Global Market Report - 18 August

Australia

Australian shares are set to edge lower following a dip on Wall Street US markets perceived a dovish tint in the Fed's minutes.

ASX futures were down 13 points or 0.2% at 7019 as of 7:00am on Thursday, pointing to a slip at the open.

US stocks pared their losses as investors reviewed another batch of earnings from retailers and parsed minutes from Federal Reserve's July meeting for signals about future interest-rate moves.

The major indexes trimmed their losses as investors perceived a dovish tint in the Fed's jottings. In 4 p.m. ET trading, the S&P 500 was down 0.7%, the Dow Jones Industrial Average lost 0.5% and the Nasdaq Composite declined 1.3%.

"In a microcosm, today tells you how closely the market is looking for any indication of the Fed's next step," said Jim Baird, chief investment officer at Plante Moran Financial Advisors. After the minutes' release, "everyone came back to the other side of the boat. That tells you what the market is focused on right now," Mr. Baird said.

In commodity markets, Brent crude oil was up 1.1% to US$93.35, while gold edged down 0.7% to US$1,763.79.

In local bond markets, the yield on Australian 2 Year government bonds edged up to 2.74 while the 10 Year rose to 3.27%. Overseas, the yield on 2 Year US Treasury notes rose to 3.28% and the yield on the 10 Year US Treasury notes was down at 2.90%.

The Australian dollar hit 69.33 US cents down from the previous close of 70.23. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies was at 98.34.

Asia

Chinese shares ended higher as market sentiment improved amid expectations that the government will roll out more support for the ailing economy. Various news outlets have reported that Chinese Premier Li Keqiang has promised more fiscal support via government-bond issuance and has asked local officials from six provinces to adopt more pro-growth measures. The benchmark Shanghai Composite Index rose 0.4% to 3292.53, the Shenzhen Composite added 0.7% to 2242.45 and the ChiNext Price Index advanced 1.7% to 2777.91. Bank stocks were higher. China Construction Bank rose 0.5%, Agricultural Bank of China gained 0.4% and Bank of China added 0.3%.

Singapore's FTSE Straits Times Index closed 0.3% higher at 3262.76, following gains in most major U.S. markets. Investors are likely going to focus on the FOMC July meeting minutes for hints on U.S. policymakers' views, writes IG analyst Jun Rong Yeap in a note.The analyst also said the growth in Singapore's non-oil domestic exports in July came as a positive surprise for the market. Gainers included Jardine Cycle & Carriage, which rose 3.0%, and Wilmar International, which added 2.0%. Decliners included Frasers Logistics & Commercial Trust, which fell 1.4%.

The Nikkei Stock Average ended 1.2% higher at 29222.77, closing above the 29000 mark for the first time since January 5, as concerns recede about costs of fuel and raw materials. Among big-cap winners, Sony Group gained 3.1% and Toyota Motor climbed 2.9%. Investors focus was on macroeconomic data, including U.S. retail sales due later in the day, and their implications for policy making. USD/JPY was at 134.46, compared with 134.22 as of Tuesday 5 p.m. Eastern Time. The 10-year Japanese government bond yield rose 1.5 basis points at 0.180%

Europe

The pan-European Stoxx Europe 600 is down 4.04 points or 0.91% today to 439.03, the German DAX is down 283.41 points or 2.04% today to 13626.71, and the French CAC 40 is down 64.26 points or 0.97% today to 6528.32.

In London, the FTSE 100 closed down 0.27% Wednesday, as gains were trimmed in stocks due to renewed inflation concerns. After rises in the last few sessions, the market saw a bout of profit-taking creep back in, although relatively orderly so far, IG Group PLC chief market analyst Chris Beauchamp says.

"The U.K.'s CPI reading and ongoing concerns about Europe's seemingly-inevitable winter energy crunch have been behind the risk-off move, with investors tempering their optimism about the next few months as they fret about recessions in both the U.K. and the rest of Europe," Mr. Beauchamp says.

The Office for National Statistics said Wednesday that consumer prices were 10.1% higher in July than the year before, up from 9.4% in June. Investors sold U.K. government bonds, reflecting expectations that the Bank of England will need to further raise interest rates to tame inflation.

North America

Stocks have mounted a furious climb in recent weeks as investors reassessed their belief that persistently high inflation, rising interest rates and a looming economic slowdown were making corporate shares a bad bet. Through Tuesday, the S&P had jumped 17% from its June low as investors reshuffled portfolios and scrambled to cover bearish wagers.

Some strong earnings reports and data last week showing easing US inflation have spurred optimism. Lowe's shares climbed 0.6% as of 4 p.m. Wednesday after it reported quarterly earnings that beat analysts' expectations, following strong results Tuesday from Walmart and Home Depot. New retail-sales data showed that -- excluding the effect of falling gasoline prices -- consumer spending trended up last month in a sign of economic resilience.

Still, investors are wrestling with whether the recent rally marks a lasting turnaround to stocks' dismal first half of the year or whether it is destined to fade.

With inflation still a critical concern, the Fed is expected to keep raising rates, but investors are wondering how quickly and for how long. Traders have been caught between, on one side, comments from Fed officials who project raising rates through next year, and, on the other, market-based forecasts that expect the central bank to slow or reverse its rate hikes.

The record from the July meeting released Wednesday showed the Fed is focused on the risk that it might not raise rates enough to bring down inflation. But in the notes, central bankers also weighed whether they might raise borrowing costs more than needed, causing unwarranted economic weakness. Compared with midday levels, the minutes quickly boosted stocks and lowered government-bond yields, which are sensitive to interest-rate expectations.

Earnings from Target on Wednesday presented a cloudy picture of the American consumer. Target's profit fell sharply, and the company said it saw customers cut spending on discretionary items. Still, revenue rose, boosted by strong sales of food and beverage, beauty and household items and more shopper visits. Its shares were down 2.8% as of 4 p.m.

Shares of Bed Bath & Beyond jumped 12% in volatile trading as individual investors continued to pile into the stock, hoping to push shares even higher and punish professionals who have bet against it.