U.S. equities finished lower on Friday after U.S. PCE inflation data was higher than expected.
The S&P 500 fell by -1.5%, with all sectors closing lower, except energy which rose by +0.99%. Information technology, utilities and consumer discretionary were the biggest laggards declining by -1.95%, -1.91% and -1.83% respectively. The Dow declined by -1.71%, the Nasdaq was down –1.51%, the Russell 2000 closed -0.61% lower, while the VIX index declined -0.69% to 31.62. Core PCE prices rose +4.9% over the 12 months to August, exceeding estimates of +4.7% while headline prices rose +6.2% also exceeding estimates of +6.0% adding weight to the case for the Federal Reserve to continue raising interest rates. The yield on the US 2-year bond rose +8.5 basis points 4.279%, while the yield on the 10-year rose 4 basis points to 3.83%. US equities suffered their losses in the first nine months of 2022, with three quarterly declines in a row for the S&P and the Nasdaq since 2008, the longest losing streak for the two indexes, while the Dow’s longest quarterly slump in seven years.
Analysts at Goldman Sachs commented on the recent decline in the US equities stating,” Rising interest rates, slowing growth, and increased unemployment will drive households to continue selling stocks. Corporates will be the largest source of equity demand due to strong buybacks and weak issuance.” Ahead for the week investors will focus on the release of the ISM Manufacturing PMI report, Non-Farm Payrolls and Unemployment Rate, scheduled to be released later this week.
In Europe, markets closed higher at the end of trading on Friday with initial inflation data for September also higher than expected. Over the 12 months core prices rose +4.8% compared to estimates of +4.7% while headline prices rose +10% against estimates of +9.7%. The Stoxx 600 Index closed +1.18% higher with Real estate, information technology and industrials closing at +4.79%, +1.99% and +1.71% respectively. The FTSE was up +0.18%, the CAC rose +1.51% and the DAX gained +1.16%. ECB President Lagarde Speech’s on Wednesday will be of key interest to investors. While the Bank of England announced it would not raise interest rates further until the next policy meeting. Analysts at ANZ commented, “Raising interest rates inter-meeting would reflect panic and indicate a central bank that is not in control of policy.”
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is expected to open lower this morning with ASX200 futures finishing -1.24% or -81 points lower on Friday at 6,466. The index declined by -1.5% over the week, edging closer to the June 20, 2022 low of 6407 points. Industrials, consumer discretionary and information technology were the biggest laggards falling by -3.04%, -2.72% and -2.65% respectively. Materials and energy were the only two sectors that closed higher, edging +0.67% and +0.7% respectively. Carsales stock price slumped -by 7.8%, after the US auto retailer stated inflation reduced demand for used cars. The share of a2 Milk Company gained +0.6% after revealing quarterly sales were slightly above expectations. The RBA is expected to raise the cash rate when it meets on Wednesday, likely taking the cash rate to 2.85%. Analysts at NAB stated, “NAB’s view is the current level of the cash rate at 2.35% is still below the RBA’s assessment of nominal neutral of at least 2.5%, and the resilience seen in the data makes the case for one more 50bp hike, before a downshift to a 25-basis point increment in November.” In economic data, the personal consumption expenditures price index, which is used by the Fed for its’ inflation target, rose 0.3% in August compared to July, and 6.2% compared to last year, well above the target of 2%. The yield on the 10-year Australian bond was 3.88%, and the local currency fell by -1.5% to 64.00
In commodities, the price of oil declined with WTI and Brent falling -2.14% and -2.34% to $79.49 and $85.14 respectively. OPEC+ is expected to meet on Wednesday where oil production is expected to be curtailed in order to support weakening prices. Production cuts could range between 500,000 to 1 million barrels/day, stated Reuters. In precious metals, the price of spot gold was $1,660.61 and spot silver closed +1.11% higher at $19.03. The price of LME Copper was up +0.24% to $7560, nickle dropped -5.55% to $1,241 and Iron Ore rose by +0.1% to 95.95.
Economic Calendar:
- Australian Manufacturing PMI Final (MoM Sep) 09:00
- Eurozone Manufacturing PMI Final (MoM Sep0 19:00
- Fed Bostic Speech 00:00
- U.S. ISM Manufacturing PMI (MoM Sep) 00:45
- Fed Barkin Speech 02:45
- Fed George Speech 05:15
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.
