Global Market Report - 12 March

Australia

Australian shares are set to rise after Wall Street again hit a record overnight, fuelled by brighter jobs data and optimism over the recovery.

The Australian SPI 200 futures contract was up 36 points, or 0.5 per cent, at 6,755 points at 8.30am Sydney time on Friday, suggesting a positive start to trading.

The S&P 500 and the Dow hit all-time highs on Thursday as worries about rising inflation subsided, while a bigger-than-expected fall in weekly jobless claims and the signing of a massive stimulus bill reinforced expectations of a strong recovery.

The Dow Jones Industrial Average rose 188.57 points, or 0.58 per cent, to 32,485.59, the S&P 500 gained 40.46 points, or 1.04 per cent, to 3,939.27 and the Nasdaq Composite added 329.84 points, or 2.52 per cent, to 13,398.67.

Locally, the federal government expects the Budget deficit to fall to $66 billion—or 3 per cent of GDP—by 2023-24. The deficit is slated to peak at a record $197.7 billion in 2020–21, which equates to 9.9 per cent of GDP.

Meanwhile, the combined deficits of the state and federal governments are expected to approach 14 per cent of GDP in fiscal 2021. Anthony Walker of Standard & Poor's warns that Australia's coveted "AAA'' sovereign credit rating may be at risk if the combined deficits remain at around this level, The Australian reports. 

There was little change to shares on the Australian market after flat commodity prices and bond yields limited movements in the materials and financial sectors.

The S&P/ASX200 benchmark index closed down 0.2 points, or 0 per cent, to 6,713.9 on Thursday.

The All Ordinaries closed higher by 5.7 points, or 0.08 per cent, at 6,952.9.

The materials sector dropped 0.01 per cent, while financials were down 0.38 per cent.

Gold was down 0.2 per cent at $US1,723.75 an ounce; Brent oil was up 2.4 per cent to $US69.56 a barrel; Iron ore was up 3.7 per cent to $US170.70 a tonne.

Meanwhile, the Australian dollar was buying 77.82 US cents at 8.30am, up from 76.79 US cents at Thursday’s close

Asia

China stocks jumped on Thursday, as better-than-expected February bank lending data lifted market sentiment and relieved some policy tightening worries.

The benchmark Shanghai Composite index closed up 2.36 per cent at 3,436.83, posting its best day since 12 October, 2020. The blue-chip CSI300 index was up 2.49 per cent to 5,128.22, recording its best session in nearly two months.

In Hong Kong, the Hang Seng was up 1.65 per cent at 29,385.61.

Japanese shares closed higher on Thursday as investors picked up beaten-down cyclical stocks, although gains were capped by investors cutting their positions in some index heavyweights.

The Nikkei index ended up 0.6 per cent at 29,211.64, while the broader Topix edged up 0.27 per cent to 1,924.92

Europe

European stocks hit their highest level in a year on Thursday as worries about a spike in inflation eased and the European Central Bank said it was ready to accelerate money-printing to keep a lid on euro zone borrowing costs.

The pan-European STOXX 600 index rose for a fourth straight session, adding 0.5 per cent to the previous day’s gains sparked by tame inflation data and the US Congress approving one of the largest economic stimulus measures in history.

A narrower index of euro zone blue chip stocks gained 0.7 per cent to trade at its highest level in more than 13 years.

The ECB said it would use its 1.85 trillion Pandemic Emergency Purchase Programme (PEPP) more generously over the coming months to stop any unwarranted rise in debt financing costs. ECB President Christine Lagarde also warned against premature policy tightening.

“The market was concerned about rising yields which could lead to quickly shrinking equity risk premia in the euro zone,” said Florian Regnery, cross asset strategist at Commerzbank, noting the favourable reaction to the ECB’s commitment to contain rising bond yields.

“It is a strong signal...we were not expecting them to be so dovish. We thought they would merely stress the flexibility of (the PEPP) but would not follow it up with concrete action just yet.”

The technology, mining and travel & leisure sectors were the top gainers in Europe, each rising more than 2 per cent. Banks fell the most, with UK-based lender HSBC’s shares down 4.7 per cent.

