Global Markets Report - 1 June

Australia

Australian shares are expected to open lower this morning following losses on Wall Street. Disappointing manufacturing data from China sent Asian shares lower, while US investors worried about the looming possibility of a federal default.

ASX futures were hinting lower Thursday morning, having lost 3 points or less than 0.1% as of 6:00am.

Major US stock indices fell Wednesday as economic concerns and fears of a Federal Reserve rate increase remained on investors' minds.

The S&P 500 and the Nasdaq Composite Index both retreated 0.6%, while the Dow Jones Industrial Average was 0.4% lower.

US Labor Department data showed an increase in job openings in April, reversing three months of declines and renewing investor concerns that the Fed is not yet finished lifting interest rates.

In commodity markets, Brent crude oil shed 1.2% to US$72.66 a barrel while gold edged up 0.2% to US$1,963.85.

Australian government bonds were lower, with the 2 Year yield dipping to 3.54% and the 10 Year yield falling to 3.60%. US Treasury notes were higher, with the 2 Year yield increasing to 4.38% and the 10 Year yield rising to 3.62%.

The Australian dollar declined to 64.99 US cents from its previous close of 65.14. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, leaned higher to 98.02.

Asia

Chinese shares ended lower after the release of May manufacturing PMI data, which fell into contractionary territory, indicating that China’s economic recovery is cooling. Energy stocks, heavy industry and developers all declined. Yankuang Energy Group dropped 9.2%, Huaneng Lancang River Hydropower fell 1.3% and China Merchants Shekou Industrial Zone Holdings shed 1.2%. Software makers extended gains. Yonyou Network Technology added 1.5% and Empyrean Technology rose 5.4%. The Shanghai Composite Index fell 0.6% to 3204.56. The Shenzhen Composite Index dropped 0.4% and the ChiNext Price Index closed 1.1% lower.

Hong Kong shares closed lower after the release of China's May manufacturing PMI, which undershot forecasts. The Hang Seng Index lost 1.9%. Energy and property stocks led losses. Yankuang Energy slid 9.2% and PetroChina was 5.4% lower. Country Garden fell 3.4% and Seazen Group declined 5.5%. The Hang Seng Tech Index dropped 2.0%. Baidu slid 3.5% and Tencent Holdings was 1.8% lower.

Japanese stocks ended lower, dragged by declines in trading houses and steelmakers, as profit-taking kicked in amid continued uncertainty over the inflation and economic outlook. Marubeni Corp. lost 6.5% and JFE Holdings dropped 5.0%. The Nikkei Stock Average closed 1.4% lower at 30887.88 after hitting a 33-year high Tuesday.

India's benchmark Sensex index closed 0.55% lower at 62622.24 amid weak global cues. US debt ceiling concerns remain, as a few lawmakers seem to be against the agreement, ICICI Direct Research said in a note. Decliners included Axis Bank, which fell 2.4%, State Bank of India, which was down 2.1%, and HDFC, which was 2.0% lower. Bharti Airtel was among the gainers, rising 4.8%.

Europe

European stocks fell as investors reacted to weak Chinese manufacturing data and awaited a US House of Representatives vote on the debt ceiling bill. The pan-European Stoxx Europe 600 declined 1.1% while the German DAX and the French CAC 40 both slipped 1.5%.

"Markets have not been able to find their footing this afternoon, and in addition to the US debt ceiling, are also grappling with renewed signs of a slowdown in China," IG analyst Chris Beauchamp wrote. The boost from China's reopening seems to have faded, sparking fresh recession fears, while markets look set to remain on edge until the debt ceiling issue is resolved, he explained.

In London, the FTSE 100 closed down 1.0%. As Beauchamp noted, the British index reached a new two-month low as concerns about the Chinese economy increased pressures on commodities-exposed stocks. Prudential led the losses, down 6.1%, after the group's finance chief resigned following a conduct probe. Ocado shares dropped 5.8% as the group is expected to leave the FTSE, while Entain slipped 4.0% after it announced a deferred prosecution agreement regarding an investigation into its former Turkish business.

North America

Major US stock indices fell Wednesday as economic concerns and fears of a Federal Reserve rate increase remained on investors' minds.

The S&P 500 and the Nasdaq Composite Index both retreated 0.6%, while the Dow Jones Industrial Average was 0.4% lower.

US Labor Department data showed an increase in job openings in April, reversing three months of declines and renewing investor concerns that the Fed is not yet finished lifting interest rates.

Traders in interest rate futures have in recent days swung between pricing in a pause from the Fed or an additional rate hike at its upcoming June meeting.

They saw a greater than 60% chance of a rate increase after the jobs data Wednesday morning, but that fell to 30% after Fed governor Philip Jefferson said later in the day the central bank could hold interest rates steady at its next meeting but still lift them afterward.

Stocks rallied off their lows of the day following Jefferson's comments.

"I see today's report as adding marginally to the case for additional tightening. A strong jobs report on Friday would add to this case further, as the Fed cannot afford to pause prematurely with core inflation well above 5%," said Ronald Temple, chief market strategist at Lazard.

A rally in the shares of mega-cap technology companies Nvidia, Microsoft and Google-parent Alphabet helped power the S&P 500 higher for much of the month of May. Some investors were concerned about the market's reliance on just a handful of big stocks. While the S&P 500 is up 8.9% year-to-date, the equal weighted version of the index is up 0.2%.

"If you can get some clarity on a recession, its timing, and what the Fed is going to do, hopefully we'll get some greater breadth that will allow the market to push higher. Without those things, we're kind of stuck," said Michael Arone, chief investment strategist at State Street Global Advisors.

"I think there is a limit to how high the mega-cap tech stocks can go and how much they can contribute," he added.

Nvidia shares fell 5.7% Wednesday, ending a furious three-day rally that saw the chip maker's market capitalization briefly cross over the $1 trillion mark during Tuesday trading. Investors have been piling into Nvidia shares in a bet that its technology will be in high demand from companies that produce generative artificial intelligence like the ChatGPT platform.

Nvidia rival Intel was the S&P 500's best performer Wednesday after its chief financial officer said Intel is on pace to hit the upper end of its revenue guidance for the second quarter. The shares closed up 4.8%.

Advance Auto Parts was the S&P 500’s main laggard. The auto parts retailer's shares plunged 35% after it reported a sharp drop in quarterly profit.