Global Market Report - 11 August

Australia

Australian shares are set to open higher after Wall Street rose on Wednesday.

ASX futures were up 71 points or 1.03% at 6951 as of 7:00am on Thursday, pointing to gains at the open.

The Nasdaq Composite is officially in a new bull market.

The technology-focused index rose 2.9% Wednesday, reflecting a rise of more than 20% from its low in mid-June. It climbed with other major indexes after a softer-than-expected inflation reading raised investor hopes that the Federal Reserve may soon moderate the pace of its campaign of interest-rate increases.

The S&P 500 added 2.1%, and the Dow Jones Industrial Average rose 1.6%, or 535 points.

In commodity markets, Brent crude oil rose 0.8% to $US97.07 a barrel, gold edged down 0.2% to US$1,791.04.

In local bond markets, the yield on Australian 2 Year government bonds rose 2.75% while the 10 Year rose to 3.24%. Overseas, the yield on 2 Year US Treasury notes was at 3.22% and the yield on the 10 Year US Treasury notes was down at 2.78%.

The Australian dollar hit 70.76 US cents from the previous close of 69.63. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged down to 97.08.

Asia

Chinese shares ended lower, as losses by liquor makers and coal miners offset gains by the energy sector. The Shanghai Composite Index lost 0.5% to close at 3230.02, snapping a four-session winning streak, after China's consumer inflation rose to 2.7%, the highest in two years. Market sentiment has likely been affected by the Covid-19 outbreak in Hainan, gloomy outlook on China's economic growth and uncertainty over U.S.-China ties, Capital Securities says in a note. Index heavyweight Kweichow Moutai fell 1.8% and Wuliangye Yibin dropped 1.7%, while China Coal Energy slid 1.8% and China Shenhua Energy gave up 0.5%. Among gainers, Hengli Petrochemical gained 3.0% and PetroChina added 0.6%. The Shenzhen Composite Index declined 0.4% and the ChiNext Price Index closed 1.3% lower.

Hong Kong's Hang Seng Index ended 2.0% lower at 19610.84, weighed by a selloff in auto and tech stocks. Sentiment was pressured by data showing that China's consumer inflation rose to its highest level in two years. Auto stocks led losses. XPeng fell 5.4%, Li Auto slipped 4.9% and BYD Co. was off 3.5%. Among tech stocks, JD.com declined 4.5%, Meituan dropped 3.6% and Alibaba Group fell 1.8%. Wharf Holdings slid 2.7% after saying that its business in 1H was significantly curtailed by Covid-19 in Hong Kong and mainland China. Cathay Pacific ended 0.9% higher after reporting a narrower 1H net loss.

Japan's Nikkei Stock Average fell 0.65% to close at 27819.33, tracking losses in most regional equity markets. Today's focus revolves around the question as to whether U.S. CPI is near a peak, as markets gear up for the possibility of a significant move in the event of a miss either side of the headline number, says Michael Hewson, chief market analyst at CMC Markets in an email. The Nikkei's losses were led by electronics-related companies such as Fujitsu, losing 3.8%, Renesas Electronics, losing 3.7% and Advantest, shedding 3.6%. USD/JPY is at 134.98, compared with 135.00 as of Tuesday's Tokyo stock market close. The 10-year Japanese government bond yield is up 3 bps at 0.190%.

Europe

European stocks rose as traders assesses corporate earnings and economic data. The pan-European Stoxx Europe 600 gained 0.9%, the German DAX increased 1.23% and the French CAC 40 added 0.5%.

London’s FTSE 100 closed up 0.3% on Wednesday as markets parsed an easing of inflation in the U.S., although gas-price worries continue to linger in Europe.

"While we have seen upside across European indices, the FTSE 100 has lagged thanks to a reversal for GBP/USD that serves to hold back an index which has around two-thirds of its revenues earned in foreign currencies," says Joshua Mahony, senior market analyst at online trading platform IG.

Admiral Group led the risers, ending the day up 13% after reporting first-half profit around 19% ahead of pre-pandemic levels. It was closely followed by Aviva, which ended 12% higher after reporting an increase in operating profit for the first half and announcing a buyback

North America

Stocks have rallied strongly in the past month after posting one of their worst first-half performances in decades, reflecting a popular bet on Wall Street that cooling inflation will permit the central bank to take a more supportive stance toward markets.

The Nasdaq is still down 18% this year and was off 32% at its low on June 16. The recent rise ended its longest bear market since 2008.

Wednesday's consumer price index data showed inflation in July eased slightly to an 8.5% annual rate. That is still close to a four-decade high, but at this point even a slight easing is enough to spark gains, given fears that a higher number could have spurred more-aggressive Fed action. Higher interest rates make money more expensive, a shift that takes a heavy toll on stocks trading with high valuations.

"The initial impressions are that this is a sign that inflation may be finally starting to head the direction that we would all like it to be heading," said Jake Jolly, senior investment strategist at BNY Mellon Investment Management. "We're still very far from being out of the woods here."

Among the biggest gainers Wednesday were tourism and travel companies that have been hit hard by the uncertainty of the pandemic recovery. Norwegian Cruise Line Holdings, Royal Caribbean and Carnival ranked among the top-performing S&P 500 firms. Financial firms also surged, led by card issuers Discover Financial Services, Capital One Financial and Synchrony Financial.