U.S. equities finished mixed on Wednesday as investors weighed comments by Fed Chair Jerome Powell that time is running out for central banks to slow inflation before inflationary expectations set it, creating a self-perpetuating price spiral.
The S&P500 edged -0.07% lower with energy underperforming -3.43% while health care outperformed +0.87% with 59% of stocks finishing the session lower. The Dow Jones rose +0.27% while the Nasdaq Composite was little changed, down just -0.03% with the Russell 2000 falling -1.12% and the VIX edging -0.71% lower to 28.16. In a speech at the ECB’s annual forum, Powell noted the U.S. economy remains in strong sharp and is “well-positioned to withstand tighter monetary policy” while reiterating his commitment to bring inflation down, a process that is likely to cause some pain.
In economic data, the final reading of U.S. GDP for Q1 was revised slightly lower to an annualised pace of -1.6% compared with -1.5% initially having advanced at a +6.9% annualised pace in Q4 2021. In focus tonight is PCE inflation data for the 12 months to May, forecasting to show core prices moderated slightly to +4.8% from +4.9% previously and headline prices rise +6.4% from +6.3%.
European equities finished weaker following hawkish comments from central bankers and concerns of a potential recession as well as China affirming its commitment to a zero COVID approach. Speaking at the ECB forum, ECB President Lagarde noted “I don’t think we are going back to that environment of low inflation” citing forces unleased by the pandemic and geopolitical shock as “changing the picture and landscape within which we operate. The Euro Stoxx 600 declined -0.67% along with the DAX -1.73%, CAC -0.90% and FTSE100 -0.15%. In economic data, German inflation was lower than forecast for the 12 months to June, rising at +7.6% compared with estimates of a modest rise to +8%, and over the month of June prices rose +0.1% compared to +0.9% in May, missing estimates of +0.3%. Consumer sentiment for the Eurozone was in line with expectations of -23.6 compared to -21.1 previously, while economist sentiment was modestly higher than expected at 104 compared to 103 predicted with industrial sentiment also higher than forecast at 7.4 versus the 4.6 consensus among analysts.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set for a flat open this morning with ASX200 futures up +1 point or +0.02% to 6,597. The index declined -0.94% on Wednesday weighed by materials -1.48%, real estate -3.76% and health care -1.52% while financials was the top-performing sector up +0.27%. Tyro Payments slumped -16.7% to a record low after CEO Robbie Cooke quit to run the Star Entertainment Group. Carsale.com fell -12% after raising $842 million to buy U.S. company Trader Interactive. In economic data, retail sales for May rose more than forecast to +0.9% compared with estimates of a +0.4% increase, marking a fifth consecutive monthly increase. The Australian dollar is -0.41% lower overnight at 0.6880 with Commonwealth Bank seeing further downside in the currency citing aggressive central bank rate increases as hurting Australian consumers and expects the RBA to increase rates to +2.1% by year-end compared with market pricing of +3.3%.
Oil prices retreated overnight with WTI and Brent crude down -2.08% and -2.36% respectively to US$109.44 and US$115.20 a barrel. The move lower comes following an unseasonal slowdown in gasoline demand with inventories rising by +143k barrels compared to -665k the prior week, offsetting a drop in U.S. crude inventories as refiners boosted run rates with inventories for the week ending June 24th down -2.762 million barrels compared to -386k the prior week. Iron ore futures in Singapore declined -1.23% on Wednesday although are trading +0.83% higher this morning at US$123.10. Gold edged -0.13% lower to US$1,817.73 an oz, with silver down -0.46% to US$20.74 along with Bitcoin -0.25% to US$20,197.
Economic data:
- Australian Business Confidence (MoM Jun) 11:00
- Chinese Manufacturing PMI (MoM Jun) 11:30
- U.K. GDP Final (QoQ Q1) 16:00
- German Unemployment (MoM Jun) 17:55
- Eurozone Unemployment (MoM May) 19:00
- U.S. PCE Inflation (YoY May) 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.
