Global Markets Report - 19 October
Australian shares are set to fall at the open, as rising tension in Gaza keep investors uneasy. US Bond yields continued to climb.
Australia
Australian shares are set to fall at the open, as rising tension in Gaza keep investors uneasy. US Bond yields continued to climb.
ASX futures were 83 points or 1.16% lower at 7018 as of 8:00am on Thursday, suggesting losses at the open.
US stocks were broadly lower as investors weigh continued fighting in Gaza along with corporate earnings and another rise in bond yields.
Long-term bond yields hit a fresh 16-year high Wednesday, weighing on stocks already pressured by the conflict in Gaza and corporate earnings results.
The 10-year US Treasury yield rose to 4.902%, the highest closing level since July 2007. The S&P 500 fell 1.3%. The Dow Jones Industrial Average shed 332.57 points, or 1%. The Nasdaq Composite lost 1.6%.
A swift climb in bond yields has dented enthusiasm for stocks in recent weeks. Investors are also monitoring the intensifying Israel-Hamas war that threatens to disrupt the global energy market. A mixed bag of corporate earnings results further complicates the outlook for stocks.
In commodity markets, Brent crude oil rose 1.71% to $US91.30 a barrel, Gold rose 1.27% to $US1,947.55 and Iron ore dipped 1.4% to $US115.85 a tonne.
In local bond markets, yields on Australian 2 Year government bonds gained, rising to 4.25% and the 10 Year yield moved higher to 4.65%. Overseas, the US Treasury notes climbed, with the yield on 2 Year rising to 5.22% and 10 yield to 4.91%.
The Australian dollar retreated to 63.36 US cents from its previous close of 63.63 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies was flat at 100.65.
Asia
Chinese shares closed lower despite a positive 3Q GDP print and broadly solid September economic activity data. Consumer-services and pharma stocks weighed on the market. China Tourism Group Duty Free lost 1.75% and Shanghai Jinjiang International Hotels shed 1.8%. Jiangsu Hengrui Medicine dropped 1.5% and WuXi AppTec declined 0.8%. Given persistent macro weakness, particularly from the property-market downturn and still-fragile confidence, Goldman Sachs expects continued policy easing in 4Q. Auto and auto-part stocks gained, with BYD rising 4.65% after guiding for higher 3Q net profit on the back of record EV sales. The benchmark Shanghai Composite Index declined 0.8% to 3058.71, the Shenzhen Composite Index was 1.5% lower and the tech-heavy ChiNext Price Index lost 1.2%.
Hong Kong shares closed lower as concerns over continued Fed tightening offset China's positive 3Q GDP data and relatively solid September activity data. Hot retail sales and industrial production data in the U.S. brought Fed rate hike bets higher, said Charu Chanana, Saxo market strategist, in a note. The benchmark Hang Seng Index shed 0.2% to 17732.52 and the Hang Seng Tech Index closed 1.7% lower. Tech and property stocks led losses as Lenovo Group plunged 9.65% and Baidu dropped 4.8%. Alibaba Health and JD.com lost 3.9% and 2.9%, respectively. Country Garden Services was off 2.1% and Longfor Group fell 1.3%. Meanwhile, BYD gained after the company guided for strong 3Q profit growth, up 6.9%. Among other gainers, Anta Sports rose 4.1% and China Resources Beer added 2.0%.
The Nikkei Stock Average ended flat at 32042.25 as gains in financial stocks helped offset losses in tech and pharmaceutical shares. Among individual movers, Socionext jumped 13% after the chip designer announced a collaboration with Arm and TSMC for the development of a new chiplet. Broader Topix index gained 0.1% to 2295.34. The 10-year Japanese government bond yield rose 2.5 basis points to 0.805%. Investors are focusing on the latest developments in the war between Hamas and Israel and the impact on crude-oil prices and bond yields.
Indian shares closed lower, dragged by finance and bank stocks, as regional equity markets fell broadly amid geopolitical tensions in the Middle East. Equities were under pressure, with a run higher in U.S. Treasury yields and higher Fed rates, Saxo market strategist Charu Chanana says in a note. The benchmark Sensex declined 0.8% to 65877.02. Bajaj Finance led the losses, falling 2.7%, followed by Bajaj Finserv, which shed 2.0%. Axis Bank and HDFC Bank lost 1.5% and 1.4%, respectively. Tata Motors and Sun Pharmaceutical Industries were among the gainers, rising 1.9% and 1.5%, respectively. Maruti Suzuki India rose 0.4% and Mahindra & Mahindra gained 0.3%.
