Stocks edged higher on Monday after Federal Reserve Vice Chair Lael Brainard’s comments that it may “soon” be appropriate to slow the pace of rate hikes.
United States
As of 2:52pm in New York, the S&P 500 was 0.15% higher boosted by healthcare rising +1.15%, communications services up by +0.9% and materials gaining +0.86%. The Dow rose by +0.38%, the Nasdaq edged up +0.08% while the Russell 2000 closed +0.12% higher. The VIX index rose by 2.26% to 23.3, and the yield on the 10-year US Treasury bond rose 6 basis points to 3.87%. Federal Reserve vice chair Lael Brainard suggested a reduced pace of interest rate hikes in the future stating, “It will probably be appropriate, soon, to move to a slower pace of rate increases.” In contrast, Baring’s Christopher Smart, downplayed the comments, “Moreover, there’s still a long way to go to get to the Fed’s target of 2% average inflation. That’s why Fed governors have been lining up to talk down any market euphoria that a real pivot is in sight”. Morgan Stanley forecast a challenging 2023 for the US economy, on the basis of technical data, “while we see 2023 as a very challenging year for earnings growth, 2024 should be a strong rebound where positive operating leverage returns.”
Europe
In Europe, the STOXX 600 Index managed to close +0.29% higher. Consumer staples gained +0.92%, information technology +0.88% and utilities +0.79% to offset the losses in real estate and consumer discretionary which declined by -1.12% and -0.26% respectively. The CAC was up by +0.22%, the DAX rose +0.62% while the FTSE climbed +0.58%. The UK seems to have lost its charms as the economic center for Europe, as luxury retailers such as LVMH and Gucci begin to migrate towards Paris, where they suspect Chinese shoppers will resume spending as COVID lockdown restrictions begin to ease. Former Bank of England policymaker Michael Saunders commented on the change in market sentiment, “The UK economy as a whole has been permanently damaged by Brexit” as France’s total stock market value exceeded that of the UK.
*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 flat today, with ASX futures little changed at 7,147. The ASX began the week by closing -0.16% lower on Monday, with materials and energy the only sectors closing higher at +3.37% and +0.92% respectively. The biggest laggard was the industrials sectors declining -2.28%, followed by healthcare dropping -2.13% and communication services down by -2.04%. Iron ore prices soared as China continues to soften coronavirus prevention measures. Champion Iron rocketed up +13%, Fortescue Metals Group leapt +10%, BHP Group +4.6% and Rio Tinto +3.3%. Lithium producers followed suit, with Core Lithium rallying +11.7% and Liontown Resources +6.8%. Scrap metals group Sims gained +6.9%. Elders Ltd. was the biggest laggard of the day sinking nearly +23% after announcing the exit of group boss Mark Allison. Perpetual and Pendal were down -5.8% and -1% respectively due to an investigation from the Australian Securities commission. Neamap lost -5.8% despite improved guidance on future earnings, while Flight fell -3.8% after warning two customers may stop using the software completely or reduce usage considerably. The yield on the Australian 10-year bond was 3.76%, while local currency gained strength against the US dollar, rising +0.03% to 0.67.
Commodities
In commodities, OPEC announced a reduction in growth forecast for the upcoming year 2023 citing economic challenges, with production expected to rise by 2.55 million barrels per day (mbpd) 100,000 barrels fewer than previous forecast. In a report released by OPEC, the organization stated, “The world economy has entered a period of significant uncertainty and rising challenges in the fourth quarter of 2022….downside risks include high inflation, monetary tightening by major central banks, high sovereign debt levels in many regions, tightening labour markets and persisting supply chain constraints”. The price the WTI and Brent Crude dropped –4.09% and -3.51 % to $85.38 and $92.69 respectively. Spot gold rose by +0.08% to $1,772.57, spot silver climbed +1.53% to $22.04, copper fell -.195% to $384, nickel gained +3.88% to $26,856, and SGX Iron Ore jumped 1.77% to $95.20 having risen 2.48% on Monday.
In cryptocurrency news, investors stated divesting their funds from crypto.com, after the Singapore based exchange announced its management team may have mishandled $400 million of customer funds. Binance Holdings Ltd. announced it would set up a recovery fund to stabilize the industry post FTX’s bankruptcy. the price of bitcoin rose slightly by 0.2% to $16,552.
Economic Calendar:
- RBA Meeting Minutes 11:30
- Chinese Retail Sales and Industrial Production (YoY Oct) 13:00
- UK Unemployment Rate (MoM Sep) 18:00
- Eurozone ZEW Economic Sentiment Index (MoM Nov) 21:00
- US PPI (MoM Oct) 00:30
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.
