Global Fundamental Analysis 06/05/2022

Global Fundamental Analysis 06/05/2022, FP Markets

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


U.S. stocks plummeted, wiping out big gains yesterday that were fueled by comments from Federal Reserve Chairman Jerome Powell. The yield on the 10-year Treasury climbed to 3.04%. The WSJ Dollar Index advanced to 95.88, limiting gold to slight gains. Oil prices rose as the EU seems to move closer to a ban on Russian oil.


Australian Market

Australia’s S&P/ASX 200 advanced 0.8%, snapping a three-day losing streak amid broad-based gains. Australia’s heavyweight financial sector closed flat. Tech stocks led local gains, with Computershare, WiseTech and Xero putting on between 2.4% and 3.4%. Shares of real-estate investment trusts bounced after falling steeply over the previous two days. Commodity stocks rose strongly.


US Market 

The stock market took its biggest U-turn since the early days of the pandemic, with the Dow Jones Industrial Average posting its largest decline this year just 24 hours after its largest gain since 2020. The reversal wiped out the euphoria that reigned on Wall Street Wednesday in the wake of Fed Chairman Powell’s comment that the Fed wasn’t “actively considering” raising interest rates by 0.75 percentage point at a future meeting. With inflation at its highest level since the early 1980s, markets had been anticipating such an increase and the prospect of a slower rise in rates set off a furious buying spree in the late afternoon.  

The optimism behind that rally ended and selling was widespread, though most intense in the technology shares that have fallen on hard times in 2022 after years of leading the market advance. “The market yesterday was a relief rally,” said Seema Shah, chief strategist at Principal Global Investors. By Thursday, she said, the realities of a more challenging environment for stocks were starting to settle in, including higher rates, difficult earnings comparisons and a stronger U.S. dollar that weighs on overseas earnings at multinational firms.  

The Nasdaq Composite Index fell 5%, the S&P 500 dropped 3.6% and the Dow Jones Industrial Average slid 3.1%, erasing Wednesday’s gains. The major indexes swung between 7.0 and 9.4 percentage points from Wednesday’s highs to the session’s lows, according to Dow Jones Market Data, their largest swings since the first half of 2020. 



Gold futures eked out slight gains, despite rising yields and a surging dollar as stocks sank, boosting safe-haven demand. June gold futures rose 0.4% to settle at $1,875.70 per ounce. “Gold can make some progress from here,” said George Milling-Stanley, chief gold strategist at State Street Global Advisors. He pointed to investors flocking to real assets like gold as stocks tumbled with the Fed focusing on taming high inflation which has been exacerbated by Russia’s war in Ukraine. “Those tend to be supportive of gold,” Milling-Stanley said, while pointing to the metal’s resilience in past Fed rate hiking cycles. “Those are very good reasons why we might see higher prices unfold.”


Oil Futures

Oil futures ended slightly higher, with the European Union seen moving closer to a ban on imports of Russian crude. Crude added to gains seen after the EU on Wednesday laid out a plan that would ban imports of Russian crude within six months, though a surge by the U.S. dollar amid a sharp selloff in stocks capped gains, analysts said. The timetable for the Russia ban, which must be unanimously approved by all 27 EU members, provides for an orderly change in trade flows, but there are risks, said Warren Patterson, head of commodities strategy at ING, in a note.

“There is the potential for Russia to halt oil flows to the EU before the wind-down period comes to an end, which would leave the EU scrambling to quickly find other supply,” he said. “In addition, there is the risk of secondary sanctions from the U.S. on Russian oil, which would make it difficult for any country to buy Russian oil.” West Texas Intermediate crude for June delivery rose 0.4% to close at $108.26 a barrel on the New York Mercantile Exchange. July Brent crude, the global benchmark, finished with a gain of 0.7% to $110.90 a barrel on ICE Futures Europe.



Major currencies were weaker against the US dollar in European and US trade. The Euro fell from US$1.0615 to US$1.0490 and was near US$1.0545 at the US close. The Aussie dollar fell from US72.45 cents to US70.80 cents and was near US71.15 cents at the US close. And the Japanese yen fell from 129.25 yen per US dollar to JPY130.53 and was near JPY130.10 at the US close.


European Markets

European sharemarkets were mixed on Thursday. Travel & leisure fell 3.7%, leading the declines. Banks fell by 1.9% and insurance fell by 2.8%. But shares in Airbus rose 6.3% after reporting a better-than-expected quarterly profit. And oil giant Shell rose 3.1%, lifting the oil and gas sector, in response to a record quarterly profit. As expected, the Bank of England lifted its key Bank Rate by a quarter of a per cent to 1.00%. The pan-European STOXX
600 index fell by 0.7%. The German Dax lost 0.5%. But the UK sharemarket rose by 0.1%. In London trade shares in Rio Tinto and BHP both fell by 0.2%.


Asian Markets

Earlier Thursday, Chinese stocks ended the session mixed, as the market resumed trading after a week-long holiday. The benchmark Shanghai Composite Index, as well as the Shenzhen Composite Index, added 0.7%. The tech-heavy ChiNext Price Index was the only loser, falling 1.3%. Home-appliance makers provided most of the support, as the sector soared after several major companies posted strong first-quarter earnings.

But EV-battery makers offset the gains as rising margin concerns sent CATL tumbling 8.1%. Hong Kong’s Hang Seng Index edged down 0.4%, in line with broad weakness in regional equities markets. A wide range of sectors weighed on the market. China’s tech giants extended their downturn, albeit with narrower losses.

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