Global Market Report - 14 March
Australian shares are poised to open higher; Wall Street fell on Friday.
Australian shares are poised to open higher into what is likely to be another week of volatile trading. Wall Street fell on Friday, capping a wild week that saw stocks, bonds and oil prices whipsaw between gains and losses as investors responded to the war in Ukraine.
ASX futures were up 20 points or 0.3% at 7071 as of 8.00am AEST, suggesting a positive start to trading that could be fleeting given Friday’s negative close in the US. In last week’s volatile trading, opening gains collapsed into losses on Monday and Tuesday.
The blue-chip Dow Jones Industrial Average ended Friday down 0.7%. The S&P 500 fell 1.3% while the tech-heavy Nasdaq Composite dropped 2.2%. The S&P 500's information technology sector was one of several to lose more than 1% on Friday; all 11 were in the red for the day.
Stocks endured a volatile week as markets parsed the impact of Russia’s invasion of Ukraine on growth, inflation and interest rates. On Monday, soaring oil prices sent stocks tumbling, with the S&P 500 posting its worst day in over a year. Two days later, the benchmark index jumped 2.6%, its biggest gain since 2020.
This week could bring more choppiness. The US Federal Reserve meets on Tuesday and Wednesday (US time) to vote on whether to raise the base interest rate and by how much. A decision is expected Thursday (AEST).
In a sign of escalating tensions, Russia's Deputy Foreign Minister warned on Saturday that Western arms convoys to Ukraine were "legitimate military targets. A day later, Russian missile strikes on a Ukrainian military base near the Polish border killed 35. The base has been used for training with Western instructors.
Locally, the S&P/ASX 200 closed 0.9% lower at 7063.6 on Friday, falling to a weekly loss, as the rally seen in the prior two sessions ran out of steam.
The tech, consumer and health sectors led losses following a negative lead by US stocks, while the heavyweight financial sector pulled back by 0.6% after gaining since Wednesday.
Block, WiseTech and Xero fell by between 3.2% and 5.9%, while buy-now-pay-later player Zip Co. dropped 7.6% to a two-year low.
Wealth managers and insurers led the financial sector's losses. Commonwealth and NAB gave up 0.4% and 0.2%, respectively. Commodity stocks rose slightly.
The ASX 200 fell by 0.7% across the week.
In commodity markets, gold futures slipped 0.8% to $1985.00; Iron ore fell 1.2% to US$154.50 per tonne; Brent Crude added 3.3% to US$112.67 a barrel.
In bond markets, The US 10-Year Treasury Notes yield was flat at 1.99%. At home, the yield on the Australian 10-year bond gained to 2.39%. Yields rise when prices fall.
The Australian dollar eased and was buying 72.90 US cents as of 8.00am AEST, down from the previous close of 73.56. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rallied to 91.67.
Chinese stocks ended the session higher, on Friday extending a recovery after steep losses earlier in the week. The upturn was mainly driven by the medical sector, as rising Covid-19 infections in the country raise expectations of strong demand for healthcare-related equipment and services. The benchmark Shanghai Composite Index rose 0.4%, the Shenzhen Composite Index added 0.6% and the ChiNext Price Index, a measure for emerging industries and startups, gained the most, adding 1.1%. Medical companies, including medical device makers, pharmacy operators and biotech firms, led the gains. Industrial firms like chemicals suppliers also strengthened as crude prices eased, relieving cost concerns.
Hong Kong stocks ended the session lower, as investors sold off tech stocks after the US Securities and Exchange Commission put forward a list of five companies that could be delisted if they don't measure up to US accounting standards. This raised market worries that other US-traded Chinese companies, many of which are tech companies, would be next on the list, Citi said. The benchmark Hang Seng Index fell 1.6%, while the Hang Seng TECH Index dived 4.3%. JD.com led losses with a 11% slump, while Meituan and Alibaba shed 6.1% and 5.5%, respectively.
Japanese stocks ended down, dragged by falls in tech and electronics stocks as uncertainty persists over the war in Ukraine and its impact on global trade. Lasertec dropped 9.0% and SoftBank Group lost 6.2%. The Nikkei Stock Average fell 2.1%. Investors remain focused on Ukraine.
European stocks rose as market sentiment improved after Russian President Vladimir Putin said there had been some progress in talks with Ukraine. The pan-European Stoxx Europe 600 added 1%.
Putin's hints that negotiations might be showing some progress was enough to engender a rally across markets, although some of the optimism has been trimmed," IG analysts say.
"There is as yet no sign of any real deal emerging and Russia's previous aims still appear to be in place, so this rally might go the way of so many others of late, with markets still unable to find the foundations for a sustainable bounce."
In London, the FTSE 100 gained 0.8% after hitting multimonth lows on Monday before rallying hard on Wednesday, says CMC Markets UK.
