Global Market Report - 7 September
The Australian market is set to open lower as futures were down.
Australia
Australian shares are set to edge lower following a dip on Wall Street, driven by expectations of a tighter US Fed policy.
ASX futures were down 42 points or 0.6% at 6775 as of 7:00am on Wednesday, pointing to a slip at the open.
US stock indexes fell Tuesday, driven by expectations for tighter Federal Reserve policy and an energy crisis in Europe.
The S&P 500 declined 0.4% after the long Labor Day weekend, following a turbulent session Friday that dragged major indexes lower. The Dow Jones Industrial Average slid 0.5%, while the tech-focused Nasdaq Composite lost 0.7%. The major indexes all have fallen for three consecutive weeks.
Stocks around the globe have come under pressure in recent weeks as worries about tighter monetary policy in the U.S. and a darkening economic outlook in Europe have led investors to sell riskier assets.
In commodity markets, Brent crude oil retreated, falling $2.91 per barrel, or 3%, to $92.83, amid growing concerns that lockdowns in China could stem demand. OPEC+ agreed Monday to cut oil production for the first time in over a year, delegates said, saying it should pull back about 100,000 barrels a day amid fears of a global recession and more Iranian crude coming to the market in the event of a revived nuclear deal. Meanwhile, gold edged down 0.55% to US$1,701.06.
In local bond markets, the yield on Australian 2 Year government bonds was flat at 2.98% while the 10 Year was at 3.64%. Overseas, the yield on 2 Year US Treasury notes gained to 3.5% and the yield on the 10 Year US Treasury notes was up at 3.35%.
The Australian dollar hit 67.32 US cents down from the previous close of 67.95. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 101.71.
Asia
Chinese shares ended higher, as concerns over the country's ongoing Covid-19 outbreaks eased somewhat. The benchmark Shanghai Composite Index rose 1.4% to 3243.45, the Shenzhen Composite gained 1.2% to 2113.27 and the ChiNext Price Index added 0.1% to 2540.64. Financial sector may remain in focus after the PBOC announced Monday that it would lower foreign exchange reserve requirement ratio for banks to 6%. The move is a strong signal that PBOC is increasingly more uncomfortable with the recent pace of CNY depreciation amid Covid-19 outbreaks and growing uncertainties in the property sector, UOB analysts say in a note. Bank of China rose 0.7%, while Agricultural Bank of China and Industrial & Commercial Bank of China were unchanged.
Hong Kong's Hang Seng Index slipped 0.1% to 19202.73, extending a losing streak to the fourth session as Covid-19 resurgence in China continued to weigh on sentiment. Hot-pot restaurant operator Haidilao led the declines with a 3.5% slide, while tech giants Tencent Holdings and Alibaba Group fell 1.5% and 0.5%, respectively. Property developers, many of which have significant offshore borrowings, strengthened after the PBOC moved to slow the yuan's depreciation. Country Garden Holdings jumped 9.3% and Longfor Group gained 5.8%. BYD Co. climbed 2.7%, recovering from six straight sessions of losses. Fosun International lost 5.9%, down 13% in the past three sessions amid news that it is reducing stakes in its subsidiaries.
The Nikkei Stock Average closes flat at 27626.51 as gains in pharmaceutical and steel stocks help offset falls in retail and information technology stocks. Daiichi Sankyo rises 2.0% and Nippon Steel gains 1.6% while furniture retailer Nitori Holdings loses 3.1% and Rakuten Group drops 2.8%. Broader market index Topix falls 0.1% to 1926.58. USD/JPY rises to a fresh 24-year high of 141.16 from 140.58 as of Monday 5 p.m. Eastern Time. U.S. economic data are in focus, including Institute for Supply Management's services activity data due later in the day.
Europe
The pan-European STOXX Europe 600 Index was up 0.99 point or 0.24% to 414.38, the German DAX was up 110.66 points or 0.87% to 12871.44, and the French CAC was up 11.39 points or 0.19% to 6104.61.
Meanwhile, the UK has a new Prime Minister – Liz Truss. On the news, in London, the FTSE 100 on Tuesday closed up 0.2%, led by consumer cyclicals and financials, AJ Bell's Russ Mould says.
"Investors appear to be betting that the potential relief on energy bills might help avoid the disastrous scenario previously feared whereby consumers would drastically cut back on spending," Mr. Mould adds. Meanwhile, the pound outperformed many of its peers by the end of the trading session with Liz Truss delivering a much-anticipated shock and awe announcement aimed at bringing energy prices under control, says Joshua Mahony, senior market analyst at online trading platform IG.
