U.S. equities rose after trading in a volatile session as investors weighed softer-than-expected producer prices against geopolitical tensions following a missile strike in Poland.
United States
In further signs of easing price pressures, U.S. producer prices for October declined more than forecast with headline prices rising 0.2% over the month versus 0.4% expected. Core prices were unchanged for the month compared to estimates of a 0.3% gain, with both measures lower than forecast on a year-on-year basis, while the September figures were also revised lower. Producer prices are a leading indicator of inflation, adding further weight to the view price increases have reached a major peak following last week’s softer CPI data adding to the case for central banks to pare back the pace of rate increases. Adding further weight to this, the cost of processed goods for immediate demand excluding food and energy, reflecting prices earlier in the pipeline fell -0.8%. In response, U.S. Treasury yields declined across the curve with the 2-year rate down -3.6 basis points along with both the 10 and 30-year rates by -7.5 and -8.2 basis points respectively, with the U.S. dollar index -0.20% weaker.
The S&P500 rose 0.87% along with the Dow Jones 0.17%, Nasdaq Composite 1.45% and Russel 2000 1.50% although the VIX was 1.98% higher at 24.20. Atlanta’s Fed President Raphael Bostic wrote, “There are glimmers of hope”, on the official website about the inflation rate slowing down. Philadelphia Fed boss Patrick Harker spoke in the expectations of future interest rate hikes, “In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance.”
Europe
In Europe, markets closed higher on Tuesday, boosted by optimism of China’s reopening. ECB policymaker Francois Villeroy de Galhau stated the bank will raise the interest rate above 2% in the next meeting on Thursday. The CAC rose by +0.49%, the DAX was 0.46% higher now technically meeting the definition of a bull market having risen 20% from recent lows while the FTSE edged up +0.42%. Elsewhere, two civilians in Poland, a NATO member, we apparently killed in a Russian missile strike adding to political tensions which has been denied by Russia so far. The unemployment rate in the UK rose to 3.6% in September, higher than the forecast 3.5%, while the number of unemployed workers rose to 52k in August, double the forecast 25k.
*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 -13 points or -0.18% to 7,139. The ASX was little changed on Tuesday, down just -0.07%. The biggest laggards were real estate, materials and energy falling by -1.30%, -1.01% and -0.89% respectively, offsetting the gains made by information technology which rose by +1.68% and healthcare up by +1.41%. Morgan Stanley modestly lifted its year-end 2023 price target for the index to 7200 from 7150, with the head of Australian strategy Chris Nicol stated, “Investors should brace for impact from the lagged effects of an aggressive tightening cycle”. Analysts at the bank forecast the cash rate to be raised from its current 2.85% to a peak of 3.6% in April 2023. Energy stocks extended losses, with Beach Energy losing -2.8%, Woodside Energy -1.4% and Santos -0.3%. Lithium stocks slumped following rumours a major Chinese cathode maker cut its output forecast, cathode is known as the space for where lithium is inserted into batteries. Core Lithium sinking -15.8%, Alkem -12.4%, and Pilbara Minerals -8.7%. Life360 gained +9.8% after announcing higher than forecast engagement results by customers. United Malt Group jumped +4.5% on the back of favorable crop conditions in North America.
Commodities
Oil rose following reports of Russia’s missile strike on Poland as well as n IEA report that oil inventories have sunk to the lowest levels since 2004. A day after OPEC revised down its oil demand forecast, the IEA said supplies may be depleted further with Russian output set to decline a further -15% next year. Oil prices were up with WTI and Brent crude gaining +1.14% and +0.64% to $86.85 and $93.74 respectively. The price of spot gold was 0.22% higher at $1,775.46, while spot silver fell -2.34% to $21.48. In industrial metals, copper fell by -0.61% to $381, nickel rocketed +7.12% to $28,767, and SGX Iron Ore rose 1.67% to US$96.30 extending gains for a fourth consecutive session.
Economic Calendar:
- Australian Westpac Leading Index (Oct) 10:30
- Australian Wage Price Index Year-on-Year (Sep) 11:30
- UK Inflation Rate (Oct) 18:00
- Canadian Inflation Rate (Oct) 00:30
- US Retail Sales (Oct) 00:30
- US Industrial Production (Oct) 01:15
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.
