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Markets

Global Markets Report - 8 June

Australian shares are expected to open lower this morning following an unsteady day on Wall Street.


Australia

Australian shares are expected to open lower this morning following an unsteady day on Wall Street. US indices had mixed results on Wednesday as the Bank of Canada followed the RBA in raising interest rates even higher. The Federal Reserve’s upcoming policy decision, scheduled for next week, remains at the forefront of investors’ minds.

Meanwhile, China’s exports slumped more than expected in May, shrinking 7.5% from last year, adding to concerns that the country’s economic recovery is decelerating.

ASX futures were hinting lower Thursday morning, having shed 8 points or 0.1% as of 6:00am.

US stocks fell Wednesday after a surprise rate hike from the Bank of Canada took the air out of a Tuesday rally.

Major stock indices came under pressure as the trading day wore on, a day after the S&P 500 and Nasdaq Composite set fresh highs for the year. The benchmark S&P 500 shed 0.4%, the tech-heavy Nasdaq lost 1.3%, and the Dow Jones Industrial Average gained 0.3%. In Toronto, the S&P/TSX lost 0.4%.

Stocks' declines were sparked by the Bank of Canada's unexpected decision to raise interest rates to a 22-year high after a four-month pause in tightening. The central bank cited a strong labor market and consumer spending as risks to inflation's path to its 2% target.

In commodity markets, Brent crude oil gained 0.8% to US$76.93 a barrel while gold lost 1.1% to US$1,942.61.

Australian government bonds were higher, with the 2 Year yield climbing to 3.88% and the 10 Year yield rising to 3.82%. US Treasury notes were also higher, with the 2 Year yield advancing to 4.55% and the 10 Year yield increasing to 3.78%.

The Australian dollar declined slightly to 66.52 US cents from its previous close of 66.69. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, leaned higher to 97.79.

Asia

Chinese shares ended mixed Wednesday after weak monthly trade data, adding to signs of a slowdown in China's economic recovery. Exports fell 7.5% in May from a year ago, compared with the 1.0% decline forecast in a Wall Street Journal poll. Auto-related industries fell. CATL dropped 5.5%, following a bearish Morgan Stanley report saying that there is excess supply in the EV battery industry. Software makers and property stocks advanced. Guangdong Tapai Group added 2.1% and Gemdale rose 1.9%. The Shanghai Composite Index edged up 0.1% to 3197.76. The Shenzhen Composite Index dropped 0.2% and the ChiNext Price Index declined 1.6%.

Hong Kong stocks ended the session higher, as the market shrugged off disappointing trade data from China. The benchmark Hang Seng Index rose 0.8% to settle at 19252.00. Power-tool maker Techtronic Industries led gains with a 5.7% jump. That marked a rebound from the stock's steep losses triggered by a short-seller report. A wide range of other sectors offered further support. Smartphone-component maker Sunny Optical advanced 4.2%, JD Health was up 4.1% and Sands China rose 3.8%.

Japanese stocks ended lower as profit-taking weighed on chip-related stocks and other electronics makers following their recent ascent. Renesas Electronics dropped 3.9% and Lasertec lost 5.2%. The Nikkei Stock Average fell 1.8% to 31913.74 after rising to a new 33-year closing high on Tuesday.

India's benchmark Sensex index rose 0.6% to close at 63142.96 amid hopes of a rate pause by central banks, including the Reserve Bank of India. India's central bank is expected to leave its policy repo rate unchanged at 6.50% on Thursday, according to all 14 economists surveyed by The Wall Street Journal. The best performers on the Sensex included Nestle India, which climbed 3.0%; Tata Steel, which added 2.3%; and Tata Motors, which was up 2.2%. Meanwhile, Kotak Mahindra Bank fell 1.2% and Bajaj Finance shed 0.5%.

Europe

European stocks mostly fell Wednesday, with the pan-European Stoxx Europe 600 down 0.2% at 460.80 as weak trade data from China dampened market sentiment. Traders cautiously awaited next week's interest rate decisions in the US and eurozone. France's CAC 40 dipped 0.1% and Germany's DAX shed 0.2%.

"It feels like the Chinese post-Covid recovery is falling a bit flat and this has negative implications for global growth," said AJ Bell investment director Russ Mould. Data showed China's trade surplus fell more than expected to $65.8 billion in May from $90.2 billion in April as exports dropped.

The United Kingdom’s FTSE 100 index closed slightly lower, down 0.05% or 3.7 points, as property stocks offset the rise on the oil-exposed sector following negative house-prices data. The index's dull performance was in line with global peers amid rising concerns about the outlook for global demand after a sharp fall in China's May exports, CMC Markets analyst Michael Hewson explained. Car-insurer Admiral led the falls, closing down 3.0%, followed by logistics and warehouse developer Segro and Entain, down 2.3% and 2.0%, respectively. Telecommunications group BT shares outperformed the index, closing up 3.75%.

North America

US stocks fell Wednesday after a surprise rate hike from the Bank of Canada took the air out of a Tuesday rally.

Major stock indices came under pressure as the trading day wore on, a day after the S&P 500 and Nasdaq Composite set fresh highs for the year. The benchmark S&P 500 shed 0.4%, the tech-heavy Nasdaq lost 1.3%, and the Dow Jones Industrial Average gained 0.3%. In Toronto, the S&P/TSX lost 0.4%.

Stocks' declines were sparked by the Bank of Canada's unexpected decision to raise interest rates to a 22-year high after a four-month pause in tightening. The central bank cited a strong labor market and consumer spending as risks to inflation's path to its 2% target.

Under the stock market hood, Marathon Oil's 4.9% rise propelled the S&P 500's energy sector. Tesla stock added 1.5% in its ride to a ninth-consecutive daily gain, its longest winning streak since January 2021, according to Dow Jones Market Data. Shares of Elon Musk's electric vehicle maker notched their highest close since late last year.

Small-cap stocks surged Wednesday despite broader market weakness. The Russell 2000 advanced 1.8%, building upon a strong start to June after struggling for much of the year. The comeback suggests "the economy is more resilient than the headlines imply, or that a recession could be milder than initially projected," said Quincy Krosby, chief global strategist for LPL Financial.

America's hot labor market, resilient demand and sticky inflation have raised chances that the Fed could opt to pause rate hikes when it meets next week before raising borrowing costs later on. That would be a course of action with little precedent for the central bank. Derivatives markets now show the fed-funds rate ending the year at 5.1%, about its current level. Expectations for where rates will finish the year have risen continuously since April.

 



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