U.S. equities surged on Friday, posting their best gains since May 2020 extending a bounce from oversold levels after three prior weeks of losses.
The S&P500 climbed +3.06% on Friday with all sectors positive and 96% of stocks higher in broad-based buying with materials +3.98% and communications +3.93% leading gains. The Dow Jones also climbed +2.68%, as did the Nasdaq Composite +3.34% and Russell 2000 +3.16% with the VIX retreating -6.27% to 27.23. Sentiment was lifted as oil prices weakened for a second consecutive week adding to hopes of easing inflation pressures, as well as an easing of longer-term consumer inflation expectations as part of the monthly University of Michigan consumer sentiment survey. Comments from St. Louis Fed President James Bullard also supported a risk-on move, noting fears of a recession were overblown citing high levels of savings among consumers and rate increases will slow the pace of growth rather than pushing it below trend noting “I don’t think this is a huge slowing. I think it is a moderate slowing in the economy”. Elsewhere strategists at JP Morgan see the potential for a near-term gain of up to +7% as month, quarter and half-year end approaches with funds set to rebalance their asset allocation, likely allocating funds to underweight assets such as equities.
Investors also took solace from comments by Jerome Powell earlier in the week, while hardening his resolve to bring down inflation in testimony to Congress, traders also viewed his comments that the central bank will factor in the probability of a recession as growth slows, and that aggressive rate increases will not be on autopilot. Ahead in data this week, U.S. durable goods order for May are released tonight forecast to show zero growth over the month of May, down from +0.4% in April. The Conference Board’s measure of consumer confidence for June is released overnight on Tuesday, expected to weaken to 100.9 from 106.4 in May, followed by the final reading of U.S. GDP for Q1 on Wednesday forecast to show the economy contracted at a -1.5% annualised pace. Powell is also scheduled to speak at 23:00 AEDT on Wednesday ahead of PCE inflation for May on Thursday expected to show core prices rose +4.8% over the 12 months, easing from +4.9% previously with headline prices edging higher to +6.4% from +6.3%.
European stocks also climbed on Friday benefiting from a risk-on move in the U.S. tracking U.S. futures and cash markets higher. The Euro Stoxx 600 gained +2.62% along with the DAX +1.59%, CAC +3.23% and FTSE100 +2.68% with benchmarks broadly higher across the region. Data on Friday showed retail sales in the U.K. weakened more than expected over the 12 months to May, down -4.7% compared with estimates of -4.5% although improved from the -5.7% in April. Germany’s Ifo business climate survey for June was moderately lower than forecast at 92.3 compared with estimates of 92.9. Ahead for the week, German consumer confidence for July is released on Tuesday expected to weaken further, followed by a speech by ECB President Christine Lagarde. Eurozone consumer, economic, and industrial confidence surveys are released on Wednesday also forecast to show a decline in sentiment before German inflation for the 12 months to June where the headline rate of +7.9% is expected to remain unchanged, with prices rising +0.3% over the month compared to +0.9% in May. The final reading of U.K. GDP is released on Thursday along with German and Eurozone unemployment and the week is rounded off with Eurozone inflation for June expected to show a modest increase in both headline and core prices to +3.9% and +8.3% over the 12 months.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is set to open decisively higher this morning with ASX200 futures +103 points or +1.59% higher at 6,573. The index rose +0.77% on Friday, taking a weekly gain to +1.60% with technology outperforming +6.0% on Friday while energy underperformed -1.45%. Lithium miner Vulcan Energy surged +26.8% after announcing it has brought European automaking giant Stellantis on board as its second-largest shareholder with an 8% stake. Other battered lithium miners also rebounded with LTR up +10.8%, as was PLS +8.8%, AKE +4.7%, and LKE +15%. Ahead for the week, retail sales data for May is released on Wednesday expected to show +0.4% growth over the month compared with +0.9% in April followed by the final reading of manufacturing PMI on Friday. The Australian dollar rose +0.70% on Friday to 0.6945 while the 10-year government bond yield declined -13 basis points for a second consecutive session finishing the week at 3.719%.
Oil prices rose on Friday with both WTI and Brent crude +3.21% and +2.79% higher at US$107.62 and US$113.12 a barrel although finished the week a -7.5% lower. Base metals were also lower for the week with aluminium down -1.68%, as was copper -6.48%, lead -7.11, nickel -12.74%, tin -21.15%, and zinc -4.92%. Iron ore futures in Singapore were -1.74% lower on Friday although are trading +2.91% higher this morning at US$117.45. Gold rose +0.23% on Friday to US$1,826.88 an oz, with silver rising +1.0% to US$21.16 along with Bitcoin +1.87% which is a further +1% higher over the weekend at US$21,392.
Economic data:
- U.S. Durable Goods Order (MoM May) 22:30
- U.S. Pending Home Sales (YoY May) 00:00
- ECB President Lagarde Speech 04:30
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.
