Equities rallied on Thursday on optimism the Federal Reserve will be able to curb inflation without pushing the economy into a recession, with commodities gaining over potential stimulus from China.
The S&P500 rose +1.50% on Thursday lifted by technology +2.06% and consumer discretionary +2.48% in broad breadth with 79% of stocks trading higher. The Dow Jones also gained +1.12%, as did the Nasdaq Composite +2.28% and Russell 2000 +2.43% as the VIX declined -2.43% to 26.08. Fed Governors Christopher Waller and James Bullard both back a +0.75% increase overnight at the Fed’s July meeting. Waller said he then support a lower +0.50% increase in September while dismissing concerns the U.S. economy is starting to slump noting recession fears are “overblown” and any impact on the economy would be relatively small. Bullard also echoed these comments, noting he still sees a “good shot” the economy will have a soft landing.
In economic data, initial jobless claims for the week ending June 2nd rose to +235k from +231k previously, modestly above estimates, and continuing claims rose to +1.375m against expectations to remain unchanged at 1.328m for the week ending June 25th. The private ADP employment report had been due for release overnight, however, the ADP will not publish figures for July and August as they reconfigure their methodology, likely to resume publication in August. Treasury yields were higher across the curve ahead of the key non-farm payroll data tonight, with the 2-year yield up +2 basis points to 3.022%, along with both the 10 and 30-year yields by +7 and +6.8 basis points respectively with the U.S. dollar index unchanged at 107.08. In focus on Friday is employment data forecast to show +268k jobs were added in June with the unemployment rate forecast to remain unchanged at +3.6%.
European equities rose along with commodities and benefiting from a general risk-on appetite in equities with optimism over potential stimulus from China. Mining stocks gained after news China’s Ministry of Finance is considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds as part of a second half-year stimulus measure. The Euro Stoxx 600 climbed +1.88% along with the DAX +1.97%, CAC +1.60% and FTSE100 +1.14%. The Pound rose +0.82% to 1.2024 after U.K. Prime Minister Boris Johnson announced he will step aside. The domestically focused FTSE 250 of mid-capitalization stocks rose +1.51% with hopes a new PM could improve relations with Europe and support further fiscal stimulus, although this would likely see the Bank of England press ahead with more aggressive monetary tightening.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to follow global markets higher with ASX200 futures up +50 points or +0.76% to 6,604. The index rose +0.81% on Thursday, although the majority of gains were attributed to major miners BHP, RIO and FMG along with the big four banks. Link Group rose +6.3% after Dye & Durham increased a revised offer to $4.70 per share from a $4.30 offer earlier this week which was formally rejected by Link. Chalice Mining jumped 6.7% after announcing a new nickel-copper-platinum sulphide zone has been intersected in initial drilling at the Dampier Target. The trade surplus for May rose to $16 billion, ahead of market expectations of $10.8 billion with exports climbing +10% and imports rising nearly 6%. The Australian dollar is +0.87% higher overnight at 0.6838 while the 10-year bond yield rose +6.5 basis points on Thursday to 3.469%. Domestically, there is no key data released on Friday.
Oil prices rose on Thursday rebounding with other commodities, with both WTI and Brent crude +3.62 and +3.30% higher at US$102.10 and US$104.01 a barrel. Iron ore futures in Singapore gained +2.10% on Thursday and are modestly higher by +0.14% this morning to US$113.70 with U.S. copper futures rising +4.02%. Gold edged +0.07% higher to US$1,740.16 an oz, as did silver up +0.06% to US$19.22 while Bitcoin jumped +6.04% to US$21,610.
Economic data:
- ECB Lagarde Speech 21:55
- Canadian Employment (MoM Jun) 22:30
- U.S. Non-farm Payrolls (MoM Jun) 22:30
- Fed Williams Speech 01:00
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.
