$US strength remains the dominant theme
US equities were mixed in fairly choppy Tuesday trading, closing off the worst levels however. The dominant theme remains the strength of the US dollar.
As to the why, the answer is that the world economy has suffered four linked shocks since 2020: the pandemic; a huge fiscal and monetary expansion; to post-pandemic supply crisis, in which pent-up (and lopsided) demand hit supply constraints in industrial inputs and commodities; and, finally, Russia’s invasion of Ukraine, which hit energy, particularly for Europe.
As a result investors have faced enhanced uncertainty, strong inflationary pressure in the US, and a need for monetary policy, particularly that of the Federal Reserve, to play catch up.
The result, the $US is king of the castle.
Overnight the Dow Jones Industrial Average fell 0.43 per cent. The S&P 500 fell deeper into a bear market on Tuesday after setting a new 2022 low, the Nasdaq Composite was up 0.25 per cent .
The S&P 500 is now 24.3 per cent below its record set in January, while the Dow is 21.2 per cent below its all-time high. The Nasdaq has fallen more than 33 per cent since hitting a record in November.
Plenty of risks surround equity markets. Geopolitical tensions flared with speculation of Russian sabotaging of its Nord Stream pipelines and a fresh nuclear warning from Moscow following the contested Ukraine referendum.
All eyes remain on the currency markets. A rally in the British pound fizzled out quickly with sterling trading just 0.4 per cent higher against the dollar. The pound earlier rose more than 1 per cent against the US dollar, in an attempt to rebound from an all-time low set earlier in the week.
Stocks initially got a boost after Chicago Federal Reserve President Charles Evans signaled some apprehension about the central bank raising rates too quickly to fight inflation. His comments contrasted with several Fed officials who recently expressed no hesitation in backing the central bank’s tough stance against rising prices.
Across the sectors, a mixed bag overnight with the USD index up 21 per cent this year. Morgan Stanley calculates that every 1 per cent change in the USD index has a negative 0.5 per cent impact on S&P 500 earnings. The sectors expected to be impacted the hardest include capital goods, software, media and entertainment, materials, energy and tech hardware
As inflation plays out across the globe the intervention of central banks has been co-ordinated With the Fed’s tightening ahead of its peers in the high-income countries causing the $US to surge
The most important question investors are now asking is whether monetary tightening could go too far. Either way what is known now is that the central banks’ ability to support equity markets and the economy is gone for a while now.
Currencies
One Australian dollar at 7:15 AM has weakened compared to the US dollar yesterday, buying 64.34 US cents (Tue: 64.54 US cents), 59.94 Pence Sterling, 93.19 Yen and 67.07 Euro cents.
Commodities
Iron ore futures are pointing to a 0.8 per cent gain.
Gold gained 0.2 per cent to US$1636 an ounce, rebounding from a 2-1/2-year low on Tuesday
Silver was down 0.8 per cent to US$18.34 an ounce.
Copper lost $1.10 or 0.3 per cent to US$328.35 a pound.
Oil added $1.79 or 2.3 per cent to US$78.50 a barrel.
Futures
The SPI futures are pointing to a 0.5 per cent fall.
Figures around the globe
Across the Atlantic, European markets closed lower. Paris lost 0.3 per cent, Frankfurt fell 0.7 per cent while London’s FTSE closed 0.5 per cent lower.
In Asian markets, Tokyo’s Nikkei added 0.5 per cent, Hong Kong’s Hang Seng closed flat, up 0.03 per cent and China’s Shanghai Composite closed 1.4 per cent higher.
Yesterday, the Australian sharemarket gained 0.4 per cent to close at 6496.
Ex-dividends
Clime Investment Management (ASX:CIW) is paying 0.4 cents fully franked
Cedar Woods Properties (ASX:CWP) is paying 14.5 cents fully franked
Fonterra Share Fund (ASX:FSF) is paying 11.2543 cents unfranked
Myer Holdings (ASX:MYR) is paying 2.5 cents fully franked
Dividends payable
Ampol (ASX:ALD)
Amcor Plc (ASX:AMC)
ASX (ASX:ASX)
Coles Group (ASX:COL)
Downer Edi (ASX:DOW)
Ironbark Capital (ASX:IBC)
VGI Partners Global Investments (ASX:VG1)
Worley (ASX:WOR)
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
Copyright 2022 – Finance News Network
Source: Finance News Network
