Markets
Global Markets Report - 1 February
Australian shares are pointing higher today following a strong session in the US.
Australia
Australian shares are pointing higher today following a strong session in the US. Investors are hoping that cooling inflation could prompt the Federal Reserve to ease up on interest rate policy.
ASX futures were up 44 points or 0.59% as of 8:00am on Wednesday, pointing to a gain at the open.
US stock indices rose Tuesday and are on pace for big monthly gains, a reprieve for investors after a bruising 2022.
The tech-focused Nasdaq Composite jumped 1.7% and has gained 10% in January, off to its best start to the year since January 2001 when it gained 12%.
The S&P 500 rose 1.5% while the Dow Jones Industrial Average added 1.1%. The indices are up 5.5% and 2.3%, respectively, this month, their best performances since November.
Increasing confidence that interest rates are nearing their ultimate level has boosted stocks, particularly growth segments of the market. Speculative, heavily shorted stocks have led this year's rally.
Investors are eager to parse the Federal Reserve's statements at Wednesday's meeting for hints at the future path of policy -- the Fed is broadly expected to raise interest rates by a quarter percentage point. Tuesday's data showing that wage gains are cooling buoyed hopes that waning inflation could prompt officials to pause rate increases in the months ahead.
In commodity markets, Brent crude oil edged 0.48% lower to $US84.49 a barrel while gold added 0.22% to US$1,927.44.
In local bond markets, the yield on Australian 2 Year government bonds declined slightly to 3.11% while the 10 Year edged up to 3.55%. Overseas, the yield on 2 Year US Treasury notes fell to 4.20% and the yield on 10 Year US Treasury notes dropped to 3.52%.
The Australian dollar was at 70.54 US cents, down slightly from its previous close of 70.57. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged lower to 95.09.
Asia
Chinese shares ended lower as positive January Purchasing Managers Index (PMI) data released Tuesday failed to spark cheer in the stock market. The muted reaction indicates that "investors are keeping things in perspective," Stephen Innes, managing partner at SPI Asset Management, said in an email. Consumer-related stocks and pharmaceutical companies weighed on the market. Index heavyweight Kweichow Moutai fell 2.2% and Shenzhen Mindray Bio-Medical Electronics dropped 2.0%. Property stocks and auto makers outperformed the market. China Vanke rose 1.1% and BYD Co. added 1.4%. The Shanghai Composite Index declined 0.4% to 3255.67 during the session but gained 5.4% for the month of January. The Shenzhen Composite Index dropped 0.4% for the day, while the ChiNext Price Index was 1.3% lower. Both indices also finished higher for the month.
Hong Kong's Hang Seng Index closed 1.0% lower at 21842.33. Caution ahead of the US Federal Open Market Committee decision countered positive Chinese PMI data for January. Asian markets are likely in a risk-off mood ahead of the outcome of the meeting later in the week, while Chinese equities have also experienced some profit-taking recently, IG market strategist Jun Rong Yeap said in a note. Declines were seen across sectors. Hang Lung Properties fell 5.3%, while Sino Biopharmaceutical dropped 5.0% and New World Development closed 4.5% lower. Gainers included Xiaomi Corp., which added 1.7%.
The Nikkei Stock Average reversed early gains to close 0.4% lower at 27327.11, as investors continued to keep a close eye on central bank meetings and corporate earnings due this week. Financial stocks were lower, with Sumitomo Mitsui Financial Group losing 2.6%, Sumitomo Mitsui Trust Holdings dropping 2.5% and Mitsubishi UFJ Financial Group falling 2.8%. Chubu Electric Power ended 8.6% higher after raising its fiscal-year profit guidance on lower fuel costs. Nissan Motor rose 2.1% after the company and its French partner Renault agreed on an alliance shake-up.
India's benchmark Sensex index closed 0.1% higher at 59549.90 ahead of a two-day FOMC meeting. "Investors are likely to remain cautious as they continue to assess the quarterly earnings of companies while awaiting the Union Budget and the outcome of the Fed's policy meeting," ICICI analysts said in a research note. Financial stocks were higher, with State Bank of India rising 2.9%, ICICI Bank adding 1.0% and Kotak Mahindra Bank gaining 0.2%. Sun Pharmaceutical Industries fell 1.5% despite posting higher Q3 revenue. Godrej Consumer Products rose 1.0% after reporting Q3 earnings. Investors continue to monitor developments related to Adani Group and its affiliated companies.
Europe
European stocks ended mixed despite better-than-expected early trading on Wall Street. The pan-European Stoxx Europe 600 dropped 0.2% while the French CAC 40 and the German DAX edged less than 0.1% higher.
In the United Kingdom, the FTSE 100 index closed 0.2% lower, dragged by miners and oil-exposed stocks. Ocado led the fallers, with shares down 5.3%, followed by Rolls-Royce and BT Group, down 3.1% and 2.6%, respectively.
The UK looks likely to be the only major world economy set to shrink in 2023, doing worse even than sanction-hit Russia, the International Monetary Fund warned in an update. "Investor sentiment remains uncertain in Europe, with the [domestically focused] FTSE 250 particularly coming under pressure following an IMF report that forecast the UK to be the only nation they covered to contract in 2023," IG analyst Joshua Mahony wrote.
North America
US stock indices rose Tuesday and are on pace for big monthly gains, a reprieve for investors after a bruising 2022.
The tech-focused Nasdaq Composite jumped 1.7% and has gained 10% in January, off to its best start to the year since January 2001 when it gained 12%.
The S&P 500 rose 1.5% while the Dow Jones Industrial Average added 1.1%. The indices are up 5.5% and 2.3%, respectively, this month, their best performances since November.
Increasing confidence that interest rates are nearing their ultimate level has boosted stocks, particularly growth segments of the market. Speculative, heavily shorted stocks have led this year's rally.
Investors are eager to parse the Federal Reserve's statements at Wednesday's meeting for hints at the future path of policy -- the Fed is broadly expected to raise interest rates by a quarter percentage point. Tuesday's data showing that wage gains are cooling buoyed hopes that waning inflation could prompt officials to pause rate increases in the months ahead.
"With unemployment at 3.5% and the economy still adding more than 200,000 jobs per month, it's way too premature to suggest that the Fed's work is done," said Hans Olsen, chief investment officer of Fiduciary Trust Company. "Investors' expectations are getting a bit ahead of themselves; we're in the early stages of normalizing inflation -- the last 100 yards will be tough."
Indeed, central bankers have held the line on maintaining restrictive policy: the latest forecast showed Fed officials expect rates to reach 5.1% and Chairman Jerome Powell has dismissed the possibility of cuts this year.
The market narrative is very much "goldilocks" at the moment, according to Mr. Olsen.
Money managers are tracking corporate earnings for guidance on inflationary pressures facing businesses and their expectations for how the economic backdrop will affect profits. General Motors shares rose 7.6% after the company reported a rise in fourth-quarter earnings, with vehicle output rebounding from supply-chain troubles and pricing holding strong despite mounting consumer pressures.
Shares of Caterpillar fell 4% after the construction and mining equipment manufacturer's fourth-quarter profit missed expectations. Shares of Exxon Mobil rose 2% after posting record annual profits.
While McDonald's said price increases and promotions boosted sales, warnings that inflation will continue to pressure its business helped drag shares 1.8% lower.
