Global Markets Report - 28 June

Australia

Australian shares are headed higher this morning following an optimistic day in the US. A consumer confidence metric reached a multi-month high, pushing US indices higher. Asian equities also gained following positive comments from China’s premiere about that country’s GDP outlook.

ASX futures were 28 points or 0.4% higher as of 6:00am on Wednesday, suggesting a positive open.

Major US stock indices rose Tuesday as investors sifted through a fresh round of data that signaled a resilient US economy.

The S&P 500 advanced 1.2% and the Nasdaq Composite added 1.7%, while the Dow Jones Industrial Average closed 0.6% higher.

Orders for manufactured US goods rose 1.7% in May, boosted by strong demand for passenger planes and new automobiles. It was the third consecutive month of gains, a sign that manufacturing orders may have bottomed after slumping last year. Orders rise in an expanding economy and shrink in a contracting one.

Meanwhile, a closely watched survey of consumer confidence jumped to a 17-month high, an indication that individuals are feeling better about inflation and the economy. The Conference Board's consumer confidence index hit 109.7 in June, higher than economists polled by The Wall Street Journal had expected.

In commodity markets, Brent crude oil lost 2.7% to US$72.19 a barrel while gold dipped 0.4% to US$1,914.76.

Australian government bonds were lower, with the 2 Year yield edging down to 4.09% and the 10 Year yield declining to 3.93%. US Treasury notes were mixed, with the 2 Year yield rising to 4.76% and the 10 Year yield slipping to 3.76%.

The Australian dollar climbed to 66.85 US cents from its previous close of 66.74. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged down to 97.10.

Asia

Chinese shares closed higher, ending a four-session losing streak, with sentiment supported by hopes for supportive measures to boost the economy. Chinese premier Li Qiang struck a confident tone on the country's economic performance in a speech Tuesday, saying that the country's 2Q GDP growth would likely outpace the first quarter. Property stocks led the gains, rebounding sharply from previous losses. China Vanke rose 4.2% and China Merchants Shekou Industrial Zone Holdings gained 6.95%. Consumption and telecom stocks also gained. Midea Group added 2.7% and China Unicom rose 3.8%. The Shanghai Composite Index rose 1.2% to close at 3189.44. The Shenzhen Composite Index added 1.35% and the ChiNext Price Index gained 0.25%.

Hong Kong shares ended higher on reports Beijing has shored up the yuan following its slide against the dollar. The yuan rose in afternoon trade to 7.2099 from 7.2425. Investor mood was also lifted after Chinese premier Li Qiang’s positive GDP forecasts. The benchmark Hang Seng Index ended 1.9% higher at 19148.13. Property stocks led gains, rebounding sharply from previous losses. The Hang Seng Properties Index rose 6.0%, with Longfor Group rising 8.2% and Country Garden Holdings advancing 7.1%. Tech companies gained. The Hang Seng Tech Index rose 2.6%, with JD.com gaining 2.65% and Netease rising 4.95%.

Japanese stocks ended lower, dragged by falls in electronics and pharmaceutical shares, as uncertainty over the economic outlook persisted due to policy tightening by central banks. Advantest declined 2.5% and Ono Pharmaceutical fell 2.4%. Sosei Group tumbled 22% after its partner Pfizer decided to terminate the development of a potential drug for obesity and diabetes. The Nikkei Stock Average fell 0.5% to close at 32538.33.

Indian shares ended higher, led by gains in financial and auto stocks, as concerns about domestic inflation and further policy tightening eased. Axis Bank and HDFC Bank rose 1.4% each, while Tata Motors gained 0.9%. Investors were focused on economic data and their policy implications before companies start announcing quarterly business updates next week. The benchmark Sensex rose 0.7% to 63416.03.

