Global Market Report - 15 March

Australia

Australian shares are set to open flat after a mixed end to the week on Wall Street and ahead of an RBA speech.

The Australian SPI 200 futures contract was down 3 points, or 0.4 per cent, at 6,767 points at 8.30am Sydney time on Monday, suggesting a negative start to trading.

The blue-chip Dow powered to its fifth consecutive record high on Friday and the S&P 500 closed slightly higher as investors bought shares that should benefit from a strong reopening of the US economy, an outlook signalled by rising yields in the bond market.

The Dow Jones Industrial Average rose 293.05 points, or 0.9 per cent, to close at 32,778.64 and the S&P 500 gained 4 points, or 0.10 per cent, to 3,943.34. The Nasdaq Composite dropped 78.81 points, or 0.59 per cent, to end at 13,319.87.

Locally, RBA governor Philip Lowe will address the Melbourne Business Analytics Conference.

And, the Coalition has slumped to one of its worst electoral points since it was elected in 2019, as the government reels from the ongoing fallout of the Christian Porter and Brittany Higgins sexual assault allegations and concerns over the slow rollout of the vaccine, 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 up 0.3 per cent at $US1,727.11 an ounce; Brent oil was down 0.6 per cent to $US69.22 a barrel; Iron ore was down 3.1 per cent to $US165.44 a tonne.

Meanwhile, the Australian dollar was buying 77.56 US cents at 8.30am, down from 77.60 US cents at Friday's close.

Asia

China shares posted a weekly loss on Friday as a conservative 2021 economic growth target sparked fears Beijing could tighten policy to rein in lofty valuations, though infrastructure firms helped benchmark stock indexes eke out gains for the day.

The blue-chip CSI300 index rose 0.4 per cent to 5,146.38, while the Shanghai Composite Index added 0.5 per cent to 3,453.08.

Hong Kong stocks fell on Friday to post weekly losses, weighed down by weakness in tech firms on worries about the latest Sino-US tensions.

The Hang Seng index fell 2.2 per cent, to 28,739.72, while the China Enterprises Index lost 1.5 per cent, to 11,172.95 points.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.29 per cent, while Japan’s Nikkei index closed up 1.73 per cent.

Europe

Rising bond yields dragged European stocks lower on Friday, although major bourses were set for weekly gains as stimulus and vaccination programmes spurred hopes of a solid economic recovery.

The pan-European STOXX 600 index fell 0.3 per cent after a four-session winning streak drove it to pre-pandemic highs a day earlier. The index posted weekly gains of 3.5 per cent, its best performance since November.

Tame US inflation data and signs from the European Central Bank that it was ready to accelerate money-printing to keep a lid on borrowing costs helped boost risk appetite this week.

“It’s not quite the end to the week that investors had hoped,” said Russ Mould, investment director at AJ Bell.

“However, markets are still ahead on the week and the recent sell-off in tech stocks looks like it has stabilised, which is important for investor sentiment.”

With government bond yields in the United States and Europe rising again on Friday, investors took some money off the table.

“On one hand, we had the ECB that tried to talk down yields, but at the same time we had the final approval of the big Biden stimulus package that drove US yields somewhat higher again,” said Bert Colijn, senior euro zone economist at ING.

US President Joe Biden signed a US$1.9 trillion ($2.5 trillion) stimulus bill into law on Thursday, with direct deposits from the legislation expected to go to Americans as early as this weekend.

While the stimulus is expected to give a boost to the US economy, it has also raised worries about a spike in inflation that could push central banks to tighten monetary policy.

The tech sector fell the most in Europe, down 2.1 per cent, while automakers and miners also weighed.

Dutch tech investor Prosus, which holds a third of Chinese tech giant Tencent Holdings, dropped 6.7 per cent as China’s market regulator fined 12 companies, including Tencent, related to deals that demonstrated illegal monopolistic behaviours.

German carmaker Daimler declined 1.9 per cent after French rival Renault sold its entire stake in the company at a discount.

