U.S. equities reversed initial gains to finish little changed on Monday, while Treasury yields declined after a survey by the Federal Reserve Bank of New York showed a decline in consumer inflation expectations.
The S&P500 reversed gains of 1% to edge -0.12% weighed by a -0.88% decline in technology shares with Nvidia shares falling -6.3% after saying it expects second-quarter revenue of $6.7 billion, down -19% from the prior quarter hurt by weakness in its gaming business. The Nasdaq Composite also edged -0.10% lower while the Dow Jones edged +0.09% higher and the Russell 2000 climbed +1.01% with the VIX up +0.66% to 21.29. Morgan Stanley’s Mike Wilson called the recent rally a “bear market rally” amid growing fears of a recession. While he believes inflation has peaked and “will probably fall faster than the market currently expects”, that doesn’t bode well for stocks as it will reduce operating leverage and weigh on earnings.
Treasury yields retreated after the Federal Reserve Bank of New York consumer inflation expectation survey showed a decline. 1-year expectations declined to 6.2% from 6.8%, with the 3-year rate down to 3.12% from 3.6% and 5-year expectations declined to 2.4% from 2.8%. 2-year Treasury yields declined -2 basis points to 3.207% along with the 10 and 30-year rates by -8.1 and -9.2 basis points respectively. San Francisco Federal Reserve President Mary Daly on Monday suggested a +0.5% rate increase isn’t locked it at the next meeting, noting the central bank is “far from done yet” in bringing down inflation. Speaking on CNBC Daly noted about the September meeting “we need to be data-dependent….we need to leave our mind open. We have two more inflation reports coming out, and another jobs report”.
European equities rose with the Euro Stoxx 600 up +0.74% along with the DAX +0.84%, CAC +0.80%, and FTSE100 +0.57% tracking U.S. futures and cash markets higher. Bond yields were mostly lower across the region, declining by as much as -9.7 basis points in the U.K. to -3.4 basis points in Sweden, the exceptions were Italy and Greece where yields traded +0.9 and +1.5 basis points higher. The Euro edged +0.11% higher to 1.0194 with the Pound also up a modest +0.07% to 1.2081.
*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 lower this morning with ASX200 futures down -13 points or -0.19% to 6,910. The index reversed initial losses on Monday to edge +0.07% higher boosted by gains in materials +1.84% and energy +1.85% while the majority of sectors were lower and only +36% of stocks traded higher. Shares in copper and nickel miner Oz Minerals surged 35.25% after receiving an $8.3 billion takeover offer from BHP which was rejected by the OZL board and is set to demand more than the $25 per share offer having traded above $29 in January. Shares in Redbubble also climbed +16.7% after receiving a buy rating from UBS citing low expectations for full-year financial results which might be better than expected. The Australian dollar climbed +1.11% on Monday to 0.6988 while the 10-year government bond yield climbed +12.6 basis points to 3.213% ahead of the Westpac consumer confidence index for August due at 10:30 AEDT this morning.
Oil prices were higher overnight with both WTI and Brent crude up +1.65% and +1.47% to US$90.48 and US$96.32 a barrel. Iron ore futures in Singapore rose +2.35% and are a further +0.25% higher this morning at US$111.95. Gold gained +0.76% to US$1,788.96 an oz boosted by a weaker USD and lower real yields, silver also gained +3.888% to US$20.67 along with Bitcoin +3.47% to US$24,072.
Economic data:
- Australian Consumer Confidence (MoM Aug) 10:30
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.
