Global equities extended weakness on Monday exacerbated by sharp moves in the Pound and bond yields ahead of this week’s U.S. PCE inflation data.
The S&P 500 fell -1.03%, with all sectors weaker, except consumer staples which edged +0.01% higher. The biggest laggards were the real estate, energy and utilities sectors falling -2.63%, -2.57% and -2.43% respectively. The Dow closed -1.11% lower along with the Nasdaq Composite -0.6% and Russell 2000 -1.41% with the VIX rising +7.82% to 32.26. Analysts at JP Morgan Chase suggested higher volatility in stocks, as uncertainty looms over the markets, “Fed hawkishness leaves stocks very oversold: The global inflation trajectory is becoming even more central for tactical asset allocation and it could keep volatility elevated until the next set of CPI releases.” Boston Fed President Susan Collins reiterated the hawkish stance on interest rates by the Fed, stating additional tightening would be needed to tame rampant inflation, and may require some job losses.
The yield on 2-year Treasuries rose +13.7 basis points to 4.338% along with both the 10 and 30-year yields up +24.2 and +13.5 basis points respectively. In economic data, the Chicago Fed National Activity Index for August was flat, compared to 0.27 in July. In focus this week is the release of PCE inflation data for August on Friday expected to show headline prices eased to +6.0% from +6.3% over 12 months while core prices are expected to edge higher to +4.7% from +4.6% in July.
In Europe, the Stoxx 600 Index fell -0.28%, as real estate, utilities and communications pulled the index down by declining -2.89%, -2.14% and -1.36% respectively. The CAC fell -0.2% while the FTSE edged up +0.03%. The DAX receded -0.5%, as economic data in Germany’s IFO business confidence climate report fell below forecasts to 84.3 in August, compared to 88.6 in July. The ECB will consider the shrinking of its balance sheet only once after completing the ‘normalization’ of interest rates, said Christine Lagarde. Italy’s FTSE MIB rose +1% after Giorgia Meloni won a clear majority in Sunday’s Italian election. The Pound extended recent weakness, falling a further -1.58% to 1.0692 after the Bank of England ruled out acting before November to stem a rout that has seen the currency reach a record low.
*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 higher today, as ASX futures up by +0.20% or 12 points to 6.478. The index closed -1.6% lower on Monday, weighed down by the energy, materials and utilities sectors which declined by -6.3%, -5.27% and -3.39% respectively. Energy stocks took a hit, with Santos sinking -7.3%, Beach Energy losing -7% and Woodside Energy falling by -5% with the share prices of both Whitehaven Coal and New Hope plummeted more than -14% as concerns of a recession weighed on demand for energy. Rio Tinto fell -5.7%, BHP Group lost -5.2% while Fortescue Metals declined by -4.9%. Syrah Resources plummeted -18.3% after providing an update that operations at the company’s projects in Mozambique were interrupted by illegal industrial action. In other news, Analyst’s at ECP Asset Management highlighted evidence of cracks forming in corporate profits, such as delayed hirings and job cuts specifically in the technology sector, with Link group’s share price falling by -7.8%. Costa group dropped -14.2% after the resignation of the company’s CEO, Sean Hallahan, who had been at the reins since April last year. The Star Entertainment’s stock price declined by -2.6%, following the departure of CEO Geoff Hogg, after the company was found unfit to hold a NSW casino license. Healthcare and staples were the highest performing sectors on Monday, rising by +1.97% and +1.2% respectively. Nansonics rose +4.7% while Megaport was up +3.7%. The Australian 10-year bond yield rose to 3.98% while the local currency weakened against the greenback by -1.1% to $64.59.
Commodity prices slumped on Monday, with oil prices declining as the world awaits new sanctions expected to be imposed on Russia. WTI and Brent fell by more than -2.7% to $76.40 and $84.17 respectively. In precious metals, spot gold declined by -1.16% to $1,625.95, spot silver was down -2.51% to $18.4 while the price of bitcoin gained strength rising +1.4% to $19,196. Iron ore prices fell with the SGX Iron Ore down -2.43% on Monday although is +0.59% higher at US$96.15 this morning while copper declined -2.12%.
Economic Calendar:
- Chinese Industrial Profits (YoY Aug) 11:30
- US Fed Evans Speech 20:15
- ECB President Lagarde Speech 21:30
- US Durable Goods Orders (MoM Aug) 22:30
- US House Price Index (MoM Jul) 23:00
- Fed Bullard Speech 23:55
- Conference Board Consumer Confidence (MoM Sep) 00:00
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.