BMW fell 1.3 per cent after saying its operating profit for 2020 fell due to the COVID-19 pandemic, despite a strong second-half rebound in sales.

British luxury group Burberry jumped 6.9 per cent to the top of STOXX 600 after saying it had seen a strong rebound in sales since December.

Italy’s Brunello Cucinelli surged 8.2 per cent after the luxury goods maker raised its sales forecast for the year on expectations that the end of the pandemic was near.

North America

The blue-chip Dow powered to its fifth consecutive record high on Friday and the S&P 500 closed slightly higher as investors bought shares that should benefit from a strong reopening of the US economy, an outlook signalled by rising yields in the bond market.

The tech-heavy Nasdaq tumbled after rebounding more than 6 per cent over the past three sessions as the rising bond yields revived inflation worries and dulled the appeal of high-growth technology shares.

The S&P 500 and Nasdaq posted their biggest weekly percentage gains since early February after President Joe Biden signed into law on Thursday one of the largest US fiscal stimulus bills and data reinforced convictions the economy was headed to a high-growth recovery.

The recent rise in US Treasury yields has raised fears of a sudden tapering of monetary stimulus and put downward pressure on Wall Street in recent weeks.

The yield on the benchmark 10-year note hit 1.642 per cent on Friday, the highest level since February of last year.

Boeing Co rose 6.82 per cent to lead the Dow and S&P 500 higher. The rising Dow and tumbling Nasdaq reflect an ongoing sell-off in tech as investors buy cyclical and underpriced value stocks that are expected to do well as the economy recovers.

For tech stocks to continue to flourish you need low rates, and in effect slower growth, said Thomas Hayes, chairman and managing member of hedge fund Great Hill Capital.

But with the stimulus package the economy is likely to expand 7 per cent to 9 per cent this year and pressure interest rates, he said.

“That’s why you’re seeing rates rise today because the reopening is happening faster and stronger than anticipated. And that’s when value and cyclicals and economically sensitive stocks outperform,” Hayes said.

The speedy distribution of vaccines and more fiscal aid have spurred concerns of rising inflation despite assurances from the Federal Reserve to maintain an accommodative policy. All eyes will be on the central bank’s policy meeting next week for further cues on inflation.

US consumer sentiment improved in early March to its strongest in a year, a survey by the University of Michigan showed on Friday.

The Dow Jones Industrial Average rose 293.05 points, or 0.9 per cent, to close at 32,778.64 and the S&P 500 gained 4 points, or 0.10 per cent, to 3,943.34. The Nasdaq Composite dropped 78.81 points, or 0.59 per cent, to end at 13,319.87.

For the week, the S&P rose 2.6 per cent, the Dow added 4.1 per cent and the Nasdaq gained 3.1 per cent. For the Dow it was its biggest weekly gain since November.

Volume on US exchanges was 11.64 billion shares.

The Nasdaq has been particularly hit by the sell-off in recent weeks and confirmed a correction at the start of the week as investors swapped richly valued technology stocks with those of energy, mining and industrial companies that are poised to benefit more from an economic rebound.

Value stocks added about 0.80 per cent, while growth stocks slumped 0.62 per cent in a continuation of a rotation that began late last year.

The high-flying but yield-sensitive group of stocks including of Facebook Inc, Apple Inc, Amazon.com Inc, Netflix Inc, Google-parent Alphabet Inc, Tesla Inc and Microsoft Corp, which fueled the past’s year rally, fell.

Tech, communication services and consumer discretionary indexes, which house these mega-cap stocks, slipped the most among major S&P sectors.

The bank index jumped 1.83 per cent, while financials and industrials clinched new record levels.

Ulta Beauty Inc fell 8.4 per cent after the cosmetics retailer forecast annual revenue below estimates, as demand for make-up products were under pressure due to extended work-from-home policies.

US-listed shares of China-based JD.com Inc slid 6.7 per cent after three sources said the company is in talks to buy part or all of a stake in brokerage Sinolink Securities worth at least US$1.5 billion.

With Reuters