Global Fundamental Analysis 07/04/2022

Australian Market

Australia’s S&P/ASX 200 lost 0.5% as a tech selloff dragged down the market in the wake of Tuesday’s gains. Tech stocks lost 2.9%, while the materials sector fell 1.5%. The market’s strongest performer for the day was Whitehaven Coal, which rose 5.5%.

US Market 

Technology stocks lost ground as investors digested more details about the Federal Reserve’s plan to raise interest rates. The technology-focused Nasdaq Composite Index lost 2.2%. The S&P 500 gave back 1%, while the blue-chip Dow Jones Industrial Average slipped about 0.4%. The S&P 500’s technology sector fell 2.55%. Government bonds kept selling off, with yields rising for a fourth straight session, on the prospect of further rate hikes by the Fed, after the worst quarter for U.S. bonds in more than 40 years.  

The Fed raised interest rates in March for the first time since 2018. Minutes from the meeting showed that central-bank officials last month had considered raising rates by a half-percentage point but decided on a quarter-point rise in light of the uncertainty surrounding Russia’s invasion of Ukraine. “Many participants noted that one or more [half-percentage-point] increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the Fed minutes said.

Commodities

Gold futures settled lower, pressured by a rise in Treasury yields as investors remain focused on the Russia-Ukraine war. Prices then saw volatile trading after minutes from the Fed’s March meeting, as the minutes offered insight into the central bank’s plans to shrink its balance sheet. The minutes “delivered no surprises, and thus at least the early response in gold was muted,” said Brien Lundin, editor of Gold Newsletter. “While somewhat hawkish, with only the crisis in Ukraine keeping them from a half-point hike in the last meeting, the markets have already discounted a much more aggressive stance from the central bank,” he said.

“This actually isn’t bearish for gold, as the record shows that the metal performs well once a Fed tightening cycle begins.”  Gold futures for June delivery fell by 0.2% to settle at $1,923.10 an ounce on Comex ahead of the Fed minutes. It moved up to around $1,926 immediately after the minutes, in electronic trading, then fell to $1,921. “The ongoing war in Ukraine is providing a tailwind for bullion by keeping the market on edge as the situation evolves,” said Thomas Westwater, analyst at DailyFX, in emailed commentary, before the Fed minutes.

Oil Futures

Oil futures settled at their lowest in three weeks, with U.S. prices ending below the $100 mark, following news that the International Energy Agency plans to release 120 million barrels from crude reserves and as data revealed an unexpected climb in U.S. crude supplies. The International Energy Agency is moving ahead with a collective oil stock release of 120 million barrels from emergency reserves, Fatih Birol, IEA’s executive director tweeted. The release includes 60 million barrels from the U.S., as part of that country’s overall draw from its Strategic Petroleum Reserve.  

“The biggest concern is Europe stops doing business with Russia. This could lead crude and natural gas to trade significantly higher,” said Tariq Zahir, managing member at Tyche Capital Advisors.  Still, EU officials have indicated that talk of a phaseout of Russian oil and natural gas was likely to increase. Measures on “oil and even gas will also be needed sooner or later,” Charles Michel, president of the European Council, told the European Parliament. West Texas Intermediate crude for May delivery gave back 5.6% to settle at $96.23 a barrel on the New York Mercantile Exchange. June Brent crude, the global benchmark, lost 5.2%, ending at $101.07 a barrel on ICE Futures Europe.

Forex

Major currencies were mixed against the US dollar in European and US trade. The Euro rose from lows near US$1.0874 to highs near US$1.0935 and was near US$1.0895 at the US close. But the
Aussie dollar fell from highs near US75.91 cents to lows near US74.86 cents and was near US75.10 cents at the US close. And the Japanese yen firmed from 123.99 yen per US dollar to JPY123.54
and was near JPY123.75 at the US close.

European Markets

European sharemarkets slumped on Wednesday as investors grappled with concerns over interest rate hikes and additional Russian sanctions. The pan-European STOXX 600 index slid by 1.5% with travel stocks down 3.9%. The German Dax index lost 1.9% and the UK FTSE index dipped 0.3%. In London trade, shares of Rio Tinto (-0.2%) and BHP (-0.3%) both fell.

Asian Markets

Earlier Wednesday, Chinese stocks ended mixed in a muted session, as the market resumed trading after a two-day holiday. The benchmark Shanghai Composite Index and the Shenzhen Composite Index ended the session little changed. The ChiNext Price Index fell 1.2%. Bohai Securities points out that volatility remains in the A-share market as new Covid-19 infections continue to rise in the country. But it reckons further downside is limited, as valuations are already likely at their bottom.

Hong Kong stocks ended the session lower, as losses deepened in late-afternoon trade after Hong Kong’s No. 2 official, John Lee, formally resigned, taking the pro-Beijing politician a step closer to running in the city’s chief executive election next month. The benchmark Hang Seng Index fell 1.9%, dragged by tech stocks, especially electronics makers. Japanese shares were dinged by declines in electronics and shipping stocks, as concerns grew about the Fed’s pace of tightening and higher borrowing costs. The Nikkei Stock Average fell 1.6%. Investors’ focus remained on the war in Ukraine and its impact on trade.