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Global Fundamental Analysis 13/07/2022

Global Fundamental Analysis 13/07/2022, FP Markets

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

U.S. stocks fell on recession fears. The yield on the 10-year Treasury shrank to 2.98%. The WSJ Dollar Index was little changed at 99.78, pushing gold prices lower again. Oil prices continued to slide, hitting a three-month low.

Australian Market

Australia’s S&P/ASX 200 edged up less than 0.1%, finishing near its session low amid weakness in materials and tech stocks. The 10 worst-performing index components were all miners or tech companies, with four of them engaged in lithium operations.

US Market 

Fears about a recession on the horizon weighed on stocks, oil and bond yields, continuing a volatile stretch for global markets. The S&P 500 lost 0.9%. The Dow Jones Industrial Average declined 0.6%. The technology-focused Nasdaq Composite was down 1%. Losses accelerated in the final hour of the trading session.  

Many investors are waiting for fresh inflation data due on Wednesday, and major indexes, oil prices and bond yields have fallen ahead of the release. Some investors appeared reluctant to make big moves in the market ahead of the inflation data, leading to modest moves in the market throughout the session before major indexes turned lower late in the trading day. Losses accelerated in the final hour of the session.  

“We don’t really see anybody making any big bets right now in equities,” said R.J. Grant, director of equity trading at KBW. “Nobody wants to be heroic right now.” Some traders attributed the worsening declines late-afternoon to a tweet from the White House Director of the National Economic Council, saying that the upcoming inflation figures would be “significantly affected by stale gas price data.” Some traders interpreted the message as a sign that tomorrow’s data would be worse than many had expected.

Commodities

Gold prices settled higher for a second straight session, holding ground at their weakest level in more than nine months as the precious metal continued to feel the pressure from a stronger U.S. dollar. Gold futures for August delivery fell 0.4% to settle at $1,724.80 an ounce after touching a low at $1,721.60. Prices based on the most-active contract settled at their lowest since Sept. 29, 2021, FactSet data show.  

Gold has been “smothered” by an appreciating dollar and expectations over the Federal Reserve maintaining an aggressive stance towards higher interest rates, said Lukman Otunuga, manager, market analysis at FXTM. “The precious metal looks depressed and could be in store for more pain if the pending U.S. CPI report meets or exceeds market expectations” when it’s released Wednesday, he said.

Oil Futures

Oil futures fell sharply with U.S. and global benchmark crude ending below $100, their lowest since April, hampered by a strong dollar and continued worries over Covid-19 restrictions in China that could lead to a slowdown in energy demand. West Texas Intermediate crude for August delivery fell 7.9% to settle at $95.84 a barrel on the New York Mercantile Exchange. The settlement was the lowest for a front-month contract since April 11, according to Dow Jones Market Data. September Brent crude dropped 7.1% to $99.49 a barrel on ICE Futures Europe, with prices also ending at their lowest since April.

“Recently, Chinese President Xi Jinping had firmly rejected any departure from the country’s strict zero-Covid strategy,” said Carsten Fritsch, commodity analyst at Commerzbank. “This means downside risks to oil demand in China because renewed restrictions on mobility can be expected time and again, depending on case numbers. In the West, the combination of high energy prices and rising interest rates is fueling concerns about a recession that would have a serious impact on oil demand,” he said.

Forex

Major currencies were firmer against the US dollar in European and US trade. The Euro rose from 20-year lows near US$1.000 to highs near US$1.0070 and was near US$1.0030 at the US close. The Aussie dollar lifted from lows near US67.10 cents to highs near US67.77 cents and was near US67.55 cents at the US close. And the Japanese yen rose from near 137.51 yen per US dollar to JPY136.49 and was near JPY136.85 at the US close.

European Markets

European sharemarkets climbed on Tuesday. The pan-European STOXX 600 index rose by 0.5%, with financial services shares up 2.0%. The German Dax index gained 0.6%, despite Germany’s ZEW economic sentiment index dropping from -28 to -53.8 in July (survey: -40.5). The UK FTSE index lifted 0.2%. In London trade, shares of Rio Tinto shed 0.7% and BHP shares dipped 1.2%.

Asian Markets

Earlier Tuesday, China stocks extended a broad downturn as the market pulled back from substantial gains in June. Analysts have warned of rising Covid-19 risks after a number of cities reported an uptick in infections over the past few days. The benchmark Shanghai Composite Index fell 1.0%, while the Shenzhen Composite Index shed 1.5%. The tech-heavy ChiNext Price Index suffered the worst loss, ending 2.3% lower. Auto companies led the downturn as the sector continued to retreat from recent highs.

Hong Kong’s Hang Seng Index dropped 1.3%, weighed down by worries about the rise in China’s Covid-19 cases and ensuing lockdowns. Tech stocks slid amid regulatory jitters after China issued fines to tech giants like Alibaba and Tencent. The Hang Seng Tech Index dropped 2.1%. Japanese stocks ended lower, dragged by falls in machinery and electronics stocks, as concerns continue about higher costs of operations and the economic outlook. The Nikkei Stock Average fell 1.8%. Investors are focusing on any policy-related developments, following the ruling coalition’s recent election victory.

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