U.S equity futures rose on Monday while cash markets were closed for the Labor Day public holiday, meanwhile, European equities slumped over concerns of an energy crisis.
U.S. cash markets for equities and bonds will resume trading on Tuesday after being closed for a public holiday on Monday. Futures contracts for the S&P500 rose +0.30% as did contracts on the Dow Jones +0.39% and Nasdaq100 +0.26%. In a note, market strategist Ed Yardeni said he sees the potential for “immaculate disinflation” in the U.S. citing the credit system being less vulnerable to a credit crunch than in the past and expects rolling recessions to hit different parts of the economy at different times, bringing down inflation without precipitating an economy-wide downturn.
European equities fell although reversed the worst of their losses following Gazprom halting its key gas pipeline to Germany indefinitely. The DAX declined -2.22% along with the CAC -1.20% and Euro Stoxx 600 -0.62% while the FTSE100 rose +0.09% after the U.K. Conservative Party named Liz Truss as its leader, clearing the way for her to become prime minister. The Pound edged +0.08% higher to 1.1518 although investors cited concerns about Truss’s plan to slash taxes, potentially stoking already double-digit inflation. Gazprom announced the indefinite halt of its Nord Stream pipeline after G7 leaders agreed to implement a price cap on Russian oil as the war in Ukraine continues. European leaders are set to meet on Friday to discuss measures of rein in power costs, with Germany planning a $66 billion package to shield consumers.
In economic data, the final reading of Eurozone services PMI for August was weaker than expected at 49.8 vs 50.2 expected with a similar report for the U.K. also weaker than expected at 50.9 compared to 52.5 highlighting a likely slowdown in economic growth. Elsewhere, Eurozone retail sales for the 12 months to July declined -0.9%, improving from -3.2% in June although below forecasts of -0.7%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open modestly higher this morning with ASX200 futures up +9 points or +0.13% to 6,840. The Index rose +0.34% on Monday with gains in materials +1.95% and energy +3.97% offsetting weakness in other sectors. Following the Gazprom news energy shares outperformed the index with coal miner WHC up +6.5% along with CRN +7.5% and WHC +5.7%. Oil and gas producer Beach Energy also gained +5.2% along with WDS +4.3%. Elsewhere, PointsBet and Zip dropped -6.4% and -4% respectively on news both stocks would be removed from the ASX200 in two weeks’ time as part of the quarterly rebalance. The Australian dollar is -0.21% lower overnight at 0.6798 with the 10-year government bond yield unchanged at 3.649%.In economic data, the final reading of services PMI for August declined to 50.2 from50.9 previously, remaining modestly above expansionary territory while retail sales for July were in line with forecasts of a +1.3% gain for the month.
In focus today in the RBA’s rate decision with economists from St George, TD Securities, RBC, and NAB calling for a +0.5% increase while economists are Barclays are calling for a slower increase of +0.25% citing “the bank’s August statement suggests to us that it sees the path to balance growth and inflation as narrow, suggesting smaller hikes going ahead”. In calling for a +0.50% increase at today’s meeting, economists at NAB noted they expect a slower pace of +0.25% increases going forward as policy enters a slightly restrictive setting.
Oil prices climbed on news of a deepening energy crisis in Europe as well as OPEC+ agreeing to make a token supply cut in October of 100k barrels per day. Both WTI and Brent crude traded +2.24% and +2.92% higher at US$88.82 and US$95.74 a barrel. Iron ore futures in Singapore climbed +3.57% on Monday although are -0.3% lower this morning at US$97.60 after Chinese PMI for August remained in expansionary territory although continues to weaker with a composite measure down to 53 from 54 in July. Gold was modestly lower by -0.11% to US$1,710 while silver rose +0.63% to US$18.15 with Bitcoin -0.69% lower at US$19,765.
Economic data:
- RBA Rate Decision 14:30
- U.S. PMI Final (MoM Aug) 23:45
- U.S. ISM Non-manufacturing PMI (MoM Aug) 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.
