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Global Fundamental Analysis 20/05/2022

Global Fundamental Analysis 20/05/2022, FP Markets

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

U.S. stocks ended a back-and-forth session lower after steep losses yesterday. The yield on the 10-year Treasury slipped to 2.84%. The WSJ Dollar Index retreated to 95.36, helping gold prices enjoy their best session in a month. Oil prices recovered from an early-morning slump to settle higher.

Australian Market

Australia’s S&P/ASX 200 lost 1.7% as widespread selling wiped out its gains for the week. Consumer, tech and financial stocks led losses. Banks gave up between 0.95% and 4.1%, while travel and retail stocks were also hit by worries over inflation. Health was the only one of the ASX 200’s 11 sectors to rise. The ASX 200, which had been on a four-session winning run, is now 0.15% lower so far this week.

US Market 

U.S. stocks and bond yields fell amid continued investor concerns about the health of the economy. The major indexes dipped early in the session, with the S&P 500 flirting with bear market territory-market shorthand for a 20% fall from a recent high-a day after tumbling 4%. They later recovered ground, but finished lower, with all on track to post weekly losses of at least 2%. Concerns about consumer spending, which helped lift the market out of pandemic lows, have weighed on stocks and bond yields.  

The S&P 500 lost 0.6%. The Dow Jones Industrial Average fell about 0.8%. The Nasdaq Composite Index, which entered bear-market territory earlier this year, retreated 0.3%. Earnings reports from some of America’s biggest retailers in recent days have added to concern that the highest rate of inflation in four decades is catching up with U.S. consumers and pitching the economy toward a recession. Investors were already grappling with the end of an era of loose monetary policy that stoked big gains for stocks and other riskier assets.  

The combination of factors has recently fed into steep losses for stocks and some corporate bonds, and many investors expect the volatility to continue. “The price action suggests it’s not over,” said Philip Saunders, a portfolio manager at Ninety One, an asset manager based in the U.K. and South Africa.

Commodities

Gold futures closed higher, recording their best daily gain in about a month, as the yellow metal benefited from risk aversion in the wake of the worst day for U.S. stocks in nearly two years on Wednesday. Gold futures gained 1.4% to settle at $1,841.20 an ounce, the best daily percentage rise for the most-active contract since April 12, according to Dow Jones Market Data.

“An economic recession in the U.S. is now on the minds of traders and investors who were already saddled with other concerns, including the Russia-Ukraine war and Covid cases causing major cities in China to be on lockdown, which is disrupting global trade,” Jim Wyckoff, senior analyst at Kitcom.com wrote. “A lower U.S. dollar index and a decline in U.S. Treasury yields on this day are also working in favor of the metals market bulls.”

Oil Futures

Oil futures swung to a higher close as a selloff in equity markets eased and investors kept an eye on plans to ease Covid restrictions in Shanghai. Crude was under pressure in early trade after oil and other energy futures fell Wednesday despite data that showed an unexpected fall in U.S. crude inventories and a larger-than-expected drop in already tight gasoline stocks – a move analysts said likely reflected selling in response to a rout in the equity market. But crude shook off the early pressure to turn higher, as losses for U.S. indexes moderated and traders highlighted a tight supply backdrop.  

“Still, what remains true across global markets is that inventories are low, particularly for products, which continues to offer price support to refined product prices over the near-term,” said Robbie Fraser, manager of global research and analytics at Schneider Electric, in a note. “That challenge is likely to persist as Northern Hemisphere summer travel demand is poised for a boost to gasoline, diesel and jet fuel demand over the weeks and months ahead.

To counter this, the latest data shows US refiners responding with higher run rates, but any normalization of inventory levels will take time,” he said. West Texas Intermediate crude for June delivery rose 2.4% to close at $112.21 a barrel on the New York Mercantile Exchange. July Brent crude advanced 2.7% to settle at $112.04 a barrel on ICE Futures Europe.

Forex

Major currencies were stronger against the US dollar in European and US trade. The Euro rose from lows near US$1.0463 to highs near US$1.0607 and was near US$1.0580 at the US close. The Aussie dollar firmed from lows near US69.60 cents to highs near US70.72 cents and was near US70.45 cents at the US close. And the Japanese yen lifted from 128.66 yen per US dollar to JPY127.05 and was near JPY127.80 at the US close.

European Markets

European sharemarkets were weaker on Thursday. The panEuropean STOXX 600 index fell by 1.4%, with food and beverages stocks down 3.4% to lead losses. The German Dax index fell by 0.9% and the UK FTSE index lost 1.8%. Shares of Britain’s Royal Mail plunged 12.4% after the company’s 2021-22 profit missed market expectations. In London trade, shares in Rio Tinto fell by 0.5% while BHP shares gained 0.5%.

Asian Markets

Earlier Thursday, China stocks settled higher, extending their range-bound trading pattern so far this week. The benchmark Shanghai Composite Index edged up 0.4%, while the Shenzhen Composite Index advanced 0.6%. The ChiNext Price Index rose 0.5%. The market was supported by soaring momentum in the renewable-energy sector, after the European Union overnight unveiled a new plan to accelerate the region’s green-energy transition. Chinese solar-power equipment makers, wind turbine suppliers and renewable-energy materials producers led gains.

Hong Kong’s Hang Seng Index fell 2.5% amid declines in technology stocks. Profit-taking pressure likely weighed on Hong Kong-listed shares after Chinese technology stocks fell sharply in the U.S. ADR market last night, KGI Research analysts wrote in a commentary. The Hang Seng Tech Index closed about 4% lower. Japanese stocks were dragged lower by weakness in electronics and tech stocks, as concerns persist about higher costs of materials and operations. The Nikkei Stock Average fell 1.9%. Investors are focusing on movements of yen and updates on Covid-19 lockdowns in China.

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