Europe

European stocks rose Tuesday while Wall Street made early gains, though oil prices dropped, as investors looked beyond the weekend's aborted armed uprising in Russia. The pan-European Stoxx Europe 600 edged 0.6% higher, the French CAC 40 climbed 0.4% and the German DAX advanced 0.2%. Still, big oil shares dropped as the price of Brent crude fell 1.6% to $73.17 a barrel.

"The brief bounce in the price of crude oil on Monday morning due to Russia's failed military coup is fizzling out as concerns about further interest rate hikes by major central banks weighed on demand," IG analyst Axel Rudolph wrote.

The United Kingdom’s FTSE 100 Index closed Tuesday up 0.1% to 7461 points, lifted by banks and miners as hopes of state support for the Chinese economy raised commodity prices, AJ Bell investment director Russ Mould said in a note.

"Beijing's number two, Premier Li Qiang, pointed to higher growth in the second quarter than the first and said the country would bring through policies to boost domestic demand," Mould added.

Retailer Ocado shares rose 5.1%, outperforming the index, followed by Vodafone and IAG, up 3.7% and 2.6%. Among the worst performers, BT shares closed down 3.6% after UBS downgraded the stock’s rating, followed by JD Sports, down 2.7% after warning about a softer performance in the US market.

North America

Major US stock indices rose Tuesday as investors sifted through a fresh round of data that signaled a resilient US economy.

The S&P 500 advanced 1.2% and the Nasdaq Composite added 1.7%, while the Dow Jones Industrial Average closed 0.6% higher.

Orders for manufactured US goods rose 1.7% in May, boosted by strong demand for passenger planes and new automobiles. It was the third consecutive month of gains, a sign that manufacturing orders may have bottomed after slumping last year. Orders rise in an expanding economy and shrink in a contracting one.

Meanwhile, a closely watched survey of consumer confidence jumped to a 17-month high, an indication that individuals are feeling better about inflation and the economy. The Conference Board's consumer confidence index hit 109.7 in June, higher than economists polled by The Wall Street Journal had expected.

"It's hard to envision a recession if you look at the economic data readings we've had over the past two months," said Art Hogan, chief market strategist at B Riley Wealth Management. "Now that we're closer to the end of the rate-hike cycle, we're in more of a place where investors view good economic data as a positive for earnings and stocks."

While higher consumer confidence is a positive for an economy driven by consumer spending, analysts say improving confidence could complicate the Federal Reserve's campaign to tame inflation.

Americans expect prices to rise 6% over the next 12 months, according to the survey. That is the lowest inflation expectations reading in more than two years but still well above the Fed's 2% target.

"The data today continue to show the Fed's job is very tough," Jefferies analyst Thomas Simons wrote Tuesday. "Consumer attitudes remain resilient, and their spending plans have only come in modestly."

Together, strong stock market performance and a resilient economy are perplexing some investors and analysts who had expected the Fed's fastest interest rate increases in over four decades to cause more of a slowdown by now. One area where higher rates clearly are affecting prices is housing: US home prices posted their first year-over-year price decline in 11 years in April, according to the S&P CoreLogic Case-Shiller National Home Price Index, released Tuesday.

Market skeptics continue to point to the fact that much of this year's index gains have been driven by a handful of the biggest technology companies. Big tech helped propel Tuesday's gains, with Tesla, Meta Platforms and Nvidia all gaining more than 3%.

"If the few stocks driving the rally fail to deliver on elevated earnings expectations, the broad market will likely be exposed to a pullback," said Seema Shah, chief global strategist at Principal Asset Management.

Airline stocks gained Tuesday after Delta Air Lines boosted its financial outlook for the year. Delta, American Airlines, and United Airlines all advanced more than 5%. Cruise operators Carnival and Royal Caribbean were also among the S&P 500's top performers.

Walgreens Boots Alliance was the index's laggard, tumbling 9.3% after the drugstore chain slashed its financial outlook for 2023.

Shares of Lordstown Motors fell 17% after the electric-truck startup filed for bankruptcy protection.