European stock markets are on course for strong weekly gains on hopes that massive stimulus measures and vaccination programmes will spur a recovery in the global economy, while calmer bond markets boosted appetite for riskier assets like equities.

France’s state-controlled power group EDF jumped 10.9 per cent after Finance Minister Bruno Le Maire told local TV that there will be no break-up of the company as negotiations between Paris and Brussels over an overhaul of the company enter a final stage, sources told Reuters.

Rolls-Royce edged up 0.7 per cent as the British engine-maker stuck to its forecast to burn through less cash this year after posting a worse-than-expected 2020 loss.

German fashion house Hugo Boss was down 3.6 per cent after saying it expects coronavirus restrictions to keep weighing on its business in the first quarter, and German chemicals maker Lanxess fell 4.8 per cent after a disappointing 2021 earnings outlook.

North America

The S&P 500 and the Dow hit all-time highs on Thursday as worries about rising inflation subsided, while a bigger-than-expected fall in weekly jobless claims and the signing of a massive stimulus bill reinforced expectations of a strong recovery.

Mega-cap stocks Microsoft Corp, Apple Inc, Facebook Inc and Amazon.com Inc led the rally, recouping losses from a recent pullback and helping the benchmark S&P 500 surpass its 16 February peak of 3,950.43.

The blue-chip Dow scaled a new record for the fourth straight session, while the tech-heavy Nasdaq is now less than 5 per cent below its 12 February peak after slumping over 10 per cent to confirm a correction at the beginning of this week.

President Joe Biden signed his US$1.9 trillion ($2.5 trillion) stimulus bill into law on Thursday, commemorating the one-year anniversary of a US lockdown over the coronavirus pandemic with a measure designed to bring relief to Americans and boost the economy.

The relief package, on top of the ongoing recovery fueled by the coronavirus vaccination rollout and fading fears of inflation, were driving the market, said Jason Pride, chief investment officer for private wealth at Glenmede in Philadelphia.

While tech led Thursday’s advance, there was still a rotation into value stocks, which have outperformed high-priced growth stocks since November.

“There is a recovery in the valuations of those companies more impacted by the epidemic and a giveback of the valuations of those companies that were more insulated and maybe even perhaps benefited from the pandemic,” Pride said.

“Markets are trading at valuation extremes at this point,” he said.

The Dow Jones Industrial Average rose 188.57 points, or 0.58 per cent, to 32,485.59, the S&P 500 gained 40.46 points, or 1.04 per cent, to 3,939.27 and the Nasdaq Composite added 329.84 points, or 2.52 per cent, to 13,398.67.

Fewer than expected Americans filed new claims for unemployment benefits last week as vaccinations allow more segments of the economy to reopen.

“The drop in jobless claims is another win for the week, and a solid sign that we’re making some strides toward pre-pandemic life,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial.

The latest US Treasury auction—US$24 billion of 30-year bonds—did not reignite inflation concerns unlike a weak seven-year note auction last month that helped send yields higher, spooking markets.

“That story line has dissipated a little bit,” said Pride, pointing to tame consumer prices data for February.

The S&P 500’s industrials and communication services sectors reached all-time highs.

Wall Street’s fear gauge hit a two-week low at 21.45 points, a sign of easing fears over inflation.

Coupang, backed by SoftBank Group Corp, was valued at about $109 billion in its market debut on Thursday after South Korea’s largest e-commerce company raised around US$4.6 billion in the biggest US initial public offering this year.

SoftBank racked up a roughly US$33 billion paper gain after Coupang’s stock soared 81 per cent to open at US$63.50.

Bumble jumped after it reported a bigger-than-estimated rise in fourth-quarter revenue and said it expected pent-up demand from people who had been avoiding dating in person due to the pandemic.

A so-called “meme” stock AMC Entertainment Holdings Inc gained as the cinema chain said the rollout of covid-19 vaccines and the release of major movies would boost sales this year.

Oracle Corp slumped as the business software maker’s cloud division reported quarterly revenue that missed analysts’ estimates on increased competition from Amazon.com and Microsoft.

With Reuters