Global equities were mixed on Friday as concerns that higher interest rates will erode earnings and trigger a recession weighed on sentiment.
The S&P500 rose +0.22% on Friday, paring initial gains of +1.12% with communications +1.31% and consumer discretionary +1.22% leading gains while energy slumped -5.57% as the price of oil declined. The Dow Jones edged -0.13% lower while the Nasdaq Composite gained +1.43% along with the Russell 2000 +0.96% as the VIX retreated -5.52% to 31.13 after spiking +11.24% on Thursday. U.S. markets will be closed on Monday for the Juneteenth public holiday. In a speech by Jerome Powell at a conference in Washington, the chair of the Federal Reserve drove home the recent message the Fed is determined to tackle high levels of inflation and that restoring price stability was “unconditional”. Powell noted “My colleagues and I are acutely focused on returning inflation to our 2 percent objective” and their “strong commitment to our price-stability mandate contributes to the widespread confidence in the dollar as a store of value.”
The U.S. Conference Board’s leading index declined -0.4% for May as expected and the prior figure for April was revised slightly lower to -0.4% from -0.3% adding further evidence to a slow down in economic growth. Ahead for the week, investors will be focused on testimony by Jerome Powell on Wednesday and Thursday as well as several speeches by other members of the Federal Reserve. PMI reports on Thursday will also give a further indication of the outlook for growth with services expected to rise modestly to 53.6 in June from 53.4 previously while manufacturing is forecast to slow to 56.4 from 57 although both remain in expansionary territory above the 50 level. Finally, the week will end with the University of Michigan consumer sentiment survey for June which is forecast to decline to 50.2 from 58.4. U.S. financial conditions continue to tighten as the U.S. raises rates at a faster rate than most central banks, which is continuing to support the U.S. dollar, with the U.S. dollar index sitting at the highest levels since 2002.
European equities were mixed on Friday although posted a third consecutive week of losses as the ECB is also embarking on a tightening cycle to bring down inflation which sits at +8.1%. The Euro Stoxx 600 edged +0.09% higher on Friday along with the DAX +0.67% while the CAC edged -0.06% lower and the FTSE100 weakened -0.41%. Ahead in economic data for the week, Wednesday will see the release of U.K. core inflation expected to moderate slightly for the 12-months to May at +6% from +6.2% previously while headline inflation is expected to rise to +9.1% from +9% in previously. Thursday will also see PMI data for the region expected to slow across both services and manufacturing as well as consumer and business confidence surveys for the U.K., Eurozone and Germany.
*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 lower this morning with ASX200 futures down -19 points or -0.30% to 6,345. The index finished -6.6% lower last week, the worst weekly performance since the pandemic over concerns aggressive monetary policy will induce a recession. Major banks were impacted over the week on concerns tighter policy will lead to a spike in bad debts, higher funding costs, and a pessimistic outlook for the mortgage market. CBA declined -6.95% along with NAB -7.63%, WBC -7.96% and ANZ -8.28%. RBA governor Philip Lowe will be speaking on Tuesday on the Economic Outlook and Monetary Policy ahead of the minutes from its June meeting where it surprised markets with a larger than expected increase of +0.5%. In a television interview last week, Lowe noted there was a “reasonable” expectation for how high rates would get to, but the path would be determined by data. Lowe warned inflation could peak as high as +7% later this year, although $250 billion in savings would help households with higher living costs and falling house prices. Tuesday will see the release of the Westpac leading index for May followed by PMI data for services and manufacturing for June on Thursday. The Australian dollar declined -1.63% on Friday to 0.6932 while the 10-year government bond yield rose +13.7 basis points to +4.13%.
Oil prices slumped on Friday with both WTI and Brent crude down -6.83% and -5.58% respectively to US$109.56 and US$113.12 a barrel. Base metals were lower for the week with aluminium down -6.79%, as was copper -5.14%, lead -4.03%, nickel -4.03%, tin -11.57% and zinc -4.58%. Iron ore futures in Singapore declined -6.25% on Friday to US$120.03 as Chinese steel mills reduced output amid weak profits and deteriorating demand prospects with steel inventories also rising over the week. Gold weakened -0.97% on Friday to US$1,839 along with silver -1.29% to US$21.67 while Bitcoin traded in a volatile range over the weekend, slumping -13.79% on Saturday only to rise +15.87% on Sunday at US$20,488.
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.
