Global Fundamental Analysis 27/04/2022

Australian Market

Australia’s S&P/ASX 200 gave back 2.1% as the benchmark index posted its worst day in more than two months. Commodity stocks led losses but every sector lost ground after the local bourse reopened from a holiday weekend. The materials sector dropped 5.1% on weakness in iron-ore, lithium and gold miners. The heavyweight financial sector was among the better performers but still lost 1.0%. Payments firm EML was the worst-performing ASX 200 component, tumbling 39% after cutting its annual earnings guidance.

U.S. stocks fell, extending their April losses, as investors digested earnings reports from leading companies and weighed concerns about inflation and the spread of Covid-19 in China. Stocks extended their losses late in the session. The S&P 500 shed 2.8%, a day after tech stocks led major indexes higher. The Dow Jones Industrial Average declined 2.4%, while the technology-heavy Nasdaq Composite lost nearly 4%. Ten of the S&P 100’s 11 sectors were in the red, with consumer discretionary and tech stocks among the leading decliners. All three indexes are on track to lose ground this month.  

Fears about a resurgence of Covid-19 cases in China, and strict lockdowns imposed to fight the outbreak there, have heightened investors’ concerns about the global economy and prompted choppy trading in recent sessions. Inflation is weighing on companies and consumers, while the Federal Reserve’s indications that it will quickly tighten monetary policy threaten to drag on growth. “We’re in a world-wide tightening cycle now, and so we have to let the air out of many of these assets,” said Mace McCain, chief investment officer at Frost Investment Advisors.

Commodities

Gold futures ended slightly higher a day after finishing at its lowest since late February as a flight to quality left the yellow metal behind. Gold futures for June delivery rose 0.4% to settle at $1,904.10 an ounce on Comex. Gold has been receding from a near-term high above $2,000, hit back in early March as Treasury yields have risen, drawing some demand away from gold. But Daniel Briesemann, analyst at Commerzbank, argued that the Monday slump for gold was likely the result of forced selling as well as a stronger U.S. dollar.  

“During such market phases in the past, gold would often come under pressure because gold would be sold to offset losses elsewhere,” he said, in a note. “Yesterday, for example, saw considerable pressure on stock markets for some of the time. Gold has at least regained the $1,900 per troy ounce mark this morning.” Briesemann said gold is likely to be well supported and will reassert its status as a haven and an inflation hedge.

Oil Futures

Oil futures rose, with the U.S. benchmark closing back above the $100-a-barrel threshold as China took steps to backstop its economy and avoided a full lockdown of Beijing in response to rising Covid-19 cases. Beijing enforced Covid-19 lockdowns and expanded testing in an effort to contain a Covid outbreak in the capital, news reports said. A lockdown of Shanghai, the nation’s largest city and major financial and commercial hub, has already amplified worries over China’s economic growth prospects.  

But analysts said the lack of a full lockdown of the capital and an announcement by the People’s Bank of China that it would work to provide monetary policy support to small businesses and industries most affected by the pandemic provided relief. “Oil prices rebounded big time after the Chinese government failed to impose a lockdown on Beijing and promised more stimulus for people impacted by previous shutdowns,” said Phil Flynn, analyst at Price Futures Group, in a note.

West Texas Intermediate crude for June delivery gained 3.2% to settle at $101.70 a barrel. June Brent crude rose 2.6% to finish at $104.99 a barrel on ICE Futures Europe. WTI fell 3.5% Monday, while Brent lost more than 4%.

Forex

Major currencies were mixed against the US dollar in European and US trade. The Euro fell from highs near US$1.0730 to lows near US$1.0638 and was near the lows at the US close. The Aussie dollar fell from highs near US72.20 cents to lows near US71.31 cents and was near lows at the US close. But the Japanese yen rose from 128.05 yen per US dollar to JPY127.04 and was near JPY127.35 at the US close.

European Markets

European sharemarkets generally fell on Tuesday. The panEuropean STOXX 600 index fell for a third straight session, down by 0.9%. The index was higher earlier in the day, up by 1% in response to positive earnings figures. But the index ended lower, dragged down by a 2.3% fall in technology stocks. Shares in HSBC fell 5.5% after saying that more share buybacks were unlikely this year. The German Dax lost 1.2% but the UK FTSE rose slightly, up by 0.1%. In London trade, shares of Rio Tinto rose 1.5% with BHP up by 1.7%.

Asian Markets

Earlier Tuesday, Chinese stocks fell further after suffering the worst selloff in more than two years on Monday amid mounting worries over the economic impact of the country’s Covid-19 lockdowns. Coal miners and software companies dragged on the market, though individual stocks gained post-earnings. The Shanghai Composite Index lost 1.4%, the Shenzhen Composite Index dropped 2.1% and the ChiNext Price Index closed 0.9% lower. Hong Kong stocks ended the session higher as sentiment was supported by the Chinese central bank’s move to cut the foreign exchange reserve requirement ratio in a bid to support the weakening yuan.

The benchmark Hang Seng Index edged up 0.3%. Chinese tech giants led the rise, following the sector’s gains on Wall Street overnight. The Nikkei Stock Average advanced 0.4%, helped by gains in electronics stocks as concerns over borrowing costs eased somewhat. Fujitsu advanced 2.2% following news that it is considering selling a stake in its scanner unit. Notable decliners included Sumitomo Metal Mining, which ended 6.8% lower after it discontinued a feasibility study for a nickel refinery in Indonesia.