Australia

Australian shares are set to edge up after a bruising day of trading on Wall Street capped the worst half year for US stocks since 1970.

ASX futures were up 12 points or 0.2% at 6473 as of 8.00am on Friday, pointing to a small bounce at the opening.

Overseas, the S&P 500 finished down 0.9%, bringing its losses for the first half of the year to 21%. The Dow Jones Industrial Average fell 0.8%, while the Nasdaq Composite retreated 1.3%, weighed by declines at Amazon.com and Apple, down 2.5% and 1.8%, respectively.

Thursday's losses capped off stocks' worst first half of the year since 1970, a stunning reversal of the rally that lifted markets around the world the preceding two years. Investors place much of the blame on inflation. Price pressures that many had assumed would be transitory turned out to be more persistent than they thought. That forced central banks, including the Federal Reserve, to pivot from holding interest rates near historic lows to raising them rapidly in an effort to cool inflation.

Now, many investors worry central banks' actions could push the global economy into recession. Fed Chairman Jerome Powell said in a speech Wednesday that he was more concerned about failing to stamp out high inflation than the possibility of raising interest rates too much and having the economy go into a downturn. European Central Bank President Christine Lagarde made similar remarks.

About 90% of investors expect the US to enter a recession before the end of 2023, according to a survey published Thursday by Deutsche Bank. Many investors are also bracing for further losses. Despite the S&P 500 having tumbled into a bear market -- defined as a 20% drop from a recent high -- 72% of investors surveyed said they expect the S&P 500 to fall further before it stages a sustained recovery.

Locally, the S&P/ASX 200 closed 2.0% lower at 6598.1, falling all day to round out a third consecutive monthly loss. The ASX 200 lost 8.9% in June for its largest monthly loss since March 2020. Its 12% quarterly loss was its worst since the three months ending March 2020.

All 11 sectors of the benchmark index finished lower, with utilities, materials, real-estate and energy the worst hit.

Banks NAB, Westpac, ANZ and Commonwealth shed between 2.2% and 2.8%. Shares in miners of all commodities lost ground, with iron-ore heavyweights BHP, Rio Tinto and Fortescue giving up between 3.3% and 4.7%.

Data on Thursday showed job vacancies in Australia jumped to all-time highs in the May quarter, indicating the strength of the economy and another sign that rates would likely rise next week.

The energy sector dropped 2.5% amid lower oil prices, with shares of power companies also falling.

Shares in AGL Energy gave up early gains to close 1.7% lower at $8.25. The country's top power producer said a unit of Canadian investment manager Brookfield Asset Management had acquired a 2.6% stake in the company on 24 June.

In commodity markets, Brent crude oil lost 1.3% to US$114.81. Iron ore declined 1.5% to US$120.90. Gold futures were down 0.1% at US$1805.60.

Bonds continued to rally and the yield on Australian 2 Year government bonds slipped again 2.58% while the 10 Year declined to 3.65%. Overseas, the yield on 2 Year US Treasury notes slipped to 2.95% and the yield on the 10 Year US Treasury notes lost ground to 3.01%. Yields fall as prices rise.

The Australian dollar slipped to 69.03 US cents, up from 68.78 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies slipped to 97.44.

Asia

Chinese shares ended higher, extending early gains after the country's official gauges of factory and services activity expanded in June after three straight months of contraction. "This reaffirms expectation of an economic recovery in China that will likely pick up momentum in the second half of the year alongside stimulus measures rollout," UOB analysts say in a note. The Shanghai Composite Index rose 1.1% to 3398.62, the Shenzhen Composite Index gained 1.4% to 2224.15 and the ChiNext Price Index advanced 1.5% to 2810.60. Chinese liquor stocks were higher, with Kweichow Moutai adding 1.8% and Wuliangye Yibin surged 5.2%. Tianqi Lithium rose 1.6% after unveiling plans to raise up to US$1.7 billion in a Hong Kong IPO.

Hong Kong's Hang Seng Index fell 0.6% to close at 21859.79 as concerns over China's zero-Covid policy outweighed data released Thursday that showed improvement in China's manufacturing and services PMIs in June. There could be impact from Chinese President Xi's reaffirmation of the government's commitment to the zero-Covid policy on Wednesday, said Oanda senior market analyst Jeffrey Halley in an email. Among the HSI's worst performers, Meituan slipped 4.2%, Lenovo Group dropped 4.2% and Orient Overseas lost 3.1%. The Hang Seng TECH Index closed 1.4% lower at 4870.30. Meanwhile, Sino Biopharmaceutical climbed 6.0%, China Resources Beer rose 4.6% and Xinyi Glass was up 4.2%.

Japanese stocks ended lower, dragged by falls in electronics and auto stocks as uncertainty persists about higher costs of operation and the economic outlook. Tokyo Electron dropped 4.1% and Nissan Motor lost 3.8%. The Nikkei Stock Average fell 1.5% to 26393.04. The index has dropped 8.3% in the first half of 2022. Investors are focusing on US economic data and their implications for the Fed's policy making.

