US equities finished lower on Friday with Treasury yields higher as investors await the final policy meetings for the year from major central banks
United States
Investor focus will shift towards the upcoming consumer inflation expectations report set to be released on Tuesday, the CPI on Wednesday, and the Fed’s decision on interest rates overnight on Wednesday. Economic projections from the Federal Open Market Committee are also set to be released, and are expected to show interest rates peaking at 4.9% in 2023, with the range to be within a target range of 4.75%-5%. “The job is not done. Rate hikes can likely slow down to 50 bp, but we are still looking at policy tightening (and staying tight) in 2023.”, stated Don Rissmiller at Strategas.
The S&P 500 fell -0.74%, with communications the only sector outperforming the index by gaining 0.02%. The biggest laggards were energy, healthcare and materials losing -2.33%, -1.28% and -0.96% respectively. The Dow lost -0.9%, the Nasdaq slid -0.70% and the Russell 2000 fell -1.19%. Meanwhile the yield on the 10-year US bond rose 10 basis points to 3.58% following producer price data on Friday that showed a month-on-month increase of 0.3% slightly higher than the 0.2% forecast and rising 7.4% over the year versus 7.2% expected with core prices also above estimates although continuing to decline from recent peaks. Elsewhere, consumer sentiment improved to 59.1 for December up from 56.8 previously and higher than forecasts of 57. Bloomberg economists noted weakening gasoline prices and better income prospects played a role in the improved reading with sentiment proving more resilient in the face of rate increases.
Europe
European equities rose on Friday ahead of the final policy meetings for the ECB and BOE on Thursday where both central banks are expected to raise interest rates by 0.50%. The STOXX 600 Index was up by 0.62% along with the CAC 0.46%, DAX 0.74% and the FTSE 0.29%. Also in focus for economic data this week is the final reading of German inflation on Tuesday followed by economic sentiment for December for the Eurozone and Germany. Friday will bring the release of the preliminary PMI reports for December as well as the final reading of Eurozone core inflation for the 12 months to November expected to show prices rose 5%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open lower today, with ASX futures down 35 points or 0.48% to 7183. The ASX 200 closed higher on Friday, rising by 0.52% after positive news of China easing Covid lockdown policies buoyed investor sentiment. Senior commodity strategist at ANZ stated, “A weaker US dollar and optimism over a China reopening supported sentiment as did positive developments in China’s troubled property sector”. Fortescue Metals climbed 2.8%, BHP Group 2.7%, Rio Tinto 2.3%. Lithium stocks fell after Goldman Sachs’ presented a negative outlook for the metal, Allkem was down by -1.4 per %, Liontown slid 0.3%, Core Lithium dropped 0.4% and Pilbara Minerals lost -0.2%. In takeover news, Beach Energy climbed 0.9% after opting out of the bid for Warrego Energy to focus more on developing existing assets, while shares in Warrego lost -3.3%. Software developer Nitro Software’s share price jumped 3.4% after stating it would review a bid from Potentia. Energy stocks will be in focus today as it appears to Labor government does not have enough cross-bench support in the Senate for its planned gas price caps which industry leaders have slammed suggesting it would result in the risks of blackouts as well as killing exploration and cutting supply, which would raise prices in the longer-term.
Commodities
In commodities, oil prices were down with WTI and Brent Crude declining -0.62% to $71.02 and -0.07% to $76.10. Precious metals closed higher with spot gold rising 0.46% to $1,797.32, and spot silver 1.77% to $23.47. In industrial metals, Copper fell -0.12% to $388, nickel -1.12% to $29,222, SGX Iron ore jumped 2.27% to $111.52. The price of Bitcoin fell 0.1% to $17,177.
Economic Data:
- Japan PPI (YoY Nov) 10:50
- UK GDP (YoY Oct) 18:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