North America
US stock indexes fell Tuesday, driven by expectations for tighter Federal Reserve policy and an energy crisis in Europe.
The S&P 500 declined 0.4% after the long Labor Day weekend, following a turbulent session Friday that dragged major indexes lower. The Dow Jones Industrial Average slid 0.5%, while the tech-focused Nasdaq Composite lost 0.7%. The major indexes all have fallen for three consecutive weeks.
Stocks around the globe have come under pressure in recent weeks as worries about tighter monetary policy in the U.S. and a darkening economic outlook in Europe have led investors to sell riskier assets.
Within the S&P 500, seven out of 11 sectors were in the red during afternoon trading, with industrials, healthcare, real estate and utilities gaining.
Many investors say they have given up hope that the U.S. stock market's rapid rise from mid-June to mid-August was the start of a new bull market, and have instead accepted that it was likely a bear-market rally. The S&P 500 has already fallen more than 8% from its August peak, based on Friday's close.
"It's going to be really focused on, 'OK, just how bad does it become, given how restrictive the Fed has been and continues to be?'" said Tim Chubb, chief investment officer at Girard Wealth Advisory.
Many investors fear that continued aggressive interest-rate increases will push the U.S. economy into a protracted economic downturn. Consumers are already feeling particularly downbeat, and analysts have begun lowering their third-quarter earnings estimates.
"As pressure builds on companies and consumers and the downturn deepens, that's going to weigh on stock prices," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. "There's still some way to go with falling stocks, just given how high prices climbed during the pandemic."
Some investors are betting inflation will continue to be high next year, too. Eddie Ambrose, partner at Sound View Wealth Advisors based in Georgia, said he is seeking safety in stocks of dividend payers that have continuously offered and grown dividends.
"They are boring, but boring is good right now," Mr. Ambrose said. "They're paying you something to hold them."
The easing of prices in energy markets Tuesday was among the catalysts for European stocks' rebound, Ms. Streeter said. Now, attention has turned to the European Central Bank's interest-rate decision due on Thursday. In the U.K., many investors also are focused on the agenda ahead for Liz Truss, who won the race to lead the ruling Conservative Party and become Britain's next prime minister.
Australia
Australian shares are set to edge higher following a rally on Wall Street, ending a 7-day losing streak. Investor concerns were eased by a drop in oil prices and a reaffirmation of the U.S. central bank’s commitment to combat inflation.
ASX futures were up 29 points or 0.43% at 6752 as of 8:00am on Thursday, pointing to a rise at the open.
Major U.S. stock benchmarks moved higher Wednesday even as investors considered risks to the global economy. The S&P 500 was up 1.8%. The Dow Jones Industrial Average rose 1.4%, and the tech-heavy Nasdaq Composite gained 2.1%. Each of the S&P 500's 11 sectors notched gains, besides energy stocks.
Stocks and commodities around the globe have fallen for three consecutive weeks on three-pronged concerns for the world economy.
In commodities, oil prices fell to their lowest level since before the invasion of Ukraine. International benchmark Brent crude sank 5.2% to $88 a barrel. "What we are seeing today is worry over Chinese demand," said Stewart Glickman, senior equity analyst and head of energy sector at CFRA Research. "The lion's share of incremental demand for oil on a yearly basis comes from emerging markets," added Mr. Glickman. "When China taps the brake hard on its economy with its zero-tolerance policy on Covid-19, that eats into projected demand." Meanwhile, gold edged up 0.06% to US$1,718.06.
In local bond markets, the yield on Australian 2 Year government bonds rose to 3.02% while the 10 Year rose to 3.70%. Overseas, the yield on 2 Year US Treasury notes rose to 3.43% and the yield on the 10 Year US Treasury notes was down at 3.26%.
The Australian dollar hit 67.65 US cents down from the previous close of 67.34. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 101.36.
Asia
Chinese shares ended higher, as investors digested August trade data. "Most notably, shipment growth to key destinations improved across the board, export growth of consumer items and anti-Covid goods also improved notably," says UBS North Asia economist William Deng. He reckons that China's export shipments may rise in the coming months "if the impact from temporary port suspension normalizes." The benchmark Shanghai Composite Index rose 0.1% to 3246.29, the Shenzhen Composite added 0.5% to 2123.20 and the ChiNext Price Index advanced 1.2% to 2570.80. Auto stocks were broadly higher. BYD Co. rose 3.6% ,Great Wall Motor gained 0.8% and SAIC Motor was 0.1% lower.
