Global Market Report - 8 October
The Australian markets are expected to get off to a weak start this week, after shares took a hit in Europe and on Wall Street on Friday.
Australia
The Australian markets are expected to get off to a weak start this week, after shares took a hit in Europe and on Wall Street on Friday.
The Australian share price futures contract ended the week down 28 points, or 0.45 per cent, at 6146, pointing to a lower open for the ASX on Monday.
US stocks dropped for a second straight day on Friday following a rise in Treasury yields amid strong jobs growth.
The decline was led by the large tech and communication services stocks such as Facebook, Amazon, Apple and Netflix.
The Dow Jones Industrial Average fell 180.43 points, or 0.68 per cent, to 26,447.05, the S&P 500 lost 16.04 points, or 0.55 per cent, to 2,885.57 and the Nasdaq Composite dropped 91.06 points, or 1.16 per cent, to 7,788.45.
For the week, the S&P fell 0.98 per cent, the Dow slipped 0.04 per cent and the Nasdaq dropped 3.2 per cent. It was the biggest weekly decline for the Nasdaq since March.
Australian shares may also lose some ground on Tuesday when NAB releases its monthly business confidence survey for September.
Potential changes to negative gearing and capital gains tax changes could add to the drag in consumer confidence, amid concerns of falling house prices in Sydney and Melbourne, he added.
The Australian dollar is delivering welcome news to local businesses, pushing down further towards 70 US cent, after being at 70.46 US cents, when Wall Street finished trade for the week.
US inflation figures and Chinese economic data could also affect the Australian market towards the end of the week, and CommSec senior economist Ryan Felsman predicts the resources sector is likely to be lower after declines in Rio Tinto and BHP on the London exchange.
Asia
Chinese technology stocks fell sharply in Hong Kong on Friday. Lenovo shares fell 15.1 per cent while the state-owned ZTE closed 11 per cent lower. China's Shanghai Stock Exchange was closed last week for a national holiday.
China's central bank announced it would reduce the reserve requirement ratio foremost banks by one percentage point, the fourth time this year the country has sought to free up credit for businesses as they face down $US250 billion in US tariffs.
The move to cut the amount of cash which most commercial and foreign banks must hold in reserve, to repay loans obtained via the central bank’s medium-term lending facility, will take effect on October 15.
Europe
European shares also took a hit in the back end of last week with the benchmarks in London, Frankfurt and Paris all closing at least 1 per cent lower.
Emerging markets continue to remain under pressure too, with the MSCI Emerging Markets Index hitting a 17-month low on Friday as investors looked to exit riskier markets in favour of bonds.
North America
US stocks dropped for a second straight day on Friday, weighed down by another rise in Treasury yields in the wake of a solid jobs report that capped off a week of robust data.
The losses were led by heavyweight stocks in the technology and communication services sectors including all members of the so-called FAANG group - Facebook, Amazon, Apple , Netflix and Alphabet. Online retailer Amazon, part of the consumer discretionary sector, lost 1 per cent.
Nonfarm payrolls increased less than expected in September, likely due to the effect of Hurricane Florence, though data for July and August was revised higher, and the unemployment rate fell to 3.7 per cent, a Labor Department report showed.
The report pushed longer-dated US Treasury yields higher, with the 10-year note touching 3.248 per cent. That piled more pressure on US stocks, which are trading near record-high levels, raising concerns about valuations in the pricier names with the corporate earnings reporting season on tap.
After the data, interest rate futures traders were still largely expecting a Fed rate hike in December while the bond market's gauges on investors' inflation outlook rose.
The technology sector sank 1.27 per cent, dropping for the second day in a row on a fall in Intel and Microsoft.
Apple fell 1.6 per cent after David Einhorn's Greenlight Capital said it sold its remaining shares in the company on growing fear of "Chinese retaliation against America's trade policies".
The recently constituted communication services sector, which houses Netflix, Facebook and Alphabet, dropped 1.04 per cent.
The only gainer among the 11 major S&P sectors were defensive utilities, which advanced 1.57 per cent.
Tesla slumped 7.05 per cent after CEO Elon Musk stirred nerves about the settlement of his securities fraud lawsuit by mocking the US Securities and Exchange Commission on Twitter. Einhorn said his Tesla short was the second biggest winner last quarter.
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Morningstar with AAP, Reuters
Lex Hall is content editor, Morningstar Australia
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