Global Fundamental Analysis 01/07/2022

Australian Market

Australia’s S&P/ASX 200 closed 2.0% lower, falling all day to round out a third consecutive monthly loss. All 11 sectors of the benchmark index finished lower, with utilities, materials, real-estate and energy the worst hit. The energy sector dropped 2.5% amid lower oil prices, with shares of power companies also falling. The ASX 200 lost 8.9% in June for its largest monthly loss since March 2020. Its 12% quarterly loss was its worst since the three months since March 2020.

US Market 

U.S. stocks retreated on the final day of a brutal quarter for markets, weighed down by losses among shares of everything from banks to oil producers. The S&P 500 fell 0.9%. The Dow Jones Industrial Average was down 0.8%, while the Nasdaq Composite retreated 1.3%. All three indexes fell sharply in morning trading, recovered somewhat, and then fell again late in the session. The S&P 500 closed out its worst first half of the year since 1970, a stunning reversal of the rally that lifted markets around the world the preceding two years.

Investors place much of the blame on inflation. Price pressures that many had assumed would be transitory turned out to be more persistent than they thought. That forced central banks, including the Federal Reserve, to pivot from holding interest rates near historic lows to raising them rapidly in an effort to cool inflation. Analyst estimates currently suggest S&P 500 companies will report double-digit percentage growth in earnings in the second half of the year, according to FactSet. Those estimates seem far too optimistic, said David Donabedian, chief investment officer of CIBC Private Wealth US. “The market needs to get more objectively cheap,” Mr. Donabedian said.

Commodities

Gold futures settled lower for a fourth day in a row as expectations for aggressive action by the Federal Reserve diminished the precious metal’s luster, sending prices down by more than 2% for the month to their lowest finish since February. Gold futures for August delivery lost 0.6% to settle at $1,807.30 per ounce, the lowest most-active contract finish since early February, according to Dow Jones Market Data.

Prices fell 2.2% for the month and 7.5% for the quarter. They trade 1.2% lower year to date. A strong U.S. dollar and rising interest-rate expectations continue to weigh on the gold, with the metal “once again unable to benefit from the ongoing risk aversion in the markets,” said Fawad Razaqzada, market analyst at City Index and FOREX.com.

Oil Futures

Oil futures ended lower and posted a loss for the month, as a weekly increase in U.S. gasoline and distillate supplies raised worries over price-related demand destruction and major oil producers pledged to boost production by 648,000 barrels a day in August, as expected. West Texas Intermediate crude for August delivery fell 3.7% to settle at $105.76 a barrel on the New York Mercantile Exchange. Prices based on the front-month contracts traded nearly 41% higher year to date and gained 5.5% for the quarter, but lost 7.8% for the month, according to Dow Jones Market Data.

On its expiration day, global benchmark August Brent crude lost nearly 1.3% to $114.81 a barrel on ICE Futures Europe, trading almost 48% higher for the year and up over 6% for the quarter, but down 6.5% for the month. “Ongoing supply tightness will likely balance the market, but the risk of declining demand is real should inflationary pressures persist and consumer strength start to wean,” said Roberta Caselli of Global X

Forex

Major currencies were stronger against the US dollar in European and US trade. The Euro rose from lows near US$1.0380 to highs near US$1.0486 and was near US$1.0480 at the US close. The
Aussie dollar lifted from lows near US68.67 cents to highs near US69.18 cents and was near US69.00 cents at the US close. The Japanese yen firmed from 136.43 yen per US dollar to JPY135.55
and was near JPY135.75 at the US close.

European Markets

European sharemarkets fell on Thursday. The pan-European STOXX 600 index shed 1.5%, posting June quarter losses of 10.7%, its biggest 3-month decline since early 2020. Year-to-date the index is down 16.5%. On Thursday, the German Dax index lost 1.7% and the UK FTSE index slipped 2.0%. In London trade, shares of Rio Tinto and BHP both dipped by 3.6%.

Asian Markets

Earlier Thursday, Chinese shares extended early gains after the country’s official gauges of factory and services activity expanded in June after three straight months of contraction. “This reaffirms expectations of an economic recovery in China that will likely pick up momentum in the second half of the year alongside stimulus measures rollout,” UOB analysts said. The Shanghai Composite Index rose 1.1%, the Shenzhen Composite Index gained 1.4% and the ChiNext Price Index advanced 1.5%.

Hong Kong’s Hang Seng Index, however, fell 0.6% as concerns over China’s zero-Covid policy outweighed positive factory and services activity data. There could be impact from Chinese President Xi’s reaffirmation of the government’s commitment to the zero-Covid policy on Wednesday, said Oanda senior market analyst Jeffrey Halley. Japanese stocks were dragged lower by weakness in electronics and auto stocks as uncertainty persists about costs and the economic outlook. Tokyo Electron dropped 4.1% and Nissan Motor lost 3.8%. The Nikkei Stock Average fell 1.5%. The index has dropped 8.3% in the first half of 2022.