Global Fundamental Analysis 30/08/2022

Australia’s S&P/ASX 200 index closed 1.95% lower, tumbling to its heaviest one-day loss since the middle of June. Only four components of the benchmark index rose as retail data showed consumers spent far more than economists had expected in July, suggesting that central bank rate rises have yet to bite. The volatile tech sector fell the most, dropping 4.4%. The heavyweight financial and materials sectors fell 2.2% and 2.4%, respectively, amid fears of the economic impact of continued rate hikes aimed at tackling inflation.

U.S. stocks were narrowly lower after Friday’s washout. The S&P 500 dropped 0.7%. The Dow Jones Industrial Average lost 0.6%, while the tech-focused Nasdaq Composite Index was off 1.0%. Monday’s moves suggest U.S. stocks could see more turbulence ahead, as traders assess Fed Chairman Jerome Powell’s comments from last week. “They’re not so concerned about heading into a recession as they are in combating inflation – so that makes for a very dangerous setup,” said Jerry Braakman, president and chief investment officer of First American Trust in Santa Ana, Calif.

Commodities

Gold futures finished with a modest loss, pressured by strength in U.S. Treasury yields. December gold fell by 0.01% to settle at $1,749.70 per ounce on Comex after tapping an intraday high of $1,757.90. Edward Moya, senior market strategist at Oanda, warned that gold “may be vulnerable here as Treasury yields could gain further momentum next week if the labor market remains healthy.” Monthly data on U.S. employment are to be released on Friday.

Oil Futures

Oil futures traded higher, with the prospect of a production cut from the Organization of the Petroleum Exporting Countries helping to lift prices toward their highest finish in a month. West Texas Intermediate crude for October delivery rose 3.2% to $96.04 a barrel on the New York Mercantile Exchange. October Brent crude, the global benchmark, was up 2.6% at $103.66 a barrel on ICE Futures Europe.

“Saudi Oil Minister Abdulaziz’ Aug. 22 implied threat to push for a OPEC+ production cut at the producer group’s meeting on Sept. 5 continues to be the big bid in the market, rallying the market by over 11% from top to bottom in the past week,” said Mizuho’s Bob Yawger, in a note. He added that violence in Libya and more delays to a potential global supply-boosting Iran nuclear deal also lifted the market.

Forex

Major currencies were mixed against the US dollar in European and US trade with the greenback hitting a 20-year high at one point. The Euro rose from lows near US$0.9920 to highs near US$1.0025 and was near US$0.9995 at the US close. The Aussie dollar rose from lows near US68.40 cents to highs near US69.25 cents and was near US69 cents at the US close. And the Japanese yen held between 138.30 yen per US dollar and JPY138.90 and ended US trade near JPY138.70.

European Markets

European sharemarkets fell on Monday. Interest rate-sensitive technology stocks fell most (down 2.4%) as bond yields lifted on expectations of more global rate hikes. Germany’s 10-year yield rose 10 basis points to a two-month high. Financial markets are pricing in a two-thirds chance that the European Central Bank could hike rates by 75 bps in September, up from 24% last week. The pan-European STOXX 600 index fell by 0.8%. The German Dax index lost 0.6%. The UK sharemarket was closed for a holiday.

Asian Markets

Earlier, in Asia, Japan’s Nikkei Stock Average ended 2.7% lower amid broad losses among constituents. Sentiment was weighed by concerns over economic growth following comments by Fed Chairman Jerome Powell that the central bank will have to keep raising rates to curb inflation. Stocks of precision instrument makers led the losses. Chinese stocks ended mixed.

The benchmark Shanghai Composite Index edged 0.1% higher, the Shenzhen Composite Index rose 0.1% and the ChiNext Price Index declined 0.4%. The country’s state media said Sunday that power supply to most industries and businesses in Sichuan province had been gradually restored, amid a drought which has severely affected hydropower supply. Auto stocks were mixed.