Global Markets Report - 29 August
Australian shares are expected to rise this morning following a strong session in the US.
Australia
Australian shares are expected to rise this morning following a strong session in the US. Investors started the week with an optimistic tone following Friday’s speech by Federal Reserve Chair Jerome Powell.
ASX futures were up 0.4% or 25 points as of 8:00am on Tuesday, suggesting a higher open.
Major US stock indices kicked off the week with gains, rising for a second consecutive session and recouping some losses from the summer stock-market slide.
The gains were broad-based, with 10 of the S&P 500's 11 sectors closing in positive territory. The S&P 500 notched its first back-to-back gain of the month after edging lower for much of August.
The index rose 0.6%, while the tech-heavy Nasdaq Composite added 0.8%. The Dow Jones Industrial Average added 213 points, or 0.6%.
Monday's moves continue a remarkable stretch of calm for major indices during the summer months. The S&P 500 has not notched a one-day move of 2% in either direction in more than six months, the calmest stretch since 2018 and one of the longest of the past 25 years, according to research firm Asym 500.
In commodity markets, Brent crude oil dipped 0.1% to US$84.42 a barrel while gold was unchanged at US$1,920.38.
In local bond markets, the yield on Australian 2 Year government bonds edged up to 3.90% while the 10 Year yield dipped to 4.14%. US Treasury notes were higher, with the 2 Year yield advancing to 5.05% and the 10 Year yield rising to 4.20%.
The Australian dollar was relatively flat at 64.27 US cents from itsprevious close of 64.29. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged down to 98.51.
Asia
Chinese shares closed higher after Beijing unveiled a raft of supportive policies over the weekend to boost capital markets following its mortgage easing measures on Friday. However, "without additional more aggressive policy stimulus, these stock-markets-focused policies alone have little sustainable positive impact on stock markets, not to mention any positive impact on the economy," Nomura analysts said in a research note. Real estate and financial stocks led the gains. Poly Developments & Holdings Group rose 2.7% and China Vanke climbed 4.5%. CITIC Securities was up 1.5% and East Money Information surged 3.9%. The benchmark Shanghai Composite Index closed 1.1% higher at 3098.64. The Shenzhen Composite Index rose 0.95% and the tech-heavy ChiNext Price Index gained 1.0%.
Hong Kong shares closed higher after Beijing cut the stamp duty on stock trades and pledged to take more steps to revive its sagging capital markets. "The good news is that we are seeing more easing measures, but the bad news is that these measures are still piecemeal," Goldman Sachs analysts said in a note. Financial and insurance stocks led gains. Hong Kong Exchanges & Clearing rose 3.3% and Ping An Insurance gained 2.25%. Mining and utilities stocks weighed. Zijin Mining dropped 2.3% after reporting a 1H profit decline, while ENN Energy declined 5.7%. China Evergrande slumped 79% following the resumption of trade today after its shares were suspended for more than a year. The benchmark Hang Seng Index rose 1.0% to settle at 18130.74, while the Hang Seng Tech Index gained 1.7%.
Japanese stocks ended higher, led by gains in electronics shares, as concerns eased about the Fed's further tightening. Lasertec gained 7.4% and Renesas Electronics advanced 4.4%. The Nikkei Stock Average rose 1.7% to 32169.99.
India's benchmark Sensex index rose 0.2% to close at 64996.60, aided by China's new stimulus measures. China's Ministry of Finance on Sunday said it would halve the stamp duty on securities transactions to 0.05%, starting Monday, while the country's securities regulator said it would take steps to limit new listings. Markets rejoiced over the latest announcements, explained Priyanka Sachdeva, senior market analyst at Phillip Nova, in a commentary. The best performers on the benchmark index included Larsen & Toubro, which rose 2.1%; Mahindra & Mahindra, which added 1.95%; and HDFC Bank, which was up 1.0%.
Europe
The pan-European Stoxx Europe 600 index closed up 0.9% at 455.29, tracking gains in US equities in quiet trade, with U.K. markets closed for a public holiday. Federal Reserve Chair Jerome Powell's speech at Jackson Hole on Friday helped give some impetus to shares as he said the central bank will proceed carefully even as interest rates could still rise. This will leave focus on upcoming data, including monthly US jobs data on Friday. Measures announced by China designed to revive stock markets also helped lift equities as the week got underway.
Germany's DAX ended up 1% and France's CAC 40 closed up 1.3%, with technology and industrial stocks among the biggest gainers.
North America
Major US stock indices kicked off the week with gains, rising for a second consecutive session and recouping some losses from the summer stock-market slide.
The gains were broad-based, with 10 of the S&P 500's 11 sectors closing in positive territory. The S&P 500 notched its first back-to-back gain of the month after edging lower for much of August.
The index rose 0.6%, while the tech-heavy Nasdaq Composite added 0.8%. The Dow Jones Industrial Average added 213 points, or 0.6%.
Monday's moves continue a remarkable stretch of calm for major indices during the summer months. The S&P 500 hasnot notched a one-day move of 2% in either direction in more than six months, the calmest stretch since 2018 and one of the longest of the past 25 years, according to research firm Asym 500.
Some investors said they expected stocks to continue their climb in coming weeks. Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said corporate earnings and data on the economy have impressed him. Now, he is positioning for the market to continue its ascent and is particularly optimistic about corners of the market such as industrials and financials.
"There's no reason the stock market can't go higher," Zaccarelli said.
Shares of companies whose fortunes are most tied to the economy outperformed. The Russell 2000 index of smaller companies beat the S&P 500, rising 0.8%. Shares of industrials companies such as Tractor Supply, which sells farm equipment, also jumped past the index.
The outperformance shows how investors have increasingly ramped up bets that the domestic economy will keep humming along, despite higher interest rates. Later this week, investors will be parsing inflation data and the monthly jobs report for more clues on how the economy is faring. For now, many are taking a more optimistic stance.
"The soft landing is the consensus now," said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management.
Investors came away from Federal Reserve Chair Jerome Powell's speech Friday expecting interest rates could stay higher for longer. Traders were recently assigning a 57% probability to the central bank lifting rates again by the end of the year, up from 54% on Friday and 32% a week earlier, according to CME Group's FedWatch tool.
And they are betting rates will stay high for some time. By June 2024, traders see a 58% chance the Fed will have cut rates from current levels, down from 62% on Friday and 83% a week before that.
"We think the Fed is going to preserve their optionality as much as possible," said Steve Brown, senior managing director at Guggenheim Investments.
In corporate news, Hawaiian Electric shares leapt 45% after the utility pushed back against claims that its power lines caused the deadly Lahaina wildfire.
Shares of 3M rose 5.2% after The Wall Street Journal reported that the company was nearing a settlement regarding claims that it sold the military earplugs that didn't protect users from hearing loss.