U.S. equities edged lower on Monday following strong gains on Friday as investors await the potential impact of portfolio rebalancing at month and quarter end, ahead of earnings season for Q2 where analysts continue to forecast growth in earnings despite evidence of an economic slowdown.
The S&P500 edged -0.30% lower on Monday with a -0.63% decline in technology offsetting a +2.78% gain in energy while breadth was mixed with 47% of stocks higher. The Dow Jones was also -0.20% weaker, along with the Nasdaq Composite -0.72% while the Russell 2000 rose +0.34% and the VIX was -1.10% lower at 26.93. Investors are increasingly turning their attention to the potential impact of month and quarter-end rebalancing, as asset allocators are likely to rebalance portfolios, shifting from assets that have held up relatively well while adding to underperforming assets such as equities and fixed income. Attention will also turn towards the upcoming earnings season for Q2 due to start in earnest on July 14th where analysts are still forecasting +12% earnings growth over the quarter despite weakening economic data and high levels of inflation which are likely to pressure margins.
Treasury yields rose after declines last week with the 2-year yield up +6.9 basis points to 3.132% along with the 10 and 30-year rates by +7.5 and +6.0 basis points respectively with the U.S. dollar index edging -0.21% lower to 103.96. Financial conditions have eased recently as investors begin to factor in less aggressive tightening by the Federal Reserve and potential rate cuts in 2023 as economic data deteriorates. In economic data, U.S. durable goods orders for May unexpectedly rose by +0.7% from +0.4% while estimates had called for a +0.1% gain. A core measure that excludes transport also rose +0.7% compared to estimates of a +0.3% increase. Elsewhere U.S. pending home sales declined -13.6% for the 12 months to May from a revised lower -9.2% in April amid further signs higher interest rates are weighing on the U.S. house market. The data comes ahead of the Conference Board’s measure of consumer confidence for June expected to show a decline to 100.4 from 106.4 in May.
European stocks rose following Friday’s gains with lower valuations seen as enticing investors despite concerns about the economic outlook amid hawkish central bank policy and high inflation. Elsewhere a meeting of G7 nations in Germany is weighing the prospect of a price cap on Russian oil as well as a ban on gold imports with the view of limiting the havoc of high energy prices and damaging Russia’s finances following its invasion of Ukraine. The Euro Stoxx 600 rose +0.52% along with the DAX +0.52% and FTSE100 while the CAC finished -0.43% lower. In focus on Tuesday is German GfK consumer confidence for July forecast to weaken modestly from -26 previously to -27.6 in July. Also in focus is an ECB forum on central banking as well as speeches by ECB President Lagarde and the Bank of England’s Cunliffe.
*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 just +2 points or +0.03% to 6,595. The index climbed +1.93% following a positive finish to overseas equities on Friday with all sectors positive led by financials +2.64% and energy +2.56%. After a plunge of nearly 16% in the first half of June over concerns bad debts may rise as the economy slows, financials rebounded with CBA up +3.97% along with NAB +3.37%, ANZ +3.01% and WBC +2.26%. Lithium miners extended gains from Friday, amid some of the best performing shares with CXO up +12% along with LTR +11.3% and LKE +7.5% with lithium miners some of the most beaten down stocks recently leaving them oversold. Biotechnology company Imugene was a notable performer, surging +30% after announcing phase two trial results for its HER-Vaxx oncolytic virus. Evolution mining sank -21.9% after lowering its production guidance for the 2023 financial year which weighed on gold miners broadly.
Oil prices rose overnight despite the potential for price caps on Russian oil touted at the G7 with both WTI and Brent crude +2.01% and +1.96% higher at US$109.78 and US$115.34 a barrel. Iron ore futures in Singapore climbed +5.0% on Monday although have given back some of those gains trading -1.87% weaker this morning at US$117.60. Gold edged -0.22% lower to US$1,822.81 an oz, along with silver -0.05% to US$21.15 while Bitcoin retreated -2.35% to US$20,889.
Economic data:
- ECB Forum on Central Banking 10:00
- German GfK Consumer Confidence (Mom Jul) 16:00
- ECB Lagarde Speech 18:00
- BoE Cunliffe Speech 20:00
- U.S. Consumer Confidence (MoM Jun) 00:00
- Fed Daly Speech 02:30
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.