"We've also seen gains in travel and leisure stocks, although again we are off the highs, with eastern European-based Wizz Air leading the way, followed by easyJet and IAG," it says. The rebounds seen this week look impressive, CMC Markets UK says, but if you look where the shares were before the Russia-Ukraine conflict started, they are still lower. It adds that daily moves are outsized as investors try to parse developments at a time when the outlook remains highly uncertain.
Russia's stock market remained closed Friday. In offshore trading, the ruble advanced against the greenback to trade at about 114 rubles per dollar. Assessing the price of the ruble has grown difficult since Russia imposed measures to stem the currency's selloff and as Western banks have shunned Russian assets.
Technology stocks extended their declines Friday, dragging broader indexes to weekly losses, as volatility reigned and inflation fears heightened.
Stocks opened the day higher, as traders bought stocks after Russian President Vladimir Putin said in televised remarks that there had been positive developments during talks with Ukraine, even as Russian forces continue to pound Ukrainian cities. By the afternoon, the S&P 500, Dow Jones Industrial Average and Nasdaq Composite had all turned lower, as investors weighed the risk of heading into the weekend holding stocks.
All three indexes finished the week in the red after Friday's selloff. The Dow industrials closed down about 2% for the period, its fifth consecutive weekly loss. The S&P 500 and Nasdaq Composite lost 2.9% and 3.5%, respectively, for the week, capping the fourth weekly loss in the past five weeks for both indexes. Of the three major indexes, the tech-heavy Nasdaq Composite is down the most so far this year, falling 18% through Friday's close.
Big swings are now commonplace for major stock indexes, but even by current standards this week's jumps and falls were extreme, some investors and traders said. On Monday, soaring oil prices sent stocks tumbling, with the S&P 500 posting its worst day in over a year. Two days later, the benchmark index jumped 2.6%, its biggest gain since 2020.
Next week could bring more choppiness. The Federal Reserve meets next Tuesday and Wednesday to vote on whether to raise the base interest rate and by how much. Fed-funds futures, used by traders to wager on interest-rate moves, see a 96% probability of a rate increase of 0.25 percentage point at the meeting. A month ago, they showed a roughly 50% probability of a rate increase of 0.50 percentage point.
Justin Wiggs, managing director in equity trading at Stifel Nicolaus, said the week started out dizzying in terms of the speed of orders coming in. By the end of the week, he said, things slowed, and many clients appeared resigned to the frustrating lack of clarity in the market.
"It's almost like we're in purgatory. You're trying to invest, and there are a lot of things you can't model," he said, citing energy price swings, how the war progresses, and the path of rate increases and inflation. "It's turned, more or less, into a sentiment game."
The blue-chip Dow Jones Industrial Average ended Friday 0.7%. The S&P 500 fell 1.3% while the tech-heavy Nasdaq Composite dropped 2.2%. The S&P 500's information technology sector was one of several to lose more than 1% on Friday; all 11 were in the red for the day.
"Everyone's on edge," said Joseph Amato, chief investment officer of equities at Neuberger Berman Group LLC. The market is ready to bounce back if the Ukraine crisis de-escalates, he said, but markets could also be more volatile and fall further if it worsens.
Investors and traders said they are also bracing for more sanctions imposed on Russia by the West. President Biden said Friday that the US will join major allies and the European Union in moving to revoke normal trade relations with Russia.
Mr. Amato said one of his big concerns is how the crisis in Europe could slow global economic growth and keep inflation at multidecade highs. Thursday's consumer-price index data in the US showed that inflation last month was largely driven by an increase in energy prices. The data didn't account for March, when oil prices jumped.
Among this week's worst performers: technology companies. The Nasdaq Composite entered bear market territory on Monday, defined as falling 20% from its recent high. Rising inflation has pressured tech stocks, traders said, because it can lead to higher interest rates and bond yields that make growth stocks' promised future cash flows less attractive. The S&P 500 tech sector finished the week 3.8% lower.
Shares of DocuSign tumbled $18.87, or 20%, to $75.01 after the software maker released softer-than-expected guidance. Oracle shares rose $1.17, or 1.5%, to $77.82 after it reported its cloud-business revenues jumped 24% from a year earlier.
Energy companies were standouts this week, rising along with the price of oil. Though energy stocks in the S&P 500 fell on Friday, they were the only sector to end the week positive, up 1.9%. Brent crude futures, the international oil benchmark, were up 3.1% at $112.67. Earlier this week, they traded above $127.
Oil prices are near their highest level in years, despite retreating in recent days. Earlier this week, the United Arab Emirates said it would push the Organization of the Petroleum Exporting Countries to pump more oil, helping assuage some fears about a supply crunch.
Market volatility has sent investors scrambling to rebalance portfolios. Investors in recent weeks have moved in and out of safer assets as news reports about the conflict have quickly changed.
Meanwhile, the yield on the benchmark 10-year Treasury note fell to 2.004% Friday, from 2.008% Thursday. Yields climb when bond prices fall.