U.S. equities declined on Thursday as a rise in oil stoked inflation concerns, and investors position themselves ahead of Friday’s all-important inflation data.
The S&P500 retreated -1.08% with energy the only positive sector +0.15% while declines in technology -1.11% and financials -1.70% weighed the most on the index with 90% of stocks closing lower. The Dow Jones also retreated -0.81%, as did the Nasdaq Composite -0.73% and Russell 2000 -1.49% however the VIX edged -0.25% lower to 23.96. Also weighing on sentiment was the OECD becoming the second major global agency in as many days to lower its growth forecast for 2022, while significantly lifting its inflation forecast. The OECD its global growth forecast for 2022 to 3% from 4.5% in December while doubling its inflation forecast for member states to 9%.
Shorter dated inflation breakevens rose with the price of oil, with the 1, 2 and 3-year rates up +10.7, +6.5 and +2.4 basis points respectively while longer-dated rates posted modest declines. Nominal Treasury yields gained across the curve with the 2-year rate +4.7 basis points higher at 2.774%, as did the 10 and 30-year rates by +4.8 and +4.8 basis points respectively, pushing real yields modestly higher. Friday’s consumer price inflation data is expected to show headline prices rose +8.2% over the year and +0.7% over the month, compared to the prior readings of +8.3% and +0.3% respectively. Core inflation which excludes volatile items such as energy is forecast to have risen +5.9% over the year, moderating from +6.2% in April, rising +0.5% over the month of May compared to +0.6% the prior month.
European equities were also lower as investors await an ECB policy meeting tonight, while no changes are expected to interest rates, the central bank is expected to announce the end of asset purchases and outline the path to raising rates. Futures markets imply a +0.27% increase at the July meeting, although, with other major central banks recently surprising with larger than expected increases, a similar move should not be ruled out with inflation having risen at +8.1% for the year to April. The Euro Stoxx 600 declined -0.57%, as did the DAX -0.76%, CAC -0.80% and FTSE100 -0.08% which was shielded by a -0.44% decline in the Pound. 10-year government bond yields rose across the region, ranging from +3.2 basis points in the U.K. to +15.4 basis points in Greece, while the Euro edged +0.12% higher to 1.0716.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to follow global markets lower this morning with ASX200 futures down -54 points or -0.76% to 7,079. The index rose +0.36% on Wednesday following weakness on Tuesday, with financials the notable laggard down -2.85% after the Reserve Bank of Australia’s larger than expected +0.5% rate increase on Tuesday prompted concerns of deteriorating household