U.S. equities climbed on Tuesday with Treasury yields falling following indications from members of the Federal Reserve that are open to easing the pace of rate increases.
United States
The S&P500 rose 1.36% in broad-based buying with 88% of stocks higher and all sectors positive with energy 3.39% and materials 2.17% leading gains. The Dow Jones also rose 1.18% along with the Nasdaq Composite 1.36% and Russell 2000 1.16% with the VIX -4.61% lower at 21.33. The yield on 2-year Treasuries declined -1.4 basis points along with the 10 and 30-year rates which were -6.7 and -7 basis points lower respectively, with the U.S. dollar index -0.62% lower.
The OECD struck a cautionary tone as part of its economic update that profit margins are set to be squeezed next year. “We are currently facing a very difficult economic outlook. Our central scenario is not a global recession, but a significant growth slowdown for the world economy in 2023, as well as still high, albeit declining, inflation in many countries. Risks remain significant”. In economic data, the Richmond Federal Reserves Manufacturing Survey came in below expectations, adding weight to the peak inflation narrative. The index declined to -9 in November, below estimates of -8 with both the prices paid and wage components easing. The report comes ahead of manufacturing and services PMI reports for November to be released on Wednesday.
Europe
European equities also rose on Tuesday boosted by a rise in commodities. The Euro Stoxx 600 gained 0.73% along with the DAX 0.29%, CAC 0.35% and FTSE100 1.03%. While equities have surged across the region recently, analysts at Goldman Sachs maintain a skeptical view noting “valuations are not at prior trough levels and risks remain high and negatively-skewed: the ongoing war in Ukraine, the debt problems in Italy and the eventual shift to QT by the ECB”. In economic data, Eurozone consumer confidence was better than expected in November at -23.9 compared to forecasts of -26 and improving from -27.5 previously.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is set to open higher this morning with ASX200 futures up 55 points or 0.77% to 7,248. The index rose 0.59% on Tuesday in mixed performance with 60% of stocks higher as materials 1.15% and energy 2.64% contributed the most to gains. A 2.2% increase in Newcastle thermal coal saw a rise in WHC and NHC both up 7.8% and 7.3% respectively. Elsewhere, software group Technology One report a net profit up 22% to $88.8m with shares rising 5.1% with CEO Ed Chung noting the company is on track to surpass the target of $500m annual recurring revenue by 2026. RBA Governor Philip Lowe noted the central bank will be flexible in future rate decisions in a speech on Tuesday “we have not ruled out returning to 550 basis point increases….Nor have we ruled out keeping rates unchanged for a time as we assess the state of the economy and outlook for inflation”. The comments suggest the central bank has done much of its heavy lifting so far and future decisions will depend on incoming data, in line with recent tones from other central banks. In focus today is the release of PMI data for November followed by an RBNZ rate decision at midday where rates are expected to increase by 0.75%.
Commodities
Oil prices rose on Tuesday following Saudi Arabia’s comments that OPEC was not discussing production increases. Both WTI and Brent crude traded 1.44% and 1.23% higher at US$81.19 and US$88.52 a barrel. Iron ore futures in Singapore are modestly higher by 0.28% this morning at US$93.70 after declining -1.96% on Tuesday with copper also 1.30% higher. Gold edged 0.13% higher to US$1,740 an oz, with silver up 1.11% and Bitcoin gaining 2.90% to US$16,084.
Economic data:
- Australian PMI (MoM Nov) 09:00
- RBNZ Rate Decision 13:00
- Eurozone PMI (MoM Nov) 20:00
- S. Durable Goods Orders (Mom Oct) 00:30
- S. PMI (MoM Nov) 01:45
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.
