Global Fundamental Analysis 06/04/2022

Australian Market

Australia’s S&P/ASX 200 gained 0.2%, despite the market falling midway through the session after the Reserve Bank of Australia’s monetary policy decision. Technology stocks drove some of the gains, closing 3.1% higher. At its April policy meeting, Australia’s central bank left its official cash rate at 0.10% and signaled a growing willingness to raise interest rates soon.

US Market 

U.S. stock indexes slipped as investors weighed the prospect of more assertive actions by the Federal Reserve to curb inflation. The S&P 500 fell 1.3%, a day after the indexes were pulled higher by rallying technology stocks. The tech-heavy Nasdaq Composite lost 2.3%. The Dow Jones Industrial Average slipped 0.8%. Fed governor Lael Brainard said that the central bank is strongly committed to taking steps that will cut inflation this year, including by announcing a significant reduction in its $9 trillion asset portfolio next month.  

Reducing the Fed’s balance sheet, reversing its efforts to stimulate the economy through the purchase of Treasury securities and mortgage bonds, will help lift market interest rates -and make stocks more expensive relative to less risky assets, said John Lynch, chief investment officer at Comerica Wealth Management. “The catalyst for today was Lael Brainard’s comments,” Mr. Lynch said. “She sounded a little more aggressive on the balance-sheet roll-off than the markets anticipated.” Investors also were assessing what a fresh round of sanctions against Russia might look like.

Earlier Tuesday, the Nikkei Stock Average closed 0.2% higher, led by gains in tech stocks, despite drops in banks and insurers. Rakuten Group gained 5.6% and medical-information platform operator M3 climbed 3.6%. Meanwhile, Dai-ichi Life Holdings lost 4.4% and Mitsubishi UFJ Financial Group dropped 2.0% as the recent rising momentum in bond yields has eased.

Commodities

Gold futures lost ground amid a rise in U.S. Treasury yields, as investors continued to monitor developments tied to the Russia-Ukraine war and worry about inflation. “It might only be three short years ago, but the last time that 10-year yields were above 2.5%, inflation was running at 1.8%, both the Nasdaq and S&P [500] [were at] half their current levels, house prices were 25% cheaper, and gold cost $1,300 per ounce,” said Adrian Ash, director of research at BullionVault.  

“Other things being equal, bond yields rising to multi-year highs would typically knock gold lower,” he said. “But with the purchasing power of cash so clearly diminished since bond yields were last at this level, the dislocation of war and inflation is further offsetting that pressure, driving inflows to gold as a hedge against crisis and a form of financial insurance.” There’s also the “growing risk of a Fed mistake in hiking too fast, too late to achieve anything beyond a recession,” said Ash. Gold futures for June delivery declined by 0.3% to settle at $1,927.50 an ounce on Comex.

Oil Futures

Oil futures reversed course to trade modestly lower as Western leaders weighed the possibility of additional sanctions against Moscow in response to evidence of alleged war crimes in Ukraine. The impact of so-called self-sanctioning against Russia continues to be seen, said Warren Patterson, head of commodities strategy at ING, in a note, with Urals crude, Russia’s most common export, delivered to northwest Europe offered at a $34.80 a barrel discount to dated Brent.  

In addition, Russian oil output in March averaged 11.01 million barrels a day, down less than 1% on the month, according to Russia’s Interfax news service, though output declines are likely to increase in the months ahead as domestic storage fills up, Patterson said. For now, however, “the market is just not buying a European ban on Russian energy,” said Manish Raj, chief financial officer at Velandera Energy Partners. “The market remains unconvinced that Europe will actually ban Russian oil or gas.”  

West Texas Intermediate crude for May delivery declined 1.3% to settle at $101.96 a barrel on the New York Mercantile Exchange. June Brent crude, the global benchmark, lost 0.8% to settle at $106.64 a barrel on ICE Futures Europe.

Forex

Major currencies were weaker against the US dollar in European and US trade. The Euro fell from highs near US$1.0986 to lows near US$1.0898 and was near US$1.0900 at the US close. The Aussie dollar fell from highs near US76.59 cents to lows near US75.72 cents and was near US75.80 cents at the US close. And the Japanese yen eased from 122.43 yen per US dollar to JPY123.66 and was near JPY123.60 at the US close.

European Markets

European sharemarkets were mixed on Tuesday. The panEuropean STOXX 600 index gained 0.2% as investors awaited a batch of fresh sanctions on Moscow with a likely EU ban on coal imports. France’s CAC 40 index fell by 1.3% on investor concerns that far-right candidate Marine Le Pen may win this month’s French presidential elections. The German Dax index lost 0.7%, but the UK
FTSE index gained 0.7%. In London trade, shares of Rio Tinto (-0.2%) and BHP (-1.2%) both fell.

Asian Markets

Markets in Hong Kong and Mainland China were closed.