Australia

Australian shares are set to fall on Thursday, with broad-base losses on Wall Street as investors assessed the global-growth implications of China's easing of Covid-19 restrictions.

ASX futures are pointing 0.7% lower, suggesting that the benchmark index will add to Wednesday's 0.3% slip and could fall for a third consecutive session.

Wall Street fell in thin trade as investors stay on the sidelines during the shortened holiday week.

The S&P 500 closed 1.2% down. The Dow Jones Industrial Average lost 1.1%. The Nasdaq Composite ticked down 1.4%. All three averages traded in positive territory earlier in the session.

In commodity markets, Brent crude oil shed 1.58% to $US83.00 a barrel, while gold slipped 0.51% to US$1,804.42.

In local bond markets, the yield on Australian 2 Year government bonds was down at 3.39% while the 10 Year was 4.03%. Overseas, the yield on 2 Year US Treasury notes edged down to 4.35% while the yield on 10 Year US Treasury notes rose to 3.88%.

The Australian dollar hit 67.34 US cents up from the previous close of 67.33. 

Asia

Chinese shares closed lower, as investors moved beyond the news on China's border reopening. The Shanghai Composite Index ended 0.3% lower at 3087.40. Short-term economic pain from widespread Covid outbreaks disrupting business activity is overshadowing the long-run reopening optimism. Auto makers and their suppliers led declines, after some electric-vehicle makers cut delivery guidance due to Covid-driven production suspensions. BYD dropped 2.9% and Tesla supplier CATL fell 2.4%. Financials extended gains and outperformed the market. Ping An Insurance added 1.5% and China Merchant Bank advanced 1.8%.

Hong Kong stocks ended higher, catching up with gains in China's onshore market, driven by China's latest move to scrap quarantine requirements for inbound travelers. Hong Kong on Wednesday afternoon also cancelled most of its existing Covid-19 rules, such as arrival testing and vaccine passes. The benchmark Hang Seng index rose 1.6% to settle at 19898.91. While the index retreated from sharper gains in late morning trade, it still ended with its best closing level in over two weeks and rose to near a four-month high. A wide range of sectors contributed to the upturn, with solar equipment maker Xinyi Solar leading the pack with an 8.3% jump. Biotech company Wuxi Biologics advanced 6.9%, power producer ENN Energy gained 6.5% and Haidilao rose 4.8%.

Japanese stocks ended lower, dragged by falls in electronics and real-estate stocks, as uncertainty continued about the global economic outlook amid policy tightening by central banks. Lasertec dropped 3.0% and Sumitomo Realty & Development lost 1.6%. The Nikkei Stock Average fell 0.4% to 26340.50. The 20-year Japanese government bond yield rose 3 basis points to 1.270%, while the 10-year yield fell 1 basis point to 0.450%. Investors are focusing on economic data and their implications for monetary policy. 

Europe

European stocks closed broadly lower, amid choppy trade ahead of the new year. 

The FTSE 100 closed up 0.3% in thinned holiday trade. Oanda's senior market analyst, U.K. & EMEA, Craig Erlam says "there's certainly a strong sense of holiday trade to the markets today, with light news flow combined with lower liquidity creating choppy but ultimately insignificant moves. It very much feels like we're now just drifting into 2023 at which point I expect things will quickly pick up again."

 

The pan-continental Stoxx Europe 600 dipped 0.1%, the German DAX declined 0.5%, and the CAC 40 fell 0.6%.

North America

US stock indexes pulled back Wednesday as investors assessed the global-growth implications of China's easing of Covid-19 restrictions.

The S&P 500 closed down 46.03 points, or 1.2%, at 3783.22. The Dow Jones Industrial Average lost 365.85 points, or 1.1%, at 32875.71. The Nasdaq Composite ticked down 139.94, or 1.4%, to 10213.29. All three averages traded in positive territory earlier in the session.

The US stock market is in the middle of an end-of-year period when stocks tend to perform well. During the last five trading sessions of the year and first two of the new year, stocks often notch what is known as a Santa Clause rally. Since 1950, the S&P 500 has traded higher 78% of the time during this period for an average gain of 1.3%, according to Dow Jones Market Data.

This year, investors are contending with the effects of China's reopening and rising global interest rates. From Jan. 8, China plans to scrap all quarantine measures for Covid-19, including requirements for inbound visitors, both foreigners and Chinese nationals. That is likely to ripple through global economies and markets at a time of slowing growth and sticky inflation.

"The way [China has opened up] has been quite surprising...I think that's why markets are going backward and forward," said Altaf Kassam, head of investment strategy and research for Europe, the Middle East and Africa at State Street Global Advisors.

He added that investors are also still assessing the effects of tightening monetary policy around the world, which continues to weigh on sentiment. "The effects of that are now starting to be felt," Mr. Kassam said.

Trading volume is likely to be light this week, as investors are away from their desks around the year-end holidays. That can sometimes lead to outsize moves in markets as investors contend with thinner liquidity.

"As you get closer to year-end, you see less volume and are subject to more volatility," said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. "Many were hoping to end the year on a positive note and the selloff that we're seeing today is really the market's way of kicking a man while he's down."

Tesla shares gained $3.61, or 3.3%, to $112.71, recovering some ground after enduring a selloff Tuesday. The electric-vehicle maker's stock is down 68% in 2022, on track for its worst year ever.

Southwest Airlines shares fell $1.75, or 5.2%, to $32.19 as fallout continued from its holiday storm meltdown. On Tuesday, Southwest canceled 65% of its scheduled departures, according to data from FlightAware.