Global Market Report - 2 September

Australia

Australian shares are set to edge higher after Wall street snapped its four session losing streak. Both the S&P 500 and the Dow Jones Industrial Average ended Thursday in the green.

ASX futures were up 23 points or 0.3% at 6820 as of 8:00am on Friday, pointing to a gain at the open.

US stocks narrowed their losses Thursday afternoon, with the S&P 500 and Dow Jones Industrial finishing higher as investors continued to recalibrate around the expectation of higher-for-longer interest rates. The S&P 500 added 0.3%, after earlier falling 1%. The Nasdaq Composite was recently down 0.3% after being down more than 2%. The Dow industrials rose 0.5%.

The market is looking at relatively strong economic reports, like this morning's jobless-claims data, and expecting they will compel the Federal Reserve to keep raising rates aggressively, said Thomas Hayes, chairman of Great Hill Capital. "The bears are going to be in control until the 13th," Mr. Hayes said, referring the date of the next inflation report.

In commodity markets, Brent crude oil slipped 3.63% to $US92.17 a barrel, gold edged down 0.85% to US$1,696.55.

In local bond markets, the yield on Australian 2 Year government bonds rose to 3.02% while the 10 Year rose to 3.68%. Overseas, the yield on 2 Year US Treasury notes rose to 3.51% and the yield on the 10 Year US Treasury notes rose to 3.26%.

The Australian dollar hit 67.78 US cents down from the previous close of 68.45. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 101.31.

Asia

Chinese shares closed lower, dragged by liquor makers and airlines, as the capital of Sichuan province Chengdu announced a lockdown to contain an outbreak of Covid-19. Air China, China Southern Airlines and China Eastern Airlines fell between 4.3% and 4.6%, while index heavyweight Kweichow Moutai and Wuliangye Yibin each lost more than 2%. Suppliers of electric-vehicles also weakened, with Tianqi Lithium down 5.5% and battery maker CATL sliding 3.2%. The Shanghai Composite Index fell 0.5% to 3184.98, ending lower for the third straight session. The Shenzhen Composite Index gave up 0.7% and the ChiNext Price Index closed 1.4% lower.

Hong Kong's Hang Seng Index fell 1.8% to 19597.31, resuming a recent downtrend amid fresh Covid-19 lockdowns in China and persistent concerns about the Fed's interest-rate increases. Casino stocks retreated after data from Macau showed that August's gross gaming revenue fell 51% on year. Sands China slid 3.1% and Galaxy Entertainment lost 2.5%. BYD Co. extended Wednesday's losses after Warren Buffett's Berkshire Hathaway cut its stake, shedding 4.0%. Tech stocks also weakened, with Meituan 5.8% lower and Alibaba Group losing 2.2%. Among gainers, China Overseas Land added 1.2%.

The Nikkei Stock Average extended early losses to end 1.5% lower at 27661.47, dragged by energy and shipping stocks. Energy stocks tracked oil prices, which were weighed by demand concerns and fears of a further slowdown in the global economy. Eneos Holdings lost 1.8%, while Idemitsu Kosan and Cosmo Energy Holdings both dropped 3.6%. Among shipping stocks, Kawasaki Kisen Kaisha shed 3.1% while Nippon Yusen and Mitsui O.S.K. Lines fell 3.0% each. Yen movements will be closely watched after the currency reached a 24-year low versus the greenback. USD/JPY was last at 139.32 compared with 138.95 late Wednesday in New York. The yield on the 10-year JGB was up 2 basis points at 0.240%.

Europe

European indices ended the day lower. The pan-European STOXX Europe 600 Index is down 7.46 points or 1.80% today to 407.66, the German DAX is down 204.73 points or 1.60% today to 12630.23, while the French CAC 40 is down 90.79 points or 1.48% today to 6034.31.

In London, the FTSE 100 plunged 1.9% on Thursday, mirroring drops across European markets.

"The start of September has not brought about any change to the current gloomy mood pervading markets. Further weakness in the U.S. and Asia, with the rally of early August an increasingly distant memory, set the stage for selling in Europe," AJ Bell's Russ Mould said.

Thursday was the British index's worst day since July 5. Mining companies were among the biggest losers, with Anglo American plunging 3.8%, Rio Tinto falling 3.4% and Glencore down 2.4%. In addition, consumer goods manufacturer Reckitt Benckiser plummeted 5.2% after CEO Laxman Narasimhan said he will step down.

North America

US stocks narrowed their losses Thursday afternoon, with the S&P 500 and Dow Jones Industrial finishing higher as investors continued to recalibrate around the expectation of higher-for-longer interest rates.

The S&P 500 added 0.3%, after earlier falling 1%. The Nasdaq Composite was recently down 0.3% after being down more than 2%. The Dow industrials rose 0.5%. 

Gold, oil and other commodities fell, and bond yields hit their highest levels since June, driven by strength in the dollar that pushed the U.S. currency to its highest point in two decades.

The market is looking at relatively strong economic reports, like this morning's jobless-claims data, and expecting they will compel the Federal Reserve to keep raising rates aggressively, said Thomas Hayes, chairman of Great Hill Capital. "The bears are going to be in control until the 13th," Mr. Hayes said, referring the date of the next inflation report.

Comments from Federal Reserve Chairman Jerome Powell last week that doubled down on his message that interest rates must continue rising to tame inflation -- even if the economy suffers -- have sent stocks tumbling. The recent declines have reversed much of the gains made during a summer rally that had lifted stocks and bonds from their lows.

The fall has come as investors reassessed hopes that the Fed could ease off its campaign of big interest-rate increases. Instead, many are girding for a lengthier period of higher interest rates, though expectations of when the Fed will start cutting interest rates are likely still too hopeful, said David Donabedian, chief investment officer of CIBC Private Wealth US.

"There was too much Fed optimism. The idea that the Fed was getting close to the end of tightening and would begin cutting rates next spring never really made sense to us," he said.

Bed Bath & Beyond lost 8.6% after the company said it would close roughly 20% of its namesake stores, cut its workforce and sell stock to raise money to stabilize the business.
In commodity markets, oil extended a streak of declines, falling for a third consecutive day, as worries about global demand mount. U.S. crude futures fell 3.3% to $86.61.

Fresh Covid-19 lockdowns in China are threatening to weaken oil demand, adding to jitters about flagging global growth. China's city of Chengdu with a population of 21 million became the latest to impose restrictions, ordering residents to stay at home from Thursday afternoon, with citywide Covid testing planned through Sunday.