Stocks retreated from overbought levels on Tuesday, with bank CEO’s warning of job cuts weighing on sentiment.
United States
US equities declined amid warnings of an upcoming recession. Jamie Dimon, CEO of JP Morgan stated a “mild to more pronounced recession” in an interview with CNBC, while announcing a reduction in the work force by 2,000 job cuts, with further layoffs and lower bonuses. Corporate America continues to see announcements of staff reductions, including PepsiCo., Amazon and Google earlier this month to battle rising inflationary pressures. “With equities, specifically, there’s also a realisation that a lot of corporates were far too optimistic and the cost-of-living crisis is really going to curtail aggregate consumption going forward,” head macro economist at Equiti Capital, Stuart Cole, told Reuters.
The S&P 500 fell by -1.44%, with utilities the only sector closing 0.66% higher. Energy dropped -2.65%, communications -2.57% and information technology -2.14%. The Dow lost -1.03%, the Nasdaq -2.00%, and the Russell 200 fell -1.50%. The news of a recession triggered a market sell off amongst large cap stocks, with Amazon down -2.6%, Alphabet -2.4%, Apple -2% and TESLA -1.8%. Head of Gold Sachs Group Inc., David Solomon warned of “some bumpy times ahead.” The yield on the 10-year US treasury note fell 4.2 basis points to 3.531% and the VIX soared 7.95% to 22.4.
Europe
European markets also declined on Tuesday on concerns of higher interest rate hikes by the ECB. The Euro STOXX 600 fell by -0.65% in broad-based selling, with consumer staples the only sector closing marginally higher by 0.07%. Information technology fell by -1.54%, healthcare by -1.26% and energy -1.12%. The CAC slid -0.14%, the DAX -0.72% and the FTSE declined -1.15%. In an interview with Milano Finanza, ECB chief economist Philip Lane stated that the ECB will have to continue to raise interest rates. ECB Governing Council member Constantinos Herodotou stated in an interview with Bloomberg that rates are at their ‘neutral level’ but would be raised again. In corporate news, Airbus, the world’s largest plane manufacturer, abandoned its delivery target citing severe supply chain constraints, however the share price closed 0.47% suggesting the market had already factored this in.
*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 this morning with ASX futures down 49 points or 0.67% to 7243. The ASX closed -0.47% lower on Tuesday at 7487.7 after the RBA announced the eighth hike in the interest rate to 3.1%, indicating further tightening to continue into 2023 although the path of future increases would be data dependant. Information technology, real estate and materials were the biggest laggards falling by -2.03%, -1.03% and -0.26% respectively. Utilities was up by 0.53% and industrials by 0.33%. RBA governor Philip Lowe mentioned in his statement, “The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that,” while adding, “The board expects to increase interest rates further over the period ahead, but it is not on a pre-set course.” Gold miners were down, St. Barbara by -8.8%, West African Resources 8.4, Ramelius Resources 7.4%. Coal stocks prices were up, with Whitehaven Coal adding 2.7%, Coronado Global Resources 2.6%, New Hope 2.1%., BHP Group slid 0.5%. In banking, the Bank of Queensland fell -0.4% after announcing the sacking of former chief executive George Frazis, who had lost the faith of the board. Latitude Group slipped -0.4%, ANZ -0.8%. Magellan Financial Group fell -3.3% after announcing further outflows of total funds under management (FUM). Ivan Colhoun, chief economist for corporate and institutional banking at National Australia Bank commented on future expectations from the RBA, “It would seem hard for the RBA not to continue to raise rates at its February board meeting with such a high inflation print to be released.”
Commodities
In commodities, oil prices dropped with WTI and Brent crude down -3.43% and -3.85% to $74.26 and $79.48. Spot gold edged 0.22% higher to $1,772.61, spot silver slid -0.18% to $22.21. Copper rose 0.54% to $381, nickel lost -0.66% to $28,562, SGX Iron Ore jumped 2.29% to $108.35.
Economic Data:
- Australian Ai Group Services Index (Nov) 08:30
- Australian GDP Growth Rate Year-on-Year 11:30
- Eurozone GDP Growth Rate Year-on-Year 11:30
- BoC Interest Rate Decision 02:00
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.