Hong Kong's benchmark Hang Seng Index fell 1.4% to 18930.65, amid bearish sentiment for Asian stocks. The weak lead from Wall Street stocks, and the decline in the Nasdaq Golden Dragon China Index should drive some paring of gains in Chinese equities, says IG market strategist Jun Rong Yeap in a note. Decliners include ENN Energy and Xinyi Glass Holdings, which are each down 2.8%, and Shenzhou International Group, which is 2.7% lower. Technology stocks are also lower. Meituan declines 2.1% while Tencent Holdings trades 2.0% lower. Gainers include Longfor Group, which is 1.7% higher.
Japanese stocks ended lower, dragged by falls in shipping and energy stocks, as concerns continue about the Fed's tightening and the economic outlook. Major shipper Nippon Yusen drops 7.9% and oil explorer Inpex loses 2.8%. Meanwhile, auto stocks rise thanks partly to the yen's recent weakening. The Nikkei Stock Average falls 0.7% to 27430.30. USD/JPY is at 144.02 after rising to a new 24-year high of 144.38 earlier, compared with 142.79 as of Tuesday 5 p.m. Eastern Time. Economic data are in focus, including U.S. trade data due later in the day. The 10-year Japanese government bond yield rises one basis point to 0.245%.
Europe
European stocks were mixed at close following broad-based losses earlier in the session as US stocks recovered. The pan-European Stoxx Europe 600 fell 0.6%, the French CAC 40 was flat and the German DAX climbed 0.3%.
Ubisoft Entertainment slumped 17% as China's Tencent Holdings agreed to raise its stake in the company, raising concerns that this could scupper a full sale of the French game maker. Energy and mining stocks fall as oil and gas prices decline along with copper prices. Utility stocks rallies, led by Austrian electricity company Verbund, as the market bets on regulation shifts to address Europe's energy crisis.
The FTSE 100 closed Wednesday down 0.67% as mining and oils stocks fell. It has been a quiet day for markets and it looks like the recent wave of equity sales has lost a lot of power, but the FTSE 100 failed to recover as commodity stocks acted as a drag, IG Group PLC chief market analyst Chris Beauchamp says in a research note. "OPEC+'s decision to send a message earlier in the week has clearly not been heeded, and oil prices have fallen yet further, with recession fears the main driver at present," Mr. Beauchamp says. While European and U.S. markets have stabilized, the FTSE 100's commodity contingent is once again turning from a help to a hindrance, he says.
North America
Major U.S. stock benchmarks moved higher Wednesday even as investors considered risks to the global economy. The S&P 500 was up 1.8%. The Dow Jones Industrial Average rose 1.4%, and the tech-heavy Nasdaq Composite gained 2.1%. Each of the S&P 500's 11 sectors notched gains, besides energy stocks.
Stocks and commodities have fallen for three consecutive weeks on three-pronged concerns for the world economy. In China, Covid-19 lockdowns are curtailing activity and disrupting international supply chains. Europe's energy crisis is shutting down parts of industry and saddling governments with enormous bills.
In the U.S., the problem for markets is different. Some investors say the economy is too strong, encouraging the Federal Reserve to keep raising interest rates to curb inflation. Wednesday's move might suggest that sentiment is changing.
"For the last several weeks, the market read positive economic news as bad news, because it meant further tightening from the Fed," said Art Hogan, chief market strategist at B. Riley FBR Inc. "That counterintuitive reaction can only last for so long -- today investors are realizing they overreacted."
Mr. Hogan noted that the best-case scenario -- the Fed tackling inflation without causing a recession -- requires economic growth to remain fairly robust. Long-term U.S. Treasury yields also halted their recent rise, adding some relief for investors who feared rates could hit even more restrictive levels, he said.
Chinese trade data showed outbound shipments rose 7.1% from a year earlier in August, slowing from an 18% increase in July. China's imports increased 0.3% from a year earlier, down from 2.3% growth in July.
The export figures point to softening global growth, while the import data suggest lockdowns are hurting demand in China, said BNP Paribas Asset Management strategist Daniel Morris. "You are conceivably losing your second-biggest global motor of growth because Covid just seems to drag on and on in terms of the restrictions," he said.
Investors parsed another batch of data on the U.S. economy on Wednesday, in the Fed's release of its periodic compilation of economic anecdotes collected from businesses around the country
Comments in the so-called beige book contained notions of resilient economic strength to this point, which investors weighed against a bleaker forward outlook. Similarly, continued wage growth was measured against an overall slowing in price increases in many of the Fed's 12 districts.
