Global Fundamental Analysis 27/01/2022

Global Fundamental Analysis 27/01/2022, FP Markets

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

U.S. stocks swung lower after the Federal Reserve signaled it will raise rates and bring asset purchases to an end in March. The yield on the 10-year Treasury rose to 1.87%. The WSJ Dollar Index jumped to 90.15. Oil prices finished at their highest level since 2014. Gold prices pulled back from a two-month high. 

Australian Market

New Zealand’s NZX-50 gained 0.5%, as the market found some poise following a decline of more than 5.0% over the previous five sessions. Turnover was light due to a holiday in neighboring Australia. The release of New Zealand’s fourth-quarter CPI on Thursday is likely to reinforce expectations for RBNZ rate increases this year.  Australian markets were closed in observance of Australia Day. 

US Market

U.S. stocks gave up their gains after the Federal Reserve signaled intentions to raise interest rates in mid-March, offering the most-detailed vision yet of its plan to address rising inflation. The Fed’s statement indicated approval of a final round of asset purchases, bringing its stimulus program to a conclusion by March. “It will soon be appropriate to raise the target range for the federal-funds rate,” the statement said.  

Stocks turned lower during Fed Chairman Jerome Powell’s press conference, which followed the statement. The S&P 500 slipped 0.15% following the Fed’s afternoon announcement. The broad index has declined in five of the past six trading days. The tech-focused Nasdaq Composite Index edged less than 0.1% higher, while the Dow Jones Industrial Average fell about 0.4%.

Commodities

Gold futures settled at their lowest in over a week, pulling back from a two-month high a day earlier. Prices then showed little reaction in electronic trading after the U.S. Federal Reserve said it would soon be appropriate to raise interest rates. As expected, the Fed “sent even stronger signals that it will start raising rates in March,” when it will also end its asset purchase program, said Matthew Sherwood, global economist at the Economist Intelligence Unit.  

“The news is supportive for gold in the short term – as seen by the initial market reaction – as investors had feared that the Fed might end quantitative immediately or even push ahead with rate hikes given current inflation trends,” he said. February gold futures fell by 1.2% to settle at $1,829.70 an ounce, the lowest finish since Jan. 18.

Oil Futures

Fears of a potential Russian attack on Ukraine haven’t let up, helping lift oil futures on Wednesday back to their highest prices in more than seven-years. “If Russia does invade, we would expect oil prices to go parabolic,” said Tariq Zahir, managing member at Tyche Capital Advisors.

Meanwhile, a second straight weekly rise in U.S. crude stockpiles failed to disrupt the rally in oil prices and traders were also keeping a close eye on the Middle East after recent drone attacks by Yemen’s Houthi rebels on oil facilities in the United Arab Emirates.

West Texas Intermediate crude for March delivery rose 2%, to settle at $87.35 a barrel on the New York Mercantile Exchange. March Brent crude climbed 2% to settle at $89.96 a barrel on ICE Futures Europe after tapping a high at $90.47.  Both grades settled at their highest prices since October 2014.

Forex

Major currencies were weaker against the US dollar in European and US trade. The Euro fell from near US$1.1305 to US$1.1234 and was near session lows in late US trade. The Aussie dollar fell from US71.76 cents to US70.97 cents and was near US71.15 cents in late US trade. And the Japanese yen fell from near 113.85 yen per US dollar to JPY114.67 and was near JPY114.64 in late US trade.

European Markets

European sharemarkets rose on Wednesday, recording their best sessions since early December. Gains were broad-based with oil & gas up 4%, travel up 3.4%, miners up 2.6% and technology up by 2.2%. The pan-European STOXX 600 index rose by 1.7%. The German Dax index rose by 2.2%. And the UK FTSE index lifted by 1.3%. In London trade, shares in Rio Tinto rose by 2.3%. Shares in BHP gained 3.0%.

Asian Markets

Earlier Wednesday, Chinese stocks recovered from Tuesday’s slump, supported by renewables and auto makers. The market’s recent weakness could be attributed to risk-off sentiment ahead of the Lunar New Year holiday, but A-shares may rebound if Beijing steps up policy moves post-LNY, Huatai Securities said. The Shanghai Composite Index climbed 0.7%, the Shenzhen Composite Index added 0.7% and the ChiNext Price Index rose 1.0%.  

Hong Kong’s Hang Seng Index gained 0.2%, tracking a positive performance in the U.S. ADR market overnight. Sentiment was also supported by Chinese Premier Li Keqiang’s reiteration that the country will launch more measures to stabilize economic growth. Consumer stocks were higher ahead of the Lunar New Year holiday. Japan’s Nikkei Stock Average fell 0.4%, led by losses among a mixed bag of companies. The possibility of a 50 basis-point rate increase in March by the Fed continues to keep the markets on edge, while simmering geopolitical tensions between the West and Russia over Ukraine continues to add to jitters, OCBC said.

  • Global Fundamental Analysis 27/01/2022, FP Markets
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