Global Markets Report - 10 February

Australia

Australian shares are expected to dip lower today after a poor session in the US. Although a few index heavyweights gained on Thursday, the prospect of continued interest rate tightening weighed on investors.

ASX futures were down 26 points or 0.35% as of 8:00am on Friday, pointing to negative open.

US stocks turned lower Thursday, as investors debated the outlook for interest rates and reviewed another batch of corporate earnings from bellwethers such as Disney.

The indices spent the morning in the green, then turned red in afternoon trading. The S&P 500 fell 0.9%, while the Dow Jones Industrial Average lost 0.7%. The technology-heavy Nasdaq Composite Index dropped 1%.

Stock markets have oscillated in recent days, as investors have adjusted their expectations for monetary policy following economic data and comments from Federal Reserve officials. Fed Chair Jerome Powell and others have continued to stress that rates will need to remain high for some time to ensure inflation is brought back under control.

In commodity markets, Brent crude oil was 1.00% lower at $US84.24 a barrel while gold shed 0.80% to US$1,860.55.

Australian government bonds edged higher, with the 2 Year yield increasing to 3.31% and the 10 Year yield reaching 3.66%. US Treasury notes also climbed, with the 2 Year yield reaching 4.49% and the 10 Year yield edging up to 3.67%.

The Australian dollar edged up to 69.40 US cents from its previous close of 69.20. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged down to 96.17.

Asia

Chinese stocks ended the session higher, showing signs of improvement after muted trading earlier in the week. The benchmark Shanghai Composite Index rose 1.2% to settle at 3270.38, while the Shenzhen Composite Index added 1.5% to finish at 2174.20. The ChiNext Price Index was the best performer with a 1.7% gain, closing at 2569.73. Chip makers and telecom-equipment suppliers led the gains, as the recent ChatGPT-driven AI optimism buoyed demand expectations for IT hardware. Suzhou TFC Optical Communication jumped 11%, Hunan Goke Microelectronics climbed 6.0% and StarPower Semiconductor gained 4.9%.

Hong Kong stocks ended the session higher, led by tech shares and following the recovery trend in the broad Chinese equities market. The benchmark Hang Seng Index gained 1.6% to settle at 21624.36. Chinese tech companies drove the upturn, as the sector rebounded from steep losses in the past session that were fueled by renewed worries over interest rate increases. Smartphone manufacturers and components suppliers were particularly strong, as investors grew more hopeful for a recovery in global handset sales. Xiaomi jumped 8.5% and Sunny Optical added 5.7%. Alibaba stocks offered further support, with Alibaba Group up 4.0% and Alibaba Health rising 4.4%. The Hang Seng Tech Index rose 3.2% to 4571.71.

The Nikkei Stock Average of Japan ended 0.1% lower at 27584.35, amid mixed trading among other Asian equities as investors continued to digest recent remarks by U.S. Fed officials. Utilities declined, with Tokyo Electric Power falling 1.5%, Chubu Electric Power dropping 0.9% and Kansai Electric Power slipping 0.5%. Toyota Motor gained 0.2% after its Q3 revenue rose on year due to higher vehicle sales. Nippon Telegraph & Telephone Corp. declined 0.8% after its Q3 net profit missed analysts' expectations.

Indian stocks ended slightly higher, sustaining a recovery trend after losses earlier this week. The benchmark Sensex index edged up 0.2% to settle at 60806.22. Financial companies extended their recent strength to lead the rise. Bajaj Finserv added 2.3%, Bajaj Finance was up 1.6%, while IndusInd Bank advanced 1.5%. IT-services providers also held on to recent gains and lent further support to the market. Infosys grew 1.8% and Tata Consultancy inched up 0.6%.

Europe

European stocks rose on Thursday while Asian markets ended mixed. The pan-European Stoxx Europe 600 gained 0.6%, the German DAX increased 0.7%, and the French CAC 40 added 1%.

The United Kingdom’s FTSE 100 closed up 0.3%, boosted by AstraZeneca after the company reported better-than-expected revenue and profit for the year, CMC Markets analyst Michael Hewson said in a note. Having closed at 7911, the index fell just short of an all-time intraday high of 7948 reached earlier on Thursday, according to FactSet.

"At the current rate, we could see the FTSE 100 break through the 8000 level early next week," AJ Bell investment director Russ Mould wrote. Standard Chartered, AstraZeneca, and BP were the session's biggest risers, up 11%, 4.1% and 2.3% respectively. Entain was the day's biggest faller, down 14%, followed by Glencore and BT Group, down 3.7% and 3.1% respectively.

North America

US stocks turned lower Thursday, as investors debated the outlook for interest rates and reviewed another batch of corporate earnings from bellwethers such as Disney.

The indices spent the morning in the green, then turned red in afternoon trading. The S&P 500 fell 0.9%, while the Dow Jones Industrial Average lost 0.7%. The technology-heavy Nasdaq Composite Index dropped 1%.

Stock markets have oscillated in recent days, as investors have adjusted their expectations for monetary policy following economic data and comments from Federal Reserve officials. Fed Chair Jerome Powell and others have continued to stress that rates will need to remain high for some time to ensure inflation is brought back under control.

"Last week was an enormous week in a lot of ways, from earnings, economic data and central banks," said Niall O'Sullivan, chief investment officer of multi-asset strategies for Europe, the Middle East, and Africa at Neuberger Berman. "What is going on this week is the chewing of the cud as we figure out what it all means."

The labor market has demonstrated resilience despite rate increases, prompting concerns that the Fed might decide to continue tightening monetary policy further than previously thought. A strong jobs report last week caught some investors off guard. Data released Thursday showed initial jobless claims, a proxy for layoffs, rose but remained historically low.

It could be years rather than months before inflation is properly curbed, said Mr. O'Sullivan, adding that he believes the Fed is unlikely to lower rates at all this year.

"Inflation is going to be harder to tame this time around,” Mr. O'Sullivan said. "Central banks will have to be at it much longer than many people think."

At the same time, some investors have embraced the idea that the Fed could begin lowering rates this year as inflation moderates. All three major indices have risen to start the year.

Investors are also monitoring earnings for signs of how rapid inflation and higher borrowing costs are affecting businesses.

Walt Disney stock rose 1.5% after the entertainment giant said in its earnings call late Wednesday that it plans to slash jobs and cut $5.5 billion in costs. Shares of PepsiCo rose 1.2% after the beverage company beat earnings expectations and reported strong sales growth.

Conversely, Mattel shares sank 10%, after the maker of Barbie dolls and Hot Wheels cars said quarterly sales fell 22% as cash-strapped consumers pulled back on spending.

With about two-thirds of companies in the S&P 500 having reported fourth-quarter results, about 70% have topped Wall Street consensus expectations, compared with the five-year average of 77%, according to FactSet.