Global Markets Report - 9 October

Australia

Australian shares are set to rise at at market open following a positive end on Wall Street last week as investors warmed to a positive jobs report, and shift focus to financial uncertainty over the Israel war.

ASX futures were up 0.8% or 58 points as of 8:00am on Monday, suggesting a higher open.

US stocks rallied to end the week on a high note after investors warmed to an unexpectedly robust US jobs report.

On Friday, the Labor Department said US employers added 336,000 jobs in September, the highest tally since January. The news initially rattled markets, briefly sending bond yields to their highest level in 16 years and pushing major US stock indexes down in early trading.

But Treasury yields came off their highs and stocks rallied after many analysts and portfolio managers concluded that the report continued a recent trend of softening wage growth. That is important because economic data has often come in stronger than Wall Street expected in recent months, leading investors to rethink whether the Federal Reserve is done lifting interest rates and how long it will keep them at a restrictive level.

The S&P 500 rose 1.2%, the Dow Jones Industrial Average added 0.9%, and the Nasdaq Composite was 1.6% higher.

In commodity markets, Brent crude oil rose 0.6% to US$84.58 a barrel while gold was up at US$1,833.01.

In local bond markets, the yield on Australian 2 Year government bonds was down at 4.01% while the 10 Year yield was also down at 4.54%. US Treasury notes were higher, with the 2 Year yield at 5.08% and the 10 Year yield at 4.80%.

The Australian dollar was unchanged at 63.84 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, was up at 100.24.

Asia

Markets in mainland China were closed Friday for a holiday.

Hong Kong shares were led higher by tech and property stocks. Sentiment for the real estate sector has been lifted after Sunac received court approval in Hong Kong for its debt restructuring plan yesterday. Investors are looking toward the US employment report later today and the upcoming earnings season, Saxo's APAC strategy team write in a research note. The benchmark Hang Seng Index is up 1.6% at 17485.98 and the Hang Seng Tech Index is 1.55% higher. Alibaba Health led the gains, rising 4.1%, and Meituan advanced 2.3%. Longfor Group rose 3.4%, leading the property stocks and Country Garden Services increased 2.9%. Meanwhile, Budweiser Brewing led the losers with a 1.8% drop and Sunny Optical Technology fell 0.3%.

The Nikkei Stock Average closed 0.3% lower at 30994.67 as falls in electronics and energy stocks helped offset gains in utility and food stocks. Broader market index Topix ended flat at 2264.08. Investors were focused on US jobs data due later on Friday and their policy implications. The 10-year Japanese government bond yield fell half a basis point to 0.795%.

India's benchmark Sensex rose 0.55% to close at 65995.63, boosted by the RBI's unchanged stance on policy rates and the apparent lack of market-negative comments from RBI Governor Shaktikanta Das, analysts say. There weren't any surprises in the RBI governor's statement, says Apurva Sheth, head of market perspectives & research at Samco Securities, in an email. "Sometimes, no news is good news, which is why markets have reacted with a slightly positive bias," Sheth adds. Among the best performers on the benchmark index, Bajaj Finserv climbed 5.9%, Bajaj Finance added 4.05%, and Titan Co. was up 3.0%.

Europe

European stocks rose, with the pan-European Stoxx 600 index up 0.5% at 443.73, recovering from multi-month lows earlier this week ahead of US non-farm payrolls data at 1230 GMT. Strong data could increase the prospect of US interest rates staying higher for longer, which would weigh on equities, but analysts say traders have been encouraged by weaker-than-expected ADP private payrolls figures earlier this week. "The US labor market report is expected to be a key event, as it could influence the Fed's monetary policy decisions," wrote Tickmill Group's Patrick Munnelly, adding that Federal Reserve policymakers' reactions to the data will be closely monitored. Germany's DAX rose 0.7% and France's CAC 40 was up 0.5%.

The FTSE 100 index closed Friday up 0.6% to 7494 points, in line with European peers, lifted by oil-exposed stocks and helped by insurer Aviva. Shares of the life insurer outperformed the index, closing up 5.3% on the back of press reports that it could be the subject of a takeover approach, CMC Markets U.K. chief market analyst Michael Hewson said in a note. "These reports have claimed that Allianz in Germany and a couple of other parties might be mulling a GBP6 a share offer," Hewson adds. Legal and General was the second highest riser with a 3.2% increase on the back of the speculation, followed by B&M, up 3%. On the opposite side of the table, Rentokil shares fell 2.6%, followed by Unilever, down 2.6%.

North America

Stocks rallied to end the week on a high note after investors warmed to an unexpectedly robust US jobs report.

On Friday, the Labor Department said US employers added 336,000 jobs in September, the highest tally since January. The news initially rattled markets, briefly sending bond yields to their highest level in 16 years and pushing major US stock indexes down in early trading.

But Treasury yields came off their highs and stocks rallied after many analysts and portfolio managers concluded that the report continued a recent trend of softening wage growth. That is important because economic data has often come in stronger than Wall Street expected in recent months, leading investors to rethink whether the Federal Reserve is done lifting interest rates and how long it will keep them at a restrictive level.

The S&P 500 rose 1.2%, the Dow Jones Industrial Average added 0.9%, and the Nasdaq Composite was 1.6% higher.

The reversal during the trading session put the spotlight on a much-debated question on Wall Street: Whether good economic news is good or bad for stocks. On one hand, a resilient job market and strong consumer spending could boost corporate profits. But rising yields on expectations that the Fed may hold rates higher for longer are likely to reverberate throughout the economy, including in the form of higher borrowing costs that have weighed on stock prices.

"This move in yields will continue to serve as a gale force headwind to equities," said Alex McGrath, chief investment officer at NorthEnd Private Wealth.

The S&P 500 eked out a 0.5% weekly gain, snapping a four-week losing streak. The broad-based index is down 6% from its recent July high. Its gain for the year has now been pared down to 12%.

"The stock market is in the midst of a correction as it adjusts to rising bond yields, sticky inflation and the realization that even if the Fed stops raising interest rates, they are likely to keep them at this elevated level for quite some time," said Robert Schein, chief investment officer at Blanke Schein Wealth Management.

Traders in interest rate derivatives now see a 32% of another Fed rate hike at its November meeting, up from 20% on Thursday before the jobs report, according to CME Group's FedWatch tool.

Analysts at BNP Paribas said Friday that rapidly rising yields may effectively tighten borrowing conditions without requiring an additional rate increase.

"Markets are doing the Fed's dirty work," BNP Paribas chief US economist Carl Riccadonna wrote. "While the data alone likely justify the Fed hiking rates further in either November or December, we think it is less clear-cut."

Among individual stocks, Pioneer Natural Resources was the S&P 500's best performer Friday, adding 10% after The Wall Street Journal reported that Exxon Mobil is closing in on a deal to buy the shale driller in what would be the biggest corporate takeover of the year.

The consumer staples sector was the day's worst performer. Shares of Walmart, Costco, Dollar General and Mondelez all sold off more than 1.5%, after the jobs report stoked concerns that the inflationary environment that has made people wary of spending isn't ending soon.