Equities fell on Friday as Federal Reserve members reiterated the need for further rate increases, while the recent rally had left equities looking stretched from a technical perspective and vulnerable to a pullback.
The S&P500 declined -1.29% weighed by declines in technology -1.83% and consumer discretionary -2.10% in broad selling with 84% of stocks trading lower. The Dow Jones also retreated -0.86%, as did the Nasdaq Composite -2.01% and Russell 2000 -2.17% with the VIX rising +5.32% to 20.60. A notable performer was Occidental Petroleum which climbed +9.88% on news Warren Buffet’s Berkshire Hathaway won approval from U.S. regulators to purchase as much as 50% in the oil company. Ahead for the week, flash PMI surveys for August will be released on Tuesday, followed by durable goods orders for July on Wednesday. Thursday will bring the start of the Fed’s Jackson Hole Symposium as well as the second estimate of Q2 GDP expected to show the economy contracted at a -0.8% annualised pace. A speech by Jerome Powell on Friday will be the main focus on the symposium, as well as the release of PCE inflation data for July and consumer sentiment for August.
Ahead of this weeks Jackson Hole Symposium, Federal Reserve officials reiterated their resolve to raise rates to curb inflation. On Thursday both James Bullard of the St. Louis Federal Reserve and Esther George of Kansas City stood firm on the need to increase rates further, although diverged on the size of a move in September with Bullard urging for a +0.75% increase while George struck a more cautious tone. Thomas Barkin also pointed to the need for further rate increases on Friday, although noted the risks of those efforts could cause a recession. On the Jackson Hole Symposium, Goldman Sachs economists noted they see “little reason for Chairman Powell to lean too strongly in either direction at Jackson Hole. The somewhat conflicting signals from the stronger-than-expected July employment report and then the softer-than-expected July CPI report should mean a more balanced perspective ahead of the upcoming data in September”.
European equities also finished lower on Friday with the Euro Stoxx 600 finishing -0.77% lower along with the DAX -1.12% and CAC -0.94% while the FTSE100 edged +0.11% higher. According to Liberum Capital strategist Susana Cruz, “We believe the recent rally was part of a long-bear market…We also expect a further drop in European equities once the macro outlook shows more bearish signals”. Ahead for the week, PMI reports for August will be in focus on Tuesday expected to show a decline in activity across the region followed by Eurozone consumer confidence for August also expected to modestly weaken. The final reading of German Q2 GDP will be released on Thursday expected to show a +1.4% expansion in the economy followed by the Ifo business climate survey and the minutes from the latest ECB policy meeting.
*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 -29 points or -0.41% lower this morning based on ASX200 futures trading at 6,994. The index was little changed on Friday, edging +0.02% higher as gains in energy +3.96% and materials +0.83% offset a -0.78% fall in financials. Coal stocks gained following a rise in coal prices with WHC trading at a new record high on Friday and NHC also rose to the highest level since April 2012 as Europe scrambles to find alternative coal suppliers to Russia. Shares in TPG Telecom slumped -12.4% after reporting softer-than-expected growth in revenue per-user and missed key earnings estimates. Ahead for the week, the only major economic data released is PMI reports for August on Tuesday while the Australian dollar weakened -0.61% on Friday to 0.6875, and the 10-year government bond yield rose +7.1 basis points to 3.405%.
Oil prices edged higher on Friday with both WTI and Brent crude up +0.30% and +0.13% respectively to US$90.77 and US$96.72 a barrel. Base metals were lower for the week with aluminium down -1.99% along with copper -0.16%, lead -6.5%, nickel -3.38%, tin -1.52% and zinc -2.83%. Iron ore futures in Singapore declined -0.72% on Friday although have bounced +0.44% this morning to US$101.40. Gold declined -0.66% to US$1,747.06 an oz as did silver -2.52% to US$19.05 and Bitcoin -9.15% to US$21,274.
Economic data:
- Chicago Fed National Activity Index (MoM Jul) 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.
