Global Fundamental Analysis 01/10/2021

Australian Market

Australia’s S&P/ASX 200 gained 1.9%, with broad-based gains carrying the benchmark to its strongest one-day performance since November. Every sector rose as the ASX 200 bounced from its first back-to-back losses of more than 1% since June 2020. Only the tech and utility sectors failed to put on more than 1%. Consumer staples, materials, energy and financials led to gains. The index is 3.9% below its record of mid-August. 

US Market

A selloff in shares of cyclical companies sent stocks falling, extending a tumultuous September performance. All three major indexes started the day higher but wobbled as the session continued. The S&P 500 lost 1.2%, while the Dow Jones Industrial Average slid more than 500 points or 1.6%. The technology-heavy Nasdaq Composite fell 0.4%. After a long stretch of gains for the U.S. stock market this year, September was the month when percolating investor anxiety finally came to a head, forcing all three major indexes lower. The S&P 500 has fallen 4% month-to-date, on pace for its worst month since March 2020, when the coronavirus pandemic spurred a violent sell-off.

The Dow Jones Industrial Average is down 3.6% for the month, while the Nasdaq Composite has lost 4.6%. Still, the S&P 500 is on pace to record its sixth consecutive quarterly gain and is currently up 1% for the quarter. The Nasdaq is also on pace to notch a quarterly gain. The Dow, in contrast, is on pace to end the quarter lower-marking its first quarterly loss since the first three months of 2020. 

Commodities

Gold futures snapped a two-session skid that pulled the metal to its lowest settlement in about six months, but strength in the U.S. dollar and Treasury yields prompted prices to post losses for the month, as well as the quarter. “Gold has lost a lot of friends this month,” said Ross Norman, chief executive officer at Metals Daily. Still, “on paper it has much going for it: incipient inflation, a stagnating economic recovery and equities valuations at nose-bleed levels. Then there’s the debt ceiling and an emerging energy crisis.”  

However, most-active gold futures were 3.4% lower for the month, which was its sharpest monthly decline since June, and down 0.8% for the quarter, according to Dow Jones Market Data. December gold futures rose 2% to settle at $1,757 an ounce, following a 0.8% decline for the precious metal on Wednesday that took it to the lowest most-active contract settlement since March 31, FactSet data show. 

Oil Futures

Oil futures finished higher, contributing to a sixth straight quarterly climb for U.S. benchmark prices, as traders bet on higher crude demand after a report said China told state-owned energy companies to build their reserves to meet power needs for the winter. U.S. benchmark crude oil prices had been pressured by a bounce-back in domestic production to more than 11 million barrels a day last week, said Phil Flynn, senior market analyst at The Price Futures Group.

Forecasts for a warmer October than typical in the past also took the heat off the tight supply situation, he said. Now, “China is realizing that this energy crisis could impact all parts of the economy because of coal shortages,” said Mr Flynn. China has suffered from power blackouts due, in part, to high prices and shortages of coal and natural gas. November West Texas Intermediate crude rose 0.3% to settle at $75.03 a barrel on the New York Mercantile Exchange after trading as low as $73.14.  

Global benchmark November Brent crude, however, lost nearly 0.2%, at $78.52 a barrel on the ICE Futures Europe exchange. The contract expired at the end of Thursday’s session. The most-active December Brent contract tacked on 0.3% to $78.31 a barrel. For the month, WTI gained 9.5%, while Brent saw a rise of 7.6%, based on the front-month contracts, according to Dow Jones Market Data. For the quarter, WTI climbed 2.1%, up a sixth consecutive quarter, while Brent marked a 4.5% advance.

Forex

Major currencies were mixed against the US dollar in European and US trade. The Euro fell from highs near US$1.1610 to lows near US$1.1560 and was near US$1.1580 at the US close. The Aussie
dollar rose from lows near US71.85 cents to highs near US72.55 cents and was near US72.25 cents at the US close. And the Japanese yen rose from 112.05 yen per US dollar to JPY111.32 and was near JPY111.30 at the US close.

European Markets

European sharemarkets eased on Thursday. A solid 2% lift in the mining sector balanced a 2.2% fall in the travel & leisure sector. Reuters reported that “British online fashion retailer Boohoo tumbled 15.1% as it warned that freight inflation and higher wages for its distribution centre workers would impact full-year profit margins. “The pan-European STOXX 600 index fell by 0.1% to end the month down 3.4%. The German Dax index lost 0.7%. And the UK FTSE index eased by 0.3%. In London trade, shares in Rio Tinto rose by 1.9% and shares in BHP rose by 1.4%.

Asian Markets

Earlier Thursday, Chinese stocks finished higher ahead of the weeklong National Day holiday. Gains were broad-based, although financial stocks weakened. The Shanghai Composite Index rose 0.9%, dropping 0.6% for the quarter. The Shenzhen Composite Index gained 2.0%, paring losses for the quarter to 2.9%, while the ChiNext Price Index ended the session 2.2% higher. Hong Kong shares ended lower amid broad-based weakness, as property developers largely declined. The benchmark Hang Seng Index closed 0.4% lower.

The index lost 15% in the September quarter as regulatory crackdowns took their toll. While some investors seem to have priced in the risk from China Evergrande’s debt crisis, other developers’ liquidity problems may still weigh on the sector. Japanese stocks fell as drops in tech and shipping stocks helped offset gains in railway and pharma stocks. The Nikkei Stock Average lost 0.3%. Investors are focusing on any policy-related developments after Fumio Kishida won the ruling-party chief election on Wednesday.