Europe
European stocks dropped as investors ponder the continuing shockwaves from Middle East unrest. The Pan-European Stoxx 600, FTSE 100, German DAX and French CAC 40 retreated about 1% and the Dow, S&P 500 and Nasdaq fell. Construction and property stocks were among the biggest losers and airlines and airports hit headwinds amid concerns about the impact of the Israel-Hamas conflict on air travel. "European markets are on the back foot as the Middle-East political temperature ratchets up further following the Gaza hospital bombing," CMC Markets analyst Michael Hewson wrote. "Reports of airport shutdowns in France due to terror threats, which are weighing on airlines, haven't helped sentiment." Still, oil shares advanced as Brent crude increased 1.6% to $91.30 a barrel.
The FTSE 100 closed Wednesday down 1.1% to 7588 points, with global market sentiment dampened due to rising tensions in the Middle East, CMC Markets U.K. chief market analyst Michael Hewson said in a note. Shares of the Anglo-Swedish pharma heavyweight Astrazeneca closed down 5.8%, dragging the bluechip index into negative terrain after data indicated that its new lung and breast cancer medicine wasn't as effective on treating lung cancer as early results suggested, Hewson added. Barratt Developments followed the list of worst performers, closing down 5.1%, after the house builder reported that forward sales were down quite sharply from the same period a year ago, Hewson said. House builder Taylor Wimpey shares also slipped 4.25% on the Barratt news.
North America
US stocks were broadly lower as investors weigh continued fighting in Gaza along with corporate earnings and another rise in bond yields.
Long-term bond yields hit a fresh 16-year high Wednesday, weighing on stocks already pressured by the conflict in Gaza and corporate earnings results.
The 10-year US Treasury yield rose to 4.902%, the highest closing level since July 2007. The S&P 500 fell 1.3%. The Dow Jones Industrial Average shed 332.57 points, or 1%. The Nasdaq Composite lost 1.6%.
A swift climb in bond yields has dented enthusiasm for stocks in recent weeks. Investors are also monitoring the intensifying Israel-Hamas war that threatens to disrupt the global energy market. A mixed bag of corporate earnings results further complicates the outlook for stocks.
"The market is walking this tightrope," said George Cipolloni, portfolio manager at Penn Mutual Asset Management. "There's a lot of risk in front of it."
Higher yields make borrowing more expensive for companies and households. Elevated rates also make stocks look less attractive because they represent an essentially risk-free return, raising the bar for riskier assets such as equities.
A string of hotter-than-expected economic reports in the past several weeks has prompted investors to weigh whether the Federal Reserve may lift interest rates again this year in its campaign to cool inflation.
Some Fed officials have signaled the run-up in long-term yield could substitute for a further central-bank rate increase. Philadelphia Fed President Patrick Harker told The Wall Street Journal he thinks the central bank can likely wait until early next year to see how the economy is responding to a rapid climb in interest rates before lifting rates further.
Traders are pricing in a roughly 37% probability that the central bank will raise its benchmark rate in its final policy meeting of the year, up from about 26% a week ago, according to CME Group's federal-funds futures.
"Investors are very focused on...determining the next course of action for the Fed," said Todd Jablonski, global head of multiasset and quantitative investing at Principal Asset Management.
A deadly explosion at a Gaza hospital escalated fears of wider regional conflict. Arab leaders canceled a summit with President Biden, reducing the likelihood of an imminent diplomatic solution.
Concerns about the Israel-Hamas war potentially expanding in the Middle East pushed oil prices higher. Brent crude rose 1.8% to $91.50 a barrel, the highest level this month.
A slew of quarterly earnings reports reflected challenges in the banking industry. Morgan Stanley's stock fell 6.8% after the bank posted a drop in quarterly net income, with investment banking and trading still in a slump. Shares of some regional banks, such as U.S. Bancorp, fell after several lenders reported being squeezed by higher interest and other expenses.
About 11% of the companies in the S&P 500 have reported third-quarter earnings so far, according to FactSet. Of those, about 81% have topped analyst expectations, compared with the five-year average of 77%.
Airline stocks pulled back after United Airlines cut its earnings forecast for the end of the year. Shares of United Airlines fell 9.7%% in its worst one-day percentage decline since July 2022. Delta Air Lines and American Airlines also fell.
Semiconductor stocks dropped for a second day after the U.S. said it would significantly constrict exports of artificial-intelligence chips, making it harder for U.S. companies to sell products to the Chinese market. Nvidia lost 4%, Intel shed 1.2% and Advanced Micro Devices dipped 2.8%.
Data from China painted a mixed picture of the second-largest economy in the world. China's economic growth slowed last quarter, but retail sales in September were stronger-than-expected.
