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  5. Global Fundamental Analysis 22/11/2022

Global Fundamental Analysis 22/11/2022

Global Fundamental Analysis 22/11/2022, FP Markets

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

U.S. stocks kicked off a holiday-shortened week lower on worries over rising Covid-19 cases in China. The yield on the 10-year Treasury was nearly flat at 3.83%. The WSJ Dollar Index jumped to 100.47, pushing gold futures lower. Oil futures ended off session lows after Saudi Arabia denied talk of OPEC+ production boost.

Australian Market

Australia’s S&P/ASX 200 slipped 0.2%, pulled down by commodity and tech stocks. The benchmark index ran out of steam after a small opening rise, with the materials sector shedding 1.5% amid lower iron ore prices.

US Market 

U.S. stocks fell as investors worried about a rise in Covid-19 infections overseas and the state of the economy at home heading into the key holiday season. The S&P 500 shed 0.4%. The Nasdaq Composite lost 1.1%, while the Dow Jones Industrial Average slipped 0.1%.

“All eyes are on China,” said Hani Redha, a portfolio manager at PineBridge Investments. “Any attempt to reopen is going to be tricky because we know the pattern with these things: you get a spike in cases. We haven’t even really got going and there are already a lot of cases.”

On top of the China news, investors are looking at an assortment of concerning developments in the U.S. ahead of the holiday season. A looming railroad-worker strike could disrupt some supply chains as soon as early December, hampering commerce. Investors will also be watching the holiday shopping season to see the degree to which inflation is biting into consumers’ purchasing power.

Commodities

Gold extended last week’s losses as news of China’s worsening Covid-19 situation supported the U.S. dollar, while weighing broadly on commodity and equity prices. Gold futures for December delivery fell 0.8% to settle at $1,739.60 per ounce on Comex.

“Gold will only be a safe-haven trade if the dollar is in a defensive mode and that is not happening here,” said Edward Moya, senior market analyst with Oanda. “Gold needs China’s Covid situation to improve before it can start to look attractive again for investors. If the dollar rally turns excessive, gold could be vulnerable to a plunge towards the $1,700 level,” he said.

Oil Futures

Oil futures declined but ended well off session lows after Saudi Arabia’s energy minister denied a news report that the Organization of the Petroleum Exporting Countries and their allies were weighing a production increase. Crude was previously under pressure on continued worries over China’s demand outlook in the face of renewed Covid-19 lockdowns. West Texas Intermediate crude for December delivery ended down 0.4% at $79.73 a barrel on the New York Mercantile Exchange. January Brent crude, the global benchmark, was off 0.2% to settle at $87.45 a barrel on ICE Futures Europe.  

Both WTI and Brent briefly slumped to levels last seen in January. The Wall Street Journal, citing unnamed delegates, said Saudi Arabia and other producers from OPEC were discussing an output increase of as much as 500,000 barrels a day. Such a move would help ease tensions with the Biden administration and keep energy flowing as new efforts to curtail Russia’s oil industry take effect.

Crude subsequently trimmed losses after news reports said Saudi Arabia’s energy minister told a state news agency that there had been no discussions of an output increase. A production cut by OPEC+ agreed to at the group’s October meeting angered the Biden administration and U.S. lawmakers. It’s likely premature to consider a production boost, said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a note

Forex

Major currencies were weaker against the US dollar in European and US trade. The Euro eased from highs near US$1.0284 to lows near US$1.0223 and was near US$1.0240 at the US close. The Aussie dollar fell from highs near US66.51 cents to lows near US65.85 cents and was near US66.00 cents at the US close. And the Japanese yen dipped from near 140.43 yen per US dollar to near JPY142.20 and was around JPY142.10 at the US close.

European Markets

European sharemarkets edged lower on Monday. Gains in defensive food and beverage (+1.2%) and healthcare companies (+1.0%) were offset by declines in energy (-2.8%) and basic resources (-1.6%) stocks on worries about the impact of surging Covid-19 cases in China. German producer prices posted their first monthly fall in 2½ years in October, down 4.2%, well below market expectations for a 0.6% lift. The continent-wide FTSEurofirst 300 index dipped by 0.1%. And the UK FTSE 100 also fell by 0.1% with losses limited by a weaker British pound.

Asian Markets

Earlier Monday, China stocks finished lower, as the country’s Covid outbreaks continued to deteriorate and several cities further tightened movement controls over the weekend. The benchmark Shanghai Composite Index fell 0.4%, while the Shenzhen Composite Index edged down by 0.81 point. The tech-heavy ChiNext Price Index fell 0.1%. Hong Kong stocks ended the session lower, tracking losses in the mainland China market as investor sentiment soured over the country’s continuing Covid outbreaks and tightened movement restrictions.

The benchmark Hang Seng Index fell 1.9%. Japan’s Nikkei Stock Average edged 0.2% higher amid cautious sentiment. Investors seem to be caught between the “crosshairs” on easing U.S. CPI and PPI data, while Fed policy makers continue to make hawkish comments, said Priyanka Sachdeva, an analyst at Phillip Nova.

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