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Market report: Wednesday, January 6

Business

UPDATE: Australian shares have dropped slightly at the open as investors catch their breath after global markets’ turbulent start to 2016.

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The benchmark S&P/ASX200 index was down about a quarter of a per cent at 10.23am (AEDT) on Wednesday after US stocks managed to claw back only a small proportion of the big losses with which they kicked off trade for the year.

Turnover was down in terms of both volume and value compared to Monday and Tuesday.

“Longer term investors would be rather pleased at the calm that seems to have descended over capital markets, the day traders not so much as they were enjoying the pick up in volatility we had been seeing,” IG market analyst Chris Weston said.

“The investment community will take the fact that things look a little bit more sanguine and catch their breath a bit after a very up and down 48 hours.”

Weston said global markets had been subject to investers’ worries and conjecture over issues such as the Chinese economy, the price of oil and foreign exchange movements at the start of the year.

“A lot of questions got asked in the first 24 hours of the full trading year and there’s a lot of disagreement and nervousness from investors, but calmer heads have prevailed now,” Weston said.

The big banks and major miners that dominate the Australian market were all in negative territory early on Tuesday.

Commonwealth Bank was down 26 cents, or 0.31 per cent, to $82.85, NAB was down 12 cents, or 0.41 per cent, to $29.29, and Westpac was down 11 cents, or 0.34 per cent, to $32.58. ANZ declined seven cents, or 0.26 per cent, to $27.00.

The price of iron ore dropped again overnight and share in mining giant Rio Tinto declined 68 cents, or 1.54 per cent, to $43.40, while BHP Billiton dropped six cents, or 0.34 per cent, to $17.52.

JB Hi-Fi continued to benefit from the demise of rival electrical retailer Dick Smith, rising 69 cents, or 3.36 per cent, to $21.25.

Explosives and fertiliser maker Incitec Pivot was down 5.5 cents, or 1.4 per cent to $3.825, after it said it would take a $14 million hit to full year net profit due to last week’s derailment of a freight train carrying a shipment of supplies to its manufacturing plant.

ANZ economists said it was a quiet night for bond markets.

“Global rates are marginally lower in yield (prices higher), having held reasonably tight ranges overnight,” ANZ said.

“Australian markets were also little moved. We would expect a quiet opening with yields steady.”

At 8.30am (AEDT) on Wednesday, the March 2016 10-year bond futures contract was trading at 97.220 (implying a yield of 2.780 per cent), up from 97.190 (2.810 per cent) on Tuesday.

The March 2016 three-year bond futures contract was at 98.000 (2.000 per cent), up from 97.990 (2.010 per cent).

The March share price index futures contract was UP 15 points at 5,157.

Locally on Wednesday, the Australian Industry Group releases its Performance of Services Index (PSI) for December, and the car industry will announce its annual sale results.

In Australia, the market on Tuesday was lower as concerns about Chinese economic growth sparked falls on major markets around the world.

The benchmark S&P/ASX200 index was down 86.1 points, or 1.63 per cent, at 5,184.4 points.

The broader All Ordinaries index was down 83.6 points, or 1.57 per cent, at 5,239.2 points.

NEW YORK – US stocks were almost flat, starting to recover from the steep losses suffered on the first trading day of the year.

In a bid to stabilise its markets, the People’s Bank of China on Tuesday injected $US20 billion ($A28 billion) into the financial system.

Weak Chinese manufacturing data drove stocks down on Monday.

“We’re working off of a pretty significant decline on the first day of trading in 2016,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

But “there are a lot of divergences on a macroeconomic, monetary and geopolitical front, any of which could undermine one’s base case for how the year should unfold,” he said.

“I think it’s leaving investors puzzled, and that shows up in these kinds of moves where you’re trading off of noise rather than signal.”

LONDON – European shares closed up on Tuesday, supported by a rally in mining and telecoms stocks, though worries over China persisted a day after poor Chinese factory data triggered a global stock market sell-off.

Traders also cited talk that weaker-than-expected inflation data might lead the European Central Bank to do more to stimulate the euro zone’s economy as a supporting factor.

“Short-term uncertainty continues and stocks could reach new lows in the next few weeks, possibly creating some interesting buying opportunities,” said Alessandro Allegri, CEO of Italian asset manager Ambrosetti Asset Management.

TOKYO – Asian stocks were down on Tuesday, but no where near as bad as the losses suffered on Monday, thanks to the Chinese central back moving to support the market.

“China’s actions are certainly positive at the margin … but overall the risk is that it is interpreted as a signal of weakness that these ongoing struggles to stabilise the market by the authorities aren’t really bearing fruit,” Commerzbank strategist, Michael Leister, said.

Panic selling on Monday, mostly by China’s army of small retail investors, sent shares diving seven per cent, setting off a worldwide reaction and pushing MSCI’s global index 2 per cent lower.

KUALA LUMPUR – Malaysia Airlines says it has temporarily banned checked-in luggage on some flights to Europe because of “unreasonably strong head winds” on the longer routes it is taking for safety reasons.

FRANKFURT – Shares in Volkswagen AG are sliding after the US Justice Department sued the German automaker over emissions-cheating software fitted to diesel vehicles.

LONDON – Rich countries’ development aid hit a record high in 2014 but the share that reached the world’s poorest countries was the lowest since 2006, the Organisation for Economic Co-operation and Development (OECD) says.

ENERGY

Crude oil prices fell on concerns about the pace of growth in China, the world’s second-largest oil consumer.

News that Chinese rail freight volumes logged their biggest-ever annual decline in 2015 added to economic growth worries.

The oil market largely shrugged off rising political tensions in the Middle East.

On Tuesday, Kuwait recalled its ambassador to Iran after attacks on Saudi missions by Iranian protesters, state news agency KUNA reported.

PRECIOUS METALS

Gold prices rose for the second straight session as growth worries in China and rising tensions in the Middle East triggered demand for the metal.

On Monday, it rallied 2.2 per cent to a four-week high of $US1,083.30 after data showed Chinese factory activity contracted for a 10th straight month in December.

“More weakness in China … would be more positive for gold but investors would need to see more evidence of systemic issues there, which is still unlikely,” Julius Baer analyst Carsten Menke said.

“That could be the only longer lasting upside for gold in an otherwise bearish outlook due to sound growth in the US and lack of inflation risks.”

BASE METALS

Copper prices have bounced after China pumped in an estimated $US20 billion ($A28 billion) to stabilise its equity and currency markets.

However worries over slowing demand in the world’s top metals user kept gains firmly in check.

China stocks performed a little better on Tuesday thanks to the huge cash injection, but the yuan fell to a four and a half year low.

Stocks slid 7 per cent on Monday and trade was suspended nationwide after surveys showed factory activity shrank again in December.

“The rebound in stocks overnight helped metals … (but) there’s a lot of bearishness over China; a hard landing could be difficult to avoid. We view more downside over the rest of the year,” Societe Generale analyst Robin Bhar said.

ASX stocks to watch Wednesday, January 6

AWE – AWE – up two cents, or 3.85 per cent, at 54.0 cents

ORG – ORIGIN ENERGY – down seven cents, or 1.43 per cent, at $4.83

AWE and Origin Energy will spend $17.5 million on infrastructure for stage one of their onshore gas project in Western Australia.

OCC – ORTHOCELL – up 7.5 cents, or 18.99 per cent, at 47.0 cents Shares in Orthocell have soared after the tissue regeneration company was granted a patent for its “cell factory” technology in the United States.

AAP

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