Global Fundamental Analysis 10/06/2022

Australian Market

Australia’s S&P/ASX 200 index closed 1.4% lower, weighed by mining, financial and real-estate stocks. Lithium miners Allkem, Liontown, Pilbara Minerals and Lynas lost between 4.2% and 6.2%, while iron-ore heavyweights Fortescue, Rio Tinto and BHP shed between 0.3% and 2.4%. Banks ANZ, NAB, Commonwealth and Westpac gave up between 2.3% and 3.7% amid concerns about the impact of higher rates on a cooling housing market, while the property-trusts sector slipped 1.55%. Shares of energy producers rose again amid escalating wholesale prices.

US Market 

U.S. stock benchmarks fell sharply as investors awaited inflation data that will help determine the pace of the Federal Reserve’s interest-rate hikes this year. The S&P 500 dropped 2.4% and the Dow Jones Industrial Average lost 1.9%. The technology-focused Nasdaq Composite Index retreated 2.75%. Traders and strategists said the inflation data could heavily influence the next stretch of trading for markets, and will help shape the Federal Reserve’s interest-rate decisions for later this year.

Earlier, in Europe, the European Central Bank said it would increase its key interest rate from minus 0.5% to zero or higher by September, and probably further after that. The central bank indicated that it plans to start with a quarter-percentage point increase in July.

“Once we get a few more data points on inflation, hopefully they confirm that things are coming off the boil and the Fed, after June and July, can be a little less hawkish into the fall,” said Tim Holland, chief investment officer at Orion Advisor Solutions. “That’s what the markets are hoping for.”

Commodities

Gold prices fell following back-to-back gains after the European Central Bank said it would raise interest rates in July for the first time in more than a decade, while also putting a larger half-point increase on the map for September, unless high inflation in Europe starts to recede. August gold fell 0.2% to settle at $1,852.80 an ounce on Comex. Trading in the U.S. remained lackluster ahead of May inflation data due out Friday.  

While there weren’t major surprises in the ECB’s policy announcement, Oanda’s Moya said a strong dollar has weighed on gold prices as traders increasingly worry about the threat of persistently high inflation globally and slower growth, despite the retreat of easy-monetary policies.

Oil Futures

Oil futures edged down as investors took a breather after prices raced to a three-month-high on Wednesday above $122. West Texas Intermediate crude for July delivery fell 0.5% to finish at $121.51 a barrel on the New York Mercantile Exchange. August Brent crude, the global benchmark, declined 0.4% to settle at $123.07 a barrel on ICE Futures Europe. Both WTI and Brent ended Wednesday at their highest since March 8.

“Whatever weakness emerges for crude will likely be short-lived as this will be one of the busiest driving seasons ever. The pent-up demand for vacation and travel will be front-loaded and demand for crude will be robust even if gas prices make a move towards $6 a gallon,” said Edward Moya, senior markets analyst at Oanda, in a note.

Forex

Major currencies were weaker against the US dollar in European and US trade. The Euro fell from highs near US$1.0770 to lows near US$1.0610 and was near session lows at the US close. The Aussie dollar fell from highs near US71.90 cents to lows near US70.95 cents and was near session lows at the US close. And the Japanese yen eased from 133.20 yen per US dollar to JPY134.41 and was near session lows at the US close.

European Markets

European sharemarkets fell on Thursday. The European Central Bank (ECB) said it would end its bond buying scheme on July 1 and lift interest rates by 25 basis points. The ECB said it could lift rates by a bigger margin in September. The ECB said inflation would average 6.8% this year, above the 5.1% predicted while economic growth for the year was cut to 2.8% from a previous forecast of 3.7%. The pan-European STOXX 600 index lost 1.4% with losses broad-based. The German Dax index fell by 1.7% and the UK FTSE index lost 1.5%. In London trade, shares of Rio Tinto and BHP both fell by 2.7%.

Asian Markets

Earlier, in Asia, the Nikkei Stock Average closed flat as gains in auto and energy stocks helped offset losses in tech and shipping shares. Nissan Motor gained 1.9% and Subaru climbed 2.1% as the yen’s recent weakening raised hopes for earnings growth. Chinese stocks ended the day lower, despite data showing the country’s exports rebounded strongly in May. Sentiment was weighed by worries that authorities have begun to impose new lockdown restrictions in some parts of Shanghai. The Shanghai Composite Index shed 0.8%, the Shenzhen Composite Index declined 1.8%, and the ChiNext Price Index fell 3.0%. Chinese liquor stocks closed lower.