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Global Fundamental Analysis 12/07/2022

Global Fundamental Analysis 12/07/2022, FP Markets

Opening Call: The Australian share market is to open higher.

U.S. stocks kicked off the week with losses amid growth concerns. The yield on the 10-year Treasury dropped to 2.99% as recession fears linger. The WSJ Dollar Index climbed to 99.8, helping push gold prices lower. Natural gas prices jumped after a pipeline was shut for maintenance in Europe. China’s Covid-19 lockdowns sent U.S. oil prices lower.

Australian Market

Australia’s S&P/ASX 200 dropped 1.1%, pulling back at the start of the week amid losses by materials, tech, consumer and financial stocks. EML Payments shed 25% following the sudden exit of its CEO, making it the worst-performing ASX 200 component and helping pull the tech sector down by 2.5%. Gold, iron-ore and lithium stocks all lost ground, while weakness in wealth managers, health insurers and banks more than offset gains by general insurers in the financial sector.

US Market 

U.S. stocks fell to start the week as investors prepared for fresh inflation data and corporate earnings that could influence the Federal Reserve’s path for interest-rate increases. The S&P 500 fell about 1.2%. The Nasdaq Composite Index shed 2.3% as technology stocks lost ground. The Dow Jones Industrial Average was off 0.5%.

Stocks staged a recovery in recent days, with the S&P 500 rising nearly 2% last week. The rally cooled on Friday after a stronger-than-expected jobs report showed the labor market is still hot, raising the probability that the Fed could continue with aggressive interest rate increases and potentially cause a recession. The next key data release, the U.S. consumer-price index for June, is on Wednesday.

“It’ll be interesting to see how the market trades following that news,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “It doesn’t appear like we’re going to have a decline in inflation any time soon.”

Commodities

Gold prices marked their lowest settlement in more than nine months as a strong dollar continued to weigh on the yellow metal. Gold futures for August delivery fell 0.6% to settle at $1,731.70 per ounce. That was the lowest finish for a most-active contract since Sept. 29, 2021, FactSet data show. “The precious metal’s price action is very much driven by the dollar index, which is holding on to its strength,” said Naeem Aslam, chief market analyst at AvaTrade, in a note. The U.S. jobs data released last Friday provided support for the Fed’s hawkish monetary policy, so “it is highly likely that the next interest rate [hike] will be 75 basis points, and this means that the dollar will pick more strength, and the gold price is likely to lose more shine.”

Oil Futures

Prices for natural gas were underpinned by a planned 10-day maintenance shutdown of the Nord Stream 1 pipeline and a “widespread area of much above normal U.S. temperatures,” analysts at Zaner wrote. The pipeline shutdown is “raising concern that gas deliveries through the vital European pipeline may not be turned back on again,” strategists at UBS wrote. August natural gas rose 6.5% to settle at $6.426 per million British thermal units, the highest front-month contract finish since June 29, according to Dow Jones Market Data.

Demand fears were getting the blame for a renewed slide in U.S. oil prices after Beijing, over the weekend, imposed stringent restrictions across several cities to tackle the emergence of the highly contagious BA. 5 omicron subvariant. West Texas Intermediate crude for August delivery fell 0.7% to settle at $104.09 a barrel on the New York Mercantile Exchange. September Brent crude gave up early losses to finish at its highest in a week, up nearly 0.1%, at $107.10 a barrel on ICE Futures Europe.

Forex

Major currencies were weaker against the US dollar in European and US trade. The Euro fell from highs near US$1.0142 to 20-year lows near US$1.0032 and was near US$1.0040 at the US close. The Aussie dollar dipped from highs near US68.18 cents to lows near US67.15 cents and was near US67.35 cents at the US close. And the Japanese yen eased from near 136.72 yen per US dollar to
JPY137.72 and was near JPY137.45 at the US close.

European Markets

European sharemarkets closed mostly lower on Monday. The panEuropean STOXX 600 index fell by 0.5%, with most sectors in negative territory. Autos stocks led the losses, down 2.8%. Shares of German energy company Uniper dropped 14.4% after a dispute flared up between Germany and Finland over the cost of rescuing the gas importer. The German Dax index slid 1.4%, but the UK FTSE index edged up less than 0.1%. In London trade, shares of Rio Tinto shed 0.5% and BHP shares dipped 2.3%.

Asian Markets

Earlier Monday, Chinese stocks were weighed down by miners and automakers. A flare-up in Covid-19 cases in China has again hit a nerve in the market and threatens to snap a trend of recovering consumption, Shanxi Securities said in a note. Great Wall Motor fell 5.0% after its June vehicle sales data underperformed the overall market. The Shanghai Composite Index declined 1.3%, the Shenzhen Composite Index shed 1.5% and the ChiNext Price Index lost 1.8%.

Hong Kong’s Hang Seng Index posted its biggest percentage loss in about a month, losing 2.8%, amid worries over rising Covid-19 cases and ensuing lockdowns in China. Macau casino stocks took a beating, following city officials’ move to shut gaming venues for a week to curb the spread of the virus.

The tech sector weakened after internet companies like Alibaba Group and Tencent Holdings were fined for failing to make proper antitrust declarations. Japanese stocks, however, rose broadly as the ruling coalition’s election victory in Japan solidified the current government’s standing and has raised the prospects for policy continuity. The Nikkei Stock Average gained 1.1%.

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