Global Market Report - 30 August
The Australian market is set to open higher after Wall Street dips.
Australia
Australian shares are set to edge higher following a dip on Wall Street, as investors fear US stocks could see more turbulence ahead after Federal Reserve chairman Jerome Powell’s comments on Friday.
ASX futures were up 13 points or 0.2% at 6891 as of 7:00am on Tuesday, pointing to a gain at the open.
US stock indexes were lower after Friday's washout. The S&P 500 dropped 0.7%. The Dow Jones Industrial Average lost 0.6%, while the tech-focused Nasdaq Composite Index was off 1%.
Monday's moves suggest US stocks could see more turbulence ahead, as traders assess Fed Chairman Jerome Powell's comments from last week. Speaking Friday in Jackson Hole, Wyo., Mr. Powell said the U.S. central bank must continue raising interest rates, and keep them at an elevated level, until it is confident that inflation is under control.
"They're not so concerned about heading into a recession as they are in combating inflation -- so that makes for a very dangerous setup," said Jerry Braakman, president and chief investment officer of First American Trust in Santa Ana, Calif.
In commodity markets, Brent crude oil was up 3.79% to US$104.82, while gold was flat at US$1,737.73.
In local bond markets, the yield on Australian 2 Year government bonds rose to 3.05% while the 10 Year edged up to 3.66%. Overseas, the yield on 2 Year US Treasury notes rose to 3.43% and the yield on the 10 Year US Treasury notes was up at 3.11%.
The Australian dollar hit 69.01 US cents up from the previous close of 68.86. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 100.10.
Asia
Chinese shares ended mixed. The benchmark Shanghai Composite Index edged 0.1% higher at 3240.73, the Shenzhen Composite Index rose 0.1% to 2147.74 and the ChiNext Price Index declined 0.4% to 2630.51. China's manufacturing sector will likely be in focus with PMI data due later this week. The country's state media said Sunday that power supply to most industries and businesses in Sichuan province had been gradually restored, amid a drought which has severely affected hydropower supply. Auto stocks were mixed, with SAIC Motor dropping 2.4% and BYD Co. declining 0.7%.
Hong Kong's Hang Seng Index lost 0.7% to 20023.22, tracking weakness in regional markets as expectations for interest-rate increases firmed after Fed Chairman Jerome Powell's hawkish comments at Jackson Hole. Techtronic Industries led laggards with a 5.5% decline. Among oil majors, Sinopec lost 1.6% after second-quarter revenue was weaker than expected, but Cnooc and PetroChina added 1.5% and 0.5%, respectively. CanSino Biologics slid 14% after it reported a 99% slump in first-half profit. Meituan was the top gainer with a 2.6% rise after its second-quarter revenue and net loss beat estimates.
The Nikkei Stock Average ended 2.7% lower at 27878.96 amid broad losses among constituents. Sentiment was weighed by concerns over economic growth following comments by Fed chairman Powell that the central bank will have to keep raising rates to curb inflation. Stocks of precision instrument makers led the losses, with Terumo dropping 4.8%, Hoya slipping 3.2% and Olympus falling 3.9%. Honda Motor gained 0.4% on a Nikkei report that it is building a battery plant for electric vehicles in the U.S. with Korean company LG Energy Solution. USD/JPY was at 138.75 compared with 137.57 late Friday in New York. The yield on the 10-year JGB was up two basis points at 0.235%
Europe
The pan-European STOXX Europe 600 Index is down 3.44 points or 0.81% today to 422.65, the German DAX is down 78.48 points or 0.61% today to 12892.99, while the French CAC 40 Index is down 51.98 points or 0.83% today to 6222.28.
In London, the markets are closed on account of the Bank Holiday on August 29.
North America
US stock indexes were lower after Friday's washout. The S&P 500 dropped 0.7%. The Dow Jones Industrial Average lost 0.6%, while the tech-focused Nasdaq Composite Index was off 1%.
Monday's moves suggest US stocks could see more turbulence ahead, as traders assess Fed Chairman Jerome Powell's comments from last week. Speaking Friday in Jackson Hole, Wyo., Mr. Powell said the U.S. central bank must continue raising interest rates, and keep them at an elevated level, until it is confident that inflation is under control.
"They're not so concerned about heading into a recession as they are in combating inflation -- so that makes for a very dangerous setup," said Jerry Braakman, president and chief investment officer of First American Trust in Santa Ana, Calif.
Many investors had begun to wager that this year's historically large rate increases were in the rearview mirror and that, starting in September, the Fed would slow the magnitude of increases before cutting rates next year. Those beliefs had helped markets mount a recovery in recent weeks, rallying about 11% since the S&P 500's 2022 low on June 16.
Mr. Powell's Friday comments shuffled those expectations. On Monday, federal-funds futures, used by traders to place wagers on the course of interest rates, showed a nearly 65% chance that the central bank would lift interest rates by 0.75 percentage point for a third time in a row in September. That is up from 28% a month ago, according to CME Group data.
"The market kind of got ahead of itself over the last three, four weeks or so...in terms of pricing in a possible Fed pivot to a more dovish stance," said Clara Cheong, a global market strategist at J.P. Morgan Asset Management.
Investors' growing jitters stand to further unwind a rally that had sent stocks climbing from their 2022 lows reached in June. All three major US indexes have already seen their August gains wiped out. Many investors are betting on further pain ahead, with net short positions against S&P 500 futures recently reaching levels not seen in two years.
"We've been selling equities in this rally," said Colin Graham, head of multiasset strategies at Robeco, an international asset manager. Mr. Graham has been cautious on risky assets such as tech and other growth companies.
Not all investors are convinced that a recession is imminent. "I'm just not sure you can say, 'Hey, there's a recession coming in the next six months,'" said Andrew Slimmon, US equity portfolio manager at Morgan Stanley Investment Management.
In Monday's trading, many of the S&P 500's biggest losers were companies that had risen sharply amid the stock market's summer rebound.
Tesla fell 1.1%. Semiconductor company Nvidia lost 2.8%. Economically sensitive stocks also took a beating, with Delta Air Lines down 2% and J.B. Hunt Transport Services lower by 3.8%.