Global Markets Report - 7 June

Australia

Australian shares are expected to rise this morning following an unexpected interest rate hike by the Reserve Bank of Australia. The RBA surprised Australians Tuesday with its 12th consecutive interest rate rise, stirring fears of a potential recession. Meanwhile, US stocks closed broadly higher as investors expect the Federal Reserve to keep rates unchanged at its next meeting.

ASX futures were pointing up Wednesday morning, having gained 31 points or 0.4% as of 6:00am.

US stocks edged up Tuesday as the S&P 500 and Nasdaq Composite each clinched fresh closing highs for the year.

The S&P 500 gained 0.2%, reaching its highest close since last August. The tech-heavy Nasdaq rose 0.4% to close at its highest level since April 2022. The Dow Jones Industrial Average ticked up less than 0.1%.

Stocks have rebounded recently, with the S&P 500 within striking distance of exiting its longest bear market since the 1940s. The broad index finished less than 10 points shy of entering a new bull market, which would represent a 20% jump from its recent low set in October.

In commodity markets, Brent crude oil dipped 0.7% to US$76.19 a barrel while gold was little changed at US$1,962.63.

Australian government bonds were higher, with the 2 Year yield rising to 3.83% and the 10 Year yield increasing to 3.80%. US Treasury notes were also higher, with the 2 Year yield climbing to 4.52% and the 10 Year yield rising to 3.69%.

The Australian dollar increased to 66.73 US cents from its previous close of 66.16. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, moved up to 97.75.

Asia

Chinese shares ended lower, with most sectors declining amid weak sentiment on a lack of positive catalysts. Tech hardware makers and software stocks led losses. Apple suppliers, mostly related to the mixed-reality concept, fell after the US tech giant unveiled its Vision Pro headset. Suzhou QingYue Optoelectronics Technology slid 20% and Shenzhen Everwin Precision Technology fell 19%. Auto-related industries also closed lower. Chongqing Changan Automobile declined 1.5% and EV battery maker EVE Energy fell 0.8%. The Shanghai Composite Index dropped 1.15% to 3195.34. The Shenzhen Composite Index and the ChiNext Price Index both declined 1.7%.

Hong Kong stocks ended the session lower amid regional weakness in several Asian markets. The benchmark Hang Seng Index edged down by 0.05% to settle at 19099.28. A wide range of sectors declined. Power-tool maker Techtronic lost 4.7%, restaurant operator Haidilao shed 3.3% and game developer Tencent fell 2.1%. Still, many analysts stay broadly optimistic on the market's outlook in the near term, as cheap valuations are expected to trigger renewed buying interest and prevent further downside risk.

Japanese stocks ended higher, led by gains in trading houses and steelmakers, as the brightened US economic outlook added to the local market's recent momentum. Mitsui & Co. gained 3.9% and Mitsubishi Corp. advanced 3.2% while JFE Holdings rose 3.5% and Kobe Steel climbed 5.8%. The Nikkei Stock Average rose 0.9% to close at 32506.78, a new high since July 1990.

India's benchmark Sensex index closed flat at 62792.88 as investors weighed mixed signals. The moderation in the prices sub-index of the US ISM services PMI released Monday looks promising on the inflation front. There is a trade-off for growth, however, given the decline in the employment sub-index into contractionary territory, said Yeap Jun Rong, market analyst at IG. The best performers on the Sensex included UltraTech Cement, which rose 2.9%, and Axis Bank, which added 1.9%. Meanwhile, top decliners were Infosys, which fell 2.0%, and Tech Mahindra, which dropped 1.9%.

Europe

European stocks edged higher Tuesday after earlier declines as investors assessed economic data and a surprise interest rate rise by the Reserve Bank of Australia. The pan-European Stoxx Europe 600 rose 0.4%, the German DAX added 0.2% and the French CAC 40 climbed 0.1%.

Data Tuesday showed German factory orders fell 0.4% month-on-month in April while eurozone retail sales were flat. The Reserve Bank of Australia raised its cash rate 25 basis points to 4.1%, while most analysts expected no change. Following the announcement, investors were betting that a potential decision to keep rates unchanged at the Federal Reserve's June 14 meeting could mean a "brief hold followed by more rate hikes," Oanda analyst Edward Moya wrote.

The United Kingdom’s FTSE 100 index closed 0.4% higher to 7628 points, lifted by British American Tobacco and the mining sector despite weakness in oil and natural gas prices. Abrdn shares led the British index’s top performers, closing up 4.4% and following its second day in positive terrain after announcing a GBP150 million share buyback program on Monday. The retailer Ocado was not far behind, bouncing back from yesterday's drop and closing up 4.0%. British American Tobacco shares closed 1.5% higher after the group backed its 2023 outlook.

North America

US stocks edged up Tuesday as the S&P 500 and Nasdaq Composite each clinched fresh closing highs for the year.

The S&P 500 gained 0.2%, reaching its highest close since last August. The tech-heavy Nasdaq rose 0.4% to close at its highest level since April 2022. The Dow Jones Industrial Average ticked up less than 0.1%.

Stocks have rebounded recently, with the S&P 500 within striking distance of exiting its longest bear market since the 1940s. The broad index finished less than 10 points shy of entering a new bull market, which would represent a 20% jump from its recent low set in October.

The rally has been powered primarily by a slim cohort of mega-cap technology stocks. Apple, the most heavily weighted stock in the S&P 500, is up 38% this year, while Nvidia has gained 165% as investors flock to AI plays.

"A lot of people, like us, are assessing the extent to which tech has led the broader rally and trying to see where we go from here," said Scott Duba, chief investment officer and managing director of wealth management at Prime Capital Investment Advisors.

The major US stock indices wavered between small gains and losses throughout the session, reflecting muted trading action.

The stock market's measure of volatility continued to drop. The Cboe Volatility Index, or VIX, tracks the price of options often used as insurance against market declines. Also known as Wall Street's fear gauge, the VIX traded below 14 on Tuesday, reaching its lowest intra-day level since February 2020.

"People are probably taking a bit of a pause ahead of the Fed meeting," Duba said.

The Federal Reserve is set to convene next week to discuss monetary policy and to issue its next interest rate decision. Federal-funds futures, used by traders to wager on the course of interest rates, reflected bets that the central bank will hold its target rate at 5% to 5.25% at the June policy meeting.

Investors are also awaiting the May consumer-price index next week for the latest insights into the course of inflation, which could influence whether the Fed might raise, hold or cut interest rates in future meetings.

Financial stocks led the market on Tuesday, with shares of regional banks recovering some losses from the spring's selloff. The KBW Nasdaq Regional Banking Index rose about 5%. Comerica, Fifth Third and Zions were among the top gainers in the sector.

Shares of Coinbase dropped 12% after the Securities and Exchange Commission sued the crypto company for allegedly violating securities law. The SEC charged Coinbase for operating as an unregistered broker-dealer, a day after the regulators sued crypto exchange Binance.