49.

Asia

Chinese and Hong Kong share markets are shut for the Lunar New Year holidays.

Japan's Nikkei Stock Average fell 1.1%, snapping a four-session streak of gains. The index was dragged down by losses in electronics and transport stocks, a stronger yen and US-Russia tensions over Ukraine. Sony Group slid 6.1% after posting 3Q results. Panasonic dropped 6.9% after its 3Q net profit missed consensus estimates. Kawasaki Kisen Kaisha slumped 14% while Central Japan Railway lost 4.2%.

Europe

European stocks slump after the European Central Bank held interest rates, but left the door open to a rise later this year, analysts say. Eurozone inflation hit a new record on Wednesday, rising 5.1% in January compared to a year before. The pan-European Stoxx 600 fell 1.8%.

"More slowly than the US Fed and the Bank of England, the ECB is also shifting its stance in response to the sustained inflation overshoot," Berenberg economist Holger Schmieding says. "At today's press conference, ECB President Christine Lagarde no longer ruled out a rate hike in 2022."

In London, the FTSE 100 dropped 0.7%, as a hawkish shift from the Bank of England and the European Central Bank caught investors on the hop. The Bank of England raised interest rates by a quarter point to 0.5%.

"It is clear that some policymakers are now very worried about inflation getting out of control, but while the bank is only supposed to worry about inflation and not the impact of rate hikes on the consumer, it will have to consider the risks of stalling economic growth with its tighter monetary policy," IG Group chief market analyst Chris Beauchamp says. Some of that nervousness has been reflected across the market, with stocks heading lower in the wake of the news, Mr. Beauchamp says.

North America

Major US stock indexes tumbled on Thursday, dragged down by technology and social-media companies, as Facebook owner Meta Platforms plunged after a disappointing earnings report.

The tech-focused Nasdaq Composite Index was down 3.7%. The broader S&P 500 fell 2.4%, while the Dow Jones Industrial Average declined 1.5%.

Meta's stock price dropped 26% after the social-media giant startled investors with a sharper-than-expected decline in profit and a gloomy outlook. Other social-media companies sold off in its wake. Snap and Pinterest, which are due to report earnings Thursday, slid 24% and 10%, respectively. Twitter fell 5.6%.

Several other tech stocks also slumped. Spotify Technology fell 17% after the company declined to issue annual guidance, spooking investors. Amazon.com -- which is also scheduled to report earnings Thursday -- dropped 7.8%. Chip maker Nvidia fell 5.1%.

Thursday's tumble erased recent gains in the Nasdaq and threatened to resume a selloff that battered US stocks during the first few weeks of the year. As the Federal Reserve has moved toward raising interest rates to combat inflation, investors have fled risky assets such as tech stocks, which had benefited from the low-rates environment. The Nasdaq is down more than 11% so far this year, while the S&P 500 is down more than 6%.

Money managers are pivoting toward sectors including energy and banking they say stand to benefit from the economic recovery and higher borrowing costs.

"Investors are going in a short space of time from almost a perfect environment for risk assets to a more normal environment," said Nicholas Brooks, head of economic and investment research at Intermediate Capital Group. "Companies that benefited most from that dramatic easing in monetary policy would be more vulnerable to large selloffs if there are any disappointment in their earnings."

Markets were also rattled by an increasingly hawkish tone from global central banks. The Bank of England pressed ahead with raising borrowing costs Thursday, nudging up its policy rate to 0.5% from 0.25%. In Frankfurt, the European Central Bank kept its key interest rates unchanged, but ECB President Christine Lagarde signalled concern about inflation and opened the door to a possible rate hike later this year.

The euro jumped on her remarks, strengthening 1.2% against the dollar to $1.1445, while European government bond yields jumped. The pan-continental Stoxx Europe 600 slid 1.8%, its worst day in more than a month.

In Asia, Japan's Nikkei 225 fell 1.1%. Chinese markets were closed for a public holiday.

The news from overseas contributed to Thursday's selloff in US stocks, said Chris Senyek, chief investment strategist at Wolfe Research. "Global yields are pushing higher, which is putting downward pressure on valuations across the market," he said.

Rising interest rates hurt the share price of fast-growing tech companies by reducing the value that investors place on their future earnings. Markets have been volatile in recent weeks as expectations have mounted that the Fed will act aggressively to hike rates, while corporate earnings reports from Big Tech have been hit-or-miss.

Apple and Microsoft both posted strong quarterly results last week, boosting investor sentiment. But Meta, previously known as Facebook, fell sharply after posting its first earnings report since Chief Executive Mark Zuckerberg outlined a pivot to the metaverse. The company said it expected revenue growth to slow because users were spending less time on its more lucrative services.

PayPal slumped 25% on Wednesday after the payments company lowered its profit outlook. Its shares continued to fall on Thursday, declining 6.2%.

"I think it was a bit more of a wake-up call for the market that some of these stocks can't keep up on this trajectory," said Altaf Kassam, head of investment strategy and research for Europe, the Middle East and Africa at State Street Global Advisors.

One bright spot on Thursday was T-Mobile US, whose shares jumped more than 10% after the telecommunications company topped analysts' profit forecasts. Despite that, the S&P 500's communications-services sector shed 6.3%, making it the index's worst-performing sector, as it was pulled down by Meta and Twitter.

In commodities, front-month US oil futures rose 2.3% to settle at $90.27 per barrel, the first time the benchmark had topped $90 since October 2014. Crude prices have climbed this week as US crude inventories have declined, a sign of tight supplies, while the threat of conflict between Russia and Ukraine has unsettled global energy markets.

On the economic front, initial claims for jobless benefits fell to 238,000 in the week through 29 Jan. Claims hit a record low in early December as businesses held on to more workers amid a persistent labour shortage.

In the bond market, the yield on benchmark Treasury notes climbed to 1.834% from 1.765% on Wednesday. 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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