U.S. equities edged lower on Monday after three prior sessions of strong gains as manufacturing PMI confirmed a slowing economy.
The S&P500 finished Monday -0.28% lower with health care -0.73%, energy -2.18%, and financials -0.89% weighing. The Dow Jones also edged lower by -0.14% along with the Nasdaq Composite -0.18% and Russell 2000 -0.10% with the VIX rising +6.99% to 22.82. Earnings season for Q2 continues to progress with 74% of the 293 S&P500 companies reporting so far beating estimates by an average of 4.24% and 61.3% beating revenue estimates by an average of 2.21%. According to Dana D’Auria, co-CIO at Envestnet Inc. “July delivered a nice relief rally on a dovish interpretation of Fed comments and tech earnings that were not as dismal as expected, but it’s not surprising that we would see a retrenchment after that sort of performance….We are still facing a rising rate environment and an economy that is probably technically in recession”.
The ISM manufacturing PMI survey for July declined from 53 previously to 52.8 remaining in expansionary territory and was slightly better than estimates of 52. A measure of prices paid for inputs fell to a two-year low, adding weight to the view that inflation has probably peaked for now, declining to 60 from 78.5 previously, well below estimates of 74.3 while new orders and employment sub-components remained in contractionary territory. The yield curve flattened driven by a decline in longer-dated yields with the 10 and 30-year rates down -5.8 and -9.1 basis points respectively while the 2-year yield was little changed at 2.882%.
European equities also edged lower following weaker Chinese PMI as well as investors monitoring U.S. House Speaker Nancy Pelosi’s trip to Asia, including a potential visit to Taiwan on Tuesday potentially stoking U.S.-China tensions. The Euro Stoxx 600 was -0.19% lower along with the DAX -0.03%, CAC -0.18% and FTSE100 -0.13% with investors likely taking some profits following the best month for European equities since November 2020 in July. The final reading of Eurozone manufacturing PMI remained in contractionary territory at 49.8 modestly above estimates and down from 52.1 previously while the unemployment rate remained unchanged at 6.6% as forecast for June.
*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 with ASX200 futures down -17 points or -0.25% to 6,884. The index climbed +0.69% on Monday driven by a +0.88% gain for materials and health care +1.61% while technology lagged -0.41%. Mobile software engagement company Plexure Group soared +79.4% after signing an agreement with Mcdonald’s to use its digital customer engagement platform for the next five years. Elsewhere, a profit downgrade driven by rising costs for United Malt Group saw shares drop -15.2%. In focus today is the RBA rate decision at 14:30 AEDT where the central bank is widely expected to raise rates by +0.5% for a third consecutive meeting bringing the cash rate to +1.85%. Expectations are for the central bank to also point to more tightening to come to tackle the highest inflation in decades.
Oil prices fell on Monday driven by concerns over slowing demand over weaker PMI data as well as a decline in factory activity in China and PMI which also missed forecasts of 51.5 to 50.4 in July, modestly above the 50 level which defines contraction and expansion. Both WTI and Brent crude were -4.75% and -3.76% lower at US$93.96 and US$100.06 a barrel respectively. Iron ore futures in Singapore edged -0.21% lower on Monday and are a further -1.22% weaker this morning at US$113.35 with copper futures in the U.S. also -1.19% lower. Gold rose +0.37% to US$1,772.55 an oz with silver also edging +0.08% higher to US$20.38 while Bitcoin retreated -3.41% to US$22,995.
Economic data:
- RBA Rate Decision 14:30
- Fed Evans Speech 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.
