Markets in the US declined amidst rising fears of the Fed maintaining a hawkish interest rate policy with yields gaining on inflation that continues to rise in Europe and Canada.
As of 3:45pm in New York, the S&P 500 was down by -0.87%, with real estate, financials and healthcare falling by -2.07%, -1.59% and -1.54% respectively. The Dow slipped -0.41%, the Nasdaq Composite declined -1.11% and the Russell 2000 fell -2.13% while the VIX index rose +2.46% to 31.25. The yield on the 2-year US government bond rose +11.7 basis points to 4.54%, while the yield on the 10-year bond rose 11 basis points to 4.11%. The Fed’s hawkish stance continues to impact the housing market, with mortgage rates touching a high of two decades. Positive earnings by corporates such as Netflix and United Airlines Holdings Inc. were insufficient to offset the bearish market sentiment. Analysts at Morgan Stanley commented, “Earnings are not allowing us to see that capitulation and resetting of 2023 earnings expectations yet.” Guidance will thus play a key role for investors seeking an optimistic outlook for 2023.
European markets closed lower on Wednesday with the Euro STOXX 600 closing -0.5% lower, weighed down by real estate, consumer discretionary and health care which declined by -2.49%, -1.54% and -1.32% respectively. The FTSE fell -0.22%, the CAC slipped -0.43% and the DAX edged -0.19% lower. UK banks came under pressure after a Financial Times report came out suggesting that the Treasury might apply a 33% tax rate on lenders. Michael Hewson, chief market analyst at CMC Markets UK stated, “This comes across as incredibly short-sighted at a time when the government should be looking to encourage investment into the UK economy.” Economic data out of Europe showed UK inflation rose at 10.1% for September modestly above estimates, equaling the 40-year record high seen in July. Elsewhere, Eurozone core inflation rose to +4.8% from +4.3% as expected while headline inflation rose to +9.9% from +9.1% previously. The region continues to keep investors jittery amidst rising political tensions in the UK, an energy crisis brought about by the conflict between Russia and Ukraine and a looming recession.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is set to open lower on Thursday, with ASX futures down 58 points or -0.85% to 6,733. The ASX 200 closed +0.31% higher on Wednesday at 6800, with utilities, industrials and consumer discretionary gaining +0.95%, +0.90% and +0.77% respectively. The mining sector reported production shortfalls this quarter due to adverse weather conditions and labour shortages, leading to BHP falling -1% while Whitehaven gained +1.1% despite reduced output. Shares of gold producer St. Barbara also fell -4.8% due to a production downgrade. The energy sector underperformed, leading to Woodside Energy and Beach Energy dropping -1%, while Origin Energy fell -1.4%. Megaport plummeted 22%, despite reporting a 5% improvement in quarterly revenue to $23 million disappointing investors that expected more. Medical gloves and surgical suits maker Ansell saw its share price slide -0.5% after a law firm Slater and Gordon announced an interest in a class action lawsuit against the company. Goldman Sach’s lifted Corporate Travel Management’s share price by +2.7% after ranking the company’s status of “new buy”. Pendal reported a decline in assets to $104.5 million from $111 million, sending its stock price to decline by -5.5%. The yield on the 10-year Australian bond yield fell to 3.919 while the local currency weakened against the US dollar by -0.7% to 0.6265.
In commodities, WTI and Brent crude were up by +3.74% and +2.65% to $85.87 and $92.33 respectively. US President Joe Biden’s attempted to tamper the surge in prices, by announcing a plan to sell 15 million barrels of crude oil from the nation’s emergency supply and begin refilling the reserve. In metals, China’s economic slowdown hit the markets as consumption slowed down. Spot gold fell -1.39% to $$1,629.29, spot silver declined -1.55% to $18.44, copper was receded -1.16% to $332, nickel gained +1.51% to $21,769, while SGX Iron Ore gained +1.11% to $92.63. The price of bitcoin fell -1.4% to $19,161.
Economic Calendar:
- Fed Evans Speech 09:30
- Fed Bullard Speech 10:30
- Australian Unemployment Rate (MoM Sep) 11:30
- US Jobless Claims (Oct 15th) 23:30
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.
