Global Markets Report - 22 August
Australian shares are set to gain this morning following a strong day for US stocks.
Australia
Australian shares are set to gain this morning following a strong day for US stocks. While Treasury note yields continued to rise, offering investors competitive long-term returns, technology firms managed to lead the US stock market higher.
ASX futures were 13 points or 0.2% higher as of 6:00am on Tuesday, indicating a positive open.
A good day for tech shares helped support US stock indices on Monday even while Treasury yields climbed to new decade-plus highs.
Fresh off its third straight week of declines, the tech-heavy Nasdaq Composite was the top-performing major index, rising 1.6%. The S&P 500 climbed 0.7%, while the Dow Jones Industrial Average slipped roughly 37 points, or 0.1%.
Stocks have been pressured recently by rising bond yields but were largely able to withstand a further jump in yields -- wavering a bit in early trading and ultimately finding their footing again.
In commodity markets, Brent crude oil shed 0.4% to US$84.43 a barrel while gold gained 0.3% to US$1,894.55.
Australian government bonds were higher, with the 2 Year yield climbing to 3.92% and the 10 Year yield increasing to 4.26%. US Treasury notes were also higher, with the 2 Year yield reaching 5.00% and the 10 Year yield lifting to 4.34%.
The Australian dollar climbed to 64.15 US cents from its previous close of 64.02. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, moved down to 98.15.
Asia
Chinese shares ended lower after the Peoples Bank of China cut the one-year loan prime rate by a smaller-than-expected margin and maintained the five-year LPR--a reference for mortgage rates--despite the country's mounting economic woes. "China's monetary policy could be even more difficult to read" after Monday's move, Citi economists said in a note. Financials and property developers led the losses. Citic Securities dropped 4.3% and China Vanke declined 2.3%. The benchmark Shanghai Composite Index closed 1.2% lower at 3092.98.
Hong Kong shares closed lower after China's central bank delivered a lower-than-expected loan rate cut. "The disappointing cut to LPR would not help with building confidence and may even backfire if market participants interpret these easing measures as policymakers' unwillingness to deliver even moderate policy stimulus," Goldman Sachs analysts said in a research note. Transportation and consumer-goods stocks led losses. Orient Overseas (International) dropped 5.6% and Chow Tai Fook Jewellery Group shed 3.7%. Xinyi Solar Holdings was down 5.1% and China Life Insurance declined 4.0%. The benchmark Hang Seng Index closed 1.8% lower at 17623.29, while the Hang Seng Tech Index dropped 2.1%.
Japanese shares ended higher, led by gains in tech and real estate stocks, as fears receded for now about policy tightening by central banks and higher borrowing costs. Nomura Research Institute gained 2.9% and Sumitomo Realty & Development climbed 2.3%. The Nikkei Stock Average rose 0.4% to 31565.64. Investors were focused on economic data and the Jackson Hole symposium later this week.
India's benchmark Sensex index rose 0.4% to close at 65216.09, led by some financial companies and conglomerates amid gains in US stock-index futures. This week, investors will have their eyes and ears on Federal Reserve Chair Jerome Powell's Jackson Hole symposium speech due on Friday, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in an email. There is a possibility that Powell will keep his hawkish stance despite falling inflation, the analyst added. Among the best performers on India’s benchmark index, Bajaj Finance rose 2.7% and IndusInd Bank added 2.1%, while energy conglomerate NTPC Ltd. rose 1.6% and multi-industry conglomerate ITC Ltd. was up 1.3%.
Europe
European stocks rose to start the week, though property shares fell following a profit warning from a UK house builder and further negative Chinese property-sector news. The pan-European Stoxx Europe 600 edged up 0.1%, the German DAX advanced 0.2%, and the French CAC 40 climbed 0.5%.
Crest Nicholson sparked losses among UK construction shares after forecasting full-year profit about 32% lower than it predicted in June. Meanwhile, continental property stocks also dropped following losses in mainland China and Hong Kong markets. "News that China's Evergrande had filed for bankruptcy in New York did little to help sentiment," IG analysts wrote.
In London, the FTSE 100 closed slightly lower on Monday, reversing earlier gains driven by energy stocks and oil prices. The benchmark British index gave up 0.1%. "The dissipation of those oil price gains has served to pull the market off the highs of the day, as yields continue to pop higher," CMC Markets UK's Michael Hewson said. The worst performing stocks on London's blue-chip index were housebuilders, weighed down by Rightmove data showing that the average house price in the UK fell 1.9% in the month to August 12, as well as a profit warning from Crest Nicholson.
North America
A good day for tech shares helped support US stock indices on Monday even while Treasury yields climbed to new decade-plus highs.
Fresh off its third straight week of declines, the tech-heavy Nasdaq Composite was the top-performing major index, rising 1.6%. The S&P 500 climbed 0.7%, while the Dow Jones Industrial Average slipped roughly 37 points, or 0.1%.
Stocks have been pressured recently by rising bond yields but were largely able to withstand a further jump in yields -- wavering a bit in early trading and ultimately finding their footing again.
The yield on the benchmark 10 Year US Treasury note settled at 4.339%, up from 4.251% Friday. That surpassed its nearly 16-year high set last Thursday to again mark its highest close since late 2007.
As has been the case all month, the rise in yields appeared to be driven by optimism about the economic outlook, which has caused investors to scale back bets on future Federal Reserve interest-rate cuts.
Higher yields reflect falling bond prices and can weigh on stocks by forcing them to compete with an alternative in Treasurys that are essentially risk-free if held to maturity.
"There's a point that we're probably already in right now, this zone where interest rates provide some competition for stocks," said George Mateyo, chief investment officer at Key Private Bank.
Still, investors were mostly willing to look past that Monday, venturing back into some of the year's most popular stocks.
Chief among those was Nvidia, the chip-making giant that will report earnings on Wednesday. Its shares rose 8.5% Monday, putting their year-to-date gain at 221% and fully erasing their month-to-date losses. Also bouncing back from tough weeks were Tesla, which jumped 7.3%, and Meta Platforms, which rose 2.3%.
Some analysts have said that the importance of Nvidia's earnings will stretch beyond its own stock. The company's blockbuster earnings report three months ago has since been seen as a turning point for the market, having sparked a surge in investor optimism about demand for artificial intelligence technology and its potential to transform the economy.
This time around, the company is less likely to surprise.
"Expectations now compared to then are much higher for Nvidia, and, of course, the stock is up a lot so they better give us a good number," said Bob Doll, chief investment officer at Crossmark Global Investments.
Investors are also looking toward this week's gathering of central-bank officials and economists for the Kansas City Fed's annual symposium at Jackson Hole, Wyo., as another key event that could affect markets.
Particularly since the theme of the meeting will be "structural shifts in the global economy," investors are prepared for discussion about the so-called neutral interest rate that officials think is sufficient to neither slow nor speed up the economy.
Any hint that officials think that rate is higher than it used to be could provide further cause for longer-term Treasury yields to rise, investors say, while suggestions to the contrary could lead to a rally in bond prices.
The meeting will start on Thursday, but investors will be particularly focused on Fed Chair Jerome Powell's remarks that are scheduled for Friday morning.