U.S. cash markets were closed on Monday for the July 4th public holiday.
Futures contracts on key benchmarks were lower overnight with the S&P500 e-mini contract -0.36% lower, along with the Dow Jones -0.27% and Nasdaq 100 -0.49%.
In Europe, equities were mixed as investors await a meeting on Wednesday between Italian Prime Minister Mario Draghi and Five Star leader Giuseppe Conte to settle weeks of political tension. On Friday, Conte said “We will discuss among our political bodies whether to remain in the government … Monday’s meeting will be important to clarify things”. The Five Star party was the largest party in the Italian parliament until a split last month saw around 60 lawmakers leave to join a breakaway group led by former Five Star leader Luigi Di Maio. Remaining members have urged Conte to pull out of the multi-party government, citing Draghi watering down or scrapping flagship measures, creating more chance of reviving its fortunes in opposition. In reaction to political tensions, the Italian 10-year yield rose +15.8 basis points, increasing its spread to German bunds of the same tenor by +1.9%.
The Euro Stoxx 600 rose +0.54% lifted by energy +4.24% and health care +0.74% while real estate lagged -2.89%. The CAC was also +0.40% higher along with the FTSE100 +0.89% while the DAX slipped -0.31% and Italy’s FTSE MIB edged -0.05% lower. Equities pared larger gains after hawkish comments from European Central Bank officials, with Bundesbank President Joachim Nagel saying the ECB should be cautious about deploying tools to contain borrowing costs of weaker nations amid ECB plans to contain a widening of spreads across the region. In focus tonight is the final reading of Eurozone and U.K. services PMI for June expected to show a decline to 52.8 from 56.1 previously in the Eurozone, with U.K. services forecast to be unchanged at 53.4. The Bank of England will also release its financial stability report, followed by a speech by Governor Andrew Bailey.
*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 flat this morning with ASX200 futures down just -3 points or -0.05% to 6,534. The index climbed +1.11% on Monday in broad-based buying with 82% of stocks higher and all sectors positive led by gains in energy +2.62% and real estate +2.13%. Listed fund managers underperformed with Magellan Financial Group falling -9.9% after the Australian Financial Review reported its long-serving head of distribution will retire in December. That weighed on other listed managers with Perpetual down -3.3% along with Pendal Group -2.5%, Platinum Asset Management -1.2%, and Netwealth Group -1.6%. In focus today is the RBA rate decision at 14:30 AEDT where the central bank is widely expected to increase borrowing costs by +0.50%. Economists at NAB noted, “We expect a 50bp hike to 1.35 percent and for the post-meeting statement to continue to guide for further rate hikes at future meetings”. While also adding recent robust retail sales and strong job vacancies only strengthen the case to quickly move from emergency settings. The meeting will follow the final reading of retail sales for May expected to remain unchanged at +0.9% over the month. Still, expectations of peak rates continued to be dialed back domestically and internationally, with the yield curve for Australian bonds recently moving lower across the curve, highlighted in the chart below. The Australian dollar rose +0.75% on Monday to 0.6865 while the 10-year government bond yield slipped -3.5 basis points to 3.56%.
Elsewhere in China, officials are racing to quash a new virus flareup that risks spilling into economically significant regions, raising the prospect of further disruptions to global supply chains. Infections in the Si county in the province of Anhui reported 287 cases on Sunday and nearly 1,000 since late last week. Authorities have locked down the county along with a neighboring county to stop the virus from spreading to nearby Jiangsu, the second biggest contributor to China’s economic output, and globally an important manufacturing hub for the solar sector. This will be a major test for President Zi Jinping’s strategy of zero COVID which he reaffirmed last week, preferring to endure temporary economic weakness than let the virus hurt people’s safety and health.
Oil prices rose on Monday with both WTI and Brent crude +2.06% and +1.68% higher at US$110.66 and US$113.50 a barrel. Iron ore futures in Singapore declined -5.12% on Monday, the fourth consecutive decline although are trading +2.78% higher in early trade this morning at US$111.75. Gold rose +0.28% to US$1,816.54 an oz along with silver +0.55% to US$19.98 with Bitcoin also rising +1.73% to US$19,755.
Economic data:
- Australian Services PMI (MoM Jun) 09:00
- Australian Retail Sales (MoM May) 11:30
- RBA Rate Decision 14:30
- Eurozone Services PMI (MoM Jun) 18:00
- U.K. Services PMI (MoM Jun) 18:30
- BoE Governor Bailey Speech 18:30
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.
