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Global Fundamental Analysis 17/05/2022

Global Fundamental Analysis 17/05/2022, FP Markets

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

U.S. stocks were mixed as investors weighed the Russia-Ukraine war, Federal Reserve policy and China’s economic slowdown. The yield on the 10-year Treasury slipped to 2.89%. The WSJ Dollar Index fell to 96.51. U.S. oil prices surged to their highest close since March 23. Gold prices climbed late in the session to post a modest gain.

Australian Market

Australia’s S&P/ASX 200 advanced 0.3% as tech stocks continued their post-selloff rebound from the end of last week. The tech sector added 2.1% and the industrials sector rose 2.4% on an 11% jump by Brambles. The pallet maker said it had received a takeover approach by CVC Capital Partners. Overall gains were pared by weakness in shares of iron-ore miners.

US Market 

U.S. stocks finished mostly lower as the selloff in shares extended into another week. The Dow Jones Industrial Average rose 0.1%, while the S&P 500 fell 0.4% and the technology-heavy Nasdaq Composite Index dropped 1.2%. The S&P 500 has dropped for six consecutive weeks, its longest weekly losing streak since June 2011, even after posting gains on Friday.  

Investors, worried that the Federal Reserve has been too late to spot the risks from soaring inflation, fear the central bank will move too aggressively to fight it, a mistake that could tip the economy into a recession.

The resulting selloff, which has been compounded by the war in Ukraine and Covid-19 lockdowns in China, has been broad, affecting most assets from cryptocurrencies and stocks to government bonds, leaving investors unsure of where to seek safety.  

“We are moving into a more challenging time for markets. We need to see signs that inflation is not just peaking but actually decelerating before you find a sustainable bottom in the market. That is going to take at least a couple of months,” said David Donabedian, chief investment officer at CIBC Private Wealth.  

“That doesn’t mean we won’t have counter-rallies higher from day to day, but I think this is a long, drawn-out process and it is largely data-driven,” he said. Investors are grappling with so many issues-the Russia-Ukraine war, Federal Reserve policy, inflation, China’s economic slowdown-it is hard for them to justify holding any assets for too long, said City Index market analyst Fawad Razaqzada. Most fundamentally, he said, investor confidence has been badly shaken by the selloff.

Commodities

Gold futures closed modestly higher to start the week after prices briefly drifted below the $1,800 an ounce threshold. Gold futures for June delivery rose 0.3% to settle at $1,814.00 an ounce on Comex. Gold “has been a victim of a strong U.S. dollar and rising bond yields, making this non-interest-bearing commodity less appealing for yield seekers. Its performance has surprised many market participants, us included,” said Fawad Razaqzada, market analyst at City Index and Forex.com, in a note.

Oil Futures

Oil futures erased early losses, ending strongly higher as tight supplies allowed gasoline to continue a push into record territory. Investors also weighed a loosening of Covid-19 restrictions in Shanghai versus economic data that underlined demand fears tied to the nation’s lockdown policies.  

“The continuous inventory withdrawal over the past few weeks has pushed U.S. gasoline stocks to levels significantly below the five-yr average at this point in the season and reflects acute supply tightness,” said Warren Patterson, head of commodities strategy at ING, in a note.

“Refineries increased operating rates last week to improve supply; however, a shortfall persists.” West Texas Intermediate crude for June delivery rose 3.4% to close at $114.20 a barrel on the New York Mercantile Exchange. July Brent crude, the global benchmark, gained 2.4%, settling at $114.24 a barrel on ICE Futures Europe.

Forex

Major currencies were mostly firmer against the US dollar in European and US trade. The Euro rose from lows near US$1.0390 to highs near US$1.0440 and was near US$1.0430 at the US close.
The Aussie dollar rose from lows near US68.80 cents to session highs near US69.80 cents and was near US69.70 cents at the US close. And the Japanese yen lifted from 129.60 yen per US dollar to JPY129.00 and was near JPY129.10 at the US close.

European Markets

European sharemarkets were mixed on Monday with investor sentiment dented by weak Chinese economic data. Luxury good stocks fell with LVMH down 1.1%. But miners rose 1.6%. The panEuropean STOXX 600 index was flat. The German Dax index fell by 0.5% while the UK FTSE index lifted by 0.6%. In London trade, shares in Rio Tinto rose by 0.4% while BHP shares lost 0.7%.

Asian Markets

Earlier Monday, China stocks dropped as investors digested weak April retail sales data, a proxy for the country’s overall consumption. The metric fell 11% in the past month, marking its worst drop since March 2020. The benchmark Shanghai Composite Index, as well as the Shenzhen Composite Index, fell 0.3%. The tech-heavy ChiNext Price Index fared the worst, losing 1.1%. Consumer goods companies, including condiment makers and dairy producers, led the downturn. Medical services providers, such as Covid-19 testing companies and drug developers, further weighed on the market.

Hong Kong stocks, however, ended the session higher, with the benchmark Hang Seng Index rising 0.3%. Chinese property developers led gains, as investors welcomed news reports that three private real-estate companies, Longfor, Country Garden and Midea Real Estate, have been selected by regulators for onshore bond issuance as early as this week.

Jefferies analysts said in a note that the move could boost investor sentiment in the near term. The Nikkei Stock Average gained 0.5%, supported by ongoing expectations for an earnings recovery from the pandemic. Warehouse-equipment maker Daifuku advanced 11% after it projected a 10% rise in its fiscal-year net profit.

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