Europe

European stocks fell in closing trade as global recession fears weighed. The pan-European Stoxx Europe 600 dropped 1.5%, the German DAX decreased 1.7% and the French CAC 40 shed 1.8%. Uniper is the Stoxx's worst performer, falling 15%, as the German energy group is in talks about a possible government bailout amid diminishing Russian gas supplies.

While the heads of the Federal Reserve, European Central Bank and Bank of England didn't exactly fuel recession chat at an ECB forum yesterday, they didn't do anything to dispel it either, Oanda analyst Craig Erlam writes. "They all know that there's a strong likelihood of recession this year or next and investors are increasingly accepting that fate as well.

London’s FTSE 100 closed down 2% on Thursday as focus continues to be on inflation, with the US releasing its core personal consumption and expenditure index. House builders in the UK endured a tough day as Persimmon, Barratt Developments and Taylor Wimpey all closed in the red after industry data showed prices rising again in June.

"Property prices have gone up faster than wages, creating an affordability squeeze, while mortgage rates have risen to levels we haven't seen in a while," Interactive Investor analyst Myron Jobson says in a note.

North America

US stocks retreated on the final day of a brutal quarter for markets, weighed down by losses among shares of everything from banks to oil producers.

Thursday's trading was volatile. Major indexes fell sharply in morning trading, pared losses in the following hours, and then fell again late in the session.

The S&P 500 finished down 0.9%, bringing its losses for the first half of the year to 21%. The Dow Jones Industrial Average fell 0.8%, while the Nasdaq Composite retreated 1.3%, weighed by declines at Amazon.com and Apple, down 2.5% and 1.8%, respectively.

Thursday's losses capped off stocks' worst first half of the year since 1970, a stunning reversal of the rally that lifted markets around the world the preceding two years. Investors place much of the blame on inflation. Price pressures that many had assumed would be transitory turned out to be more persistent than they thought. That forced central banks, including the Federal Reserve, to pivot from holding interest rates near historic lows to raising them rapidly in an effort to cool inflation.

Now, many investors worry central banks' actions could push the global economy into recession. Fed Chairman Jerome Powell said in a speech Wednesday that he was more concerned about failing to stamp out high inflation than the possibility of raising interest rates too much and having the economy go into a downturn. European Central Bank President Christine Lagarde made similar remarks.

The yield on the 10-year US Treasury note fell to 2.973% from 3.091% on Wednesday. The yield on the benchmark note, which helps set rates for everything from student loans to mortgages, soared in the first half of the year as central banks tightened monetary policy.

About 90% of investors expect the US to enter a recession before the end of 2023, according to a survey published Thursday by Deutsche Bank. Many investors are also bracing for further losses. Despite the S&P 500 having tumbled into a bear market -- defined as a 20% drop from a recent high -- 72% of investors surveyed said they expect the S&P 500 to fall further before it stages a sustained recovery.

One reason for that could be that some investors still think many stocks are overvalued following a largely uninterrupted run-up in share prices the preceding two years.

Analyst estimates currently suggest S&P 500 companies will report double-digit percentage growth in earnings in the second half of the year, according to FactSet. Those estimates seem far too optimistic, said David Donabedian, chief investment officer of CIBC Private Wealth US.

"The market needs to get more objectively cheap," Mr. Donabedian said.
The Fed's pivot from holding interest rates at rock bottom to raising them fuelled a reversal of many market bets that had flourished the past two years -- especially bets on shares of rapidly growing companies trading at relatively high valuations. The tech-focused Nasdaq posted its worst quarter since 2008.

Growing fears of recession also hit shares of cyclical companies, whose businesses tend to be sensitive to changes in economic conditions, on Thursday.

The KBW Nasdaq Bank Index fell 1.6%. Shares of manufacturers and industrial companies also declined, with Caterpillar, Boeing and United States Steel each falling more than 1%.

Even consumer staples stocks fell. Initially, many traders had seen shares of companies selling everyday goods that consumers rely on as relatively safe investments, since in theory, demand for their goods should stay the same even in a cooling economy.

Recently, that view has weakened as some major retailers have warned that they, too, are being hit by rising inflation. Data released Thursday showed US consumer spending rose at its slowest pace yet this year in May as shoppers struggled with high inflation. Grocer Kroger fell 78 cents, or 1.6%, to $47.33.

Energy stocks declined too, with the S&P 500 energy sector losing 2%. Shares of oil producers have fallen from their highs of the year in recent weeks as investors have weighed the benefits of high oil prices against the risks of recession, which could hit demand for energy.

Meanwhile, selling pressure in the cryptocurrencies market showed no sign of easing as the dollar value of bitcoin fell to around $19,000. The world's largest cryptocurrency by market cap has lost more than a third of its value this month as investors broadly retreated from risky assets.