U.S. equities swung between losses and gains before closing higher on Wednesday as producer prices showed further signs of easing, helping to offset Tuesday’s higher-than-expected inflation reading.
The S&P 500 rose +0.34%, supported by energy which was up +2.85% and consumer discretionary +1.30%, offsetting the decline in real estate by -1.39%. The Dow edged +0.10% higher while the Nasdaq Composite rose +0.74% along with the Russell 2000 +0.38% while the VIX retreated -4.07% to 26.16 after surging +14.24% on Tuesday. Analysts on Wall Street are forecasting a rise in the cash rate of 75 basis points in next week’s meeting although the probability of a +1.0% hike has increased substantially following Tuesday’s higher-than-expected inflation reading.
The CIO of Northwestern Mutual funds Brent Schutte stated, “Everyone is waiting to see the next inflation data point and importantly hear what the Fed thinks next week…Friday’s University of Michigan is important from inflation expectation outlook”. Economic data showed a decline in the PPI by -0.1% for the month of August, in line with estimates, in a sign that margin pressures are beginning to ease and suggests that PCE inflation reading for August due on the 30th of September is likely to look better than the CPI reading. In bond yields, the 2-year bond rose +3 basis points to 3.786%, the 10-year bond edged -0.6 basis points lower to 3.402% while the 30-year yield declined -3 basis points to 3.456%.
In Europe, the Stoxx 600 index closed -0.86% lower, with all sectors closing lower other than energy which was up +1.08% while the FTSE fell -1.47%, the CAC dropped -0.37% and the DAX declined -1.22%. European investors continue to grapple with sticky inflation, hawkish central banks and an energy crisis that could lead to rationing of natural gas. The likelihood of a recession is growing in the region, and France already lowered its economic growth forecast for next year due to these many headwinds. According to Berenberg’s Ulrich Urbahn, “Central banks will remain hawkish toward year-end and then we will see…There might be a chance to pause with hikes as inflation comes down due to base effects”.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
ASX is set to open relatively flat this morning with ASX200 futures up +5 points or +0.07% to 6,841. The ASX closed lower in broad-based selling on Wednesday, down -2.58% with the biggest laggard real estate which was down 4.17%, followed by technology and consumer discretionary falling by -3.15% and -3.13% respectively. Lake Resources was the hardest hit, dropping 16.4% despite notifying Lilac solutions of the milestones to be achieved for the companies’ pilot project. Zip dropped -6.4%, Novonix retreated -5.35%, Block lost -5.1, Megaport declined -10%. In mining, Rio Tinto dropped by -2.7%, Fortescue Metals fell -2.5%, while BHP group fell -1.8%. The big banks shares dropped with the big four taking hits, as Commonwealth bank saw its share price decline by -3.5%, NAB was down -3.1%, NZ fell -2.3% and Westpac slipped -1.8%. In energy, Origin, Santos and Woodside lost more than -1%. The yield on the Australian 10-year bond was +6.5 basis points higher +3.635%, while the local currency rose +0.24% to 0.6746. In focus today is unemployment data for August expected to show +35 jobs were added over the month with the unemployment rate remaining stable at +3.4%.
In commodities, oil prices were higher with the price of WTI and Brent Crude up by +1.89% and +1.43% respectively to US$88.996 and US$94.50 a barrel. In precious metals, spot gold fell -0.38% to $1,695.73, spot silver rose +1.15% to $19.55 while Bitcoin was -1.53% lower at US$19,930., SGX Iron Ore declined -2.46% on Wednesday although is +1.88% higher this morning at US$102.65 while copper declined -1.23%.
Economic Calendar:
• Australian Employment (MoM Aug) 11:30
• U.S. Retail Sales (MoM Aug) 22:30
• U.S. Industrial Production (MoM Aug) 23:15
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.
