US equities closed higher on Monday over optimism that inflation will begin to trend lower ahead of Tuesday’s all-important inflation report.
The S&P 500 rose by +1.06% with all sectors positive with the largest gains in energy +1.81% and technology +1.63% and 84% of stocks higher The DOW also gained +0.71%, while the Nasdaq Composite rose by +1.27% along with the Russell 2000 +1.23%. Economic data on inflation will be released on Tuesday, with the inflation rate forecast to ease to 8.1% for August compared to 8.5% in July, while core inflation is forecast to rise to 6.1% in August from 5.9% in July. Analysts at Bank of America expect the fed to keep interest rates high, “The bad news is that US CPI inflation above 8% keeps the Fed hawkish and interest-rate volatility high”.
Ahead of the U.S. inflation report tonight, a survey of consumer inflation expectations by the New York Federal Reserve showed expectations eased. Over the next 12 months, consumers expect inflation to ease to +5.75% from +6.2% previously and +2% over the next 5 years from +2.35% previously suggesting inflation expectations remain well anchored, a key focus for policymakers. The Fed is expected to continue raising the interest rate, as Fed Governor Christopher Waller stated last week that he favors “another significant” increase. Bond yields in the US climbed with the 2-year bond rising +1.4 basis points to 3.574%, the 10-year and 30-year yields gained +4.3% and +5.4 basis points respectively, while the VIX index gained +4.74% to 23.87.
In Europe, markets rallied on hopes an energy crisis may ease on plans to impose cuts to power usage, a step toward rationing while the Euro climbed as Bundesbank President Joachim Nagel signaled support for further rate increases. The Euro Stoxx 600 gained +1.67% with all sectors closing higher, the FTSE increased by +1.52%, while the CAC rose by +1.89% and the DAX closed +2.45% higher. Measures by European leaders to push through multi-billion Euro support packages to prevent utilities buckling and protect householders for soaring energy bills supported risk assets and the view that inflation may peak sooner than thought.
*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 higher this morning, with ASX200 futures up 45 points or 0.65% to 7002. The market climbed +102% on Monday or 70.3 points to 6964.5, boosted by rising commodity prices. All sectors closed higher, except healthcare which declined by -0.26%. The biggest gains came from materials and consumer discretionary which were up by +2.17% and +1.52% respectively. Mineral resources gained +2.2% after it announced plans on listing its lithium business in the US. The share price of MA Financial dropped -21.8% lower after news of regulatory restructuring being undertaken on the company’s product for “golden ticket” visas. BHP rose +3.5%, Rio Tinto was up +1.8%, Fortescue added +3.3% while Sandfire Resources gained +3.6%. The yield on the 10-year Australian bond was up by 7 basis points to 3.625 and the local currency gained +0.7% to $68.87. The ASX is set to be closed later this week on September 22nd, in memory of the late Queen Elizabeth II passing.
In commodities, oil prices rose with U.S. emergency crude oil stocks falling 8.4 million barrels last week to 434.1 million barrels according to the Department of Energy. The price of WTI Crude was up by +1.56% to US$88.14 and Brent gained +1.63% to US$94.35. In precious metals, price of iron ore was boosted on news of China’s blast furnaces gearing up to full capacity for steel production. SGX Iron Ore gained +1.7% to $101.95 along with copper +1.41%. Spot gold gained +0.47% to US$1,724.883 an oz, and spot silver leaped +4.96% to $19.79 with Bitcoin +3.50% higher to US$22,399
Economic Calendar
- Westpac Consumer Confidence Index (MoM Sep) 10:30
- German Inflation Rate (YoY Aug) 16:00
- UK Unemployment Rate (MoM Jul) 16:00
- Eurozone ZEW Economic Sentiment (MoM Sep) 19:00
- US Inflation (MoM Aug) 22:30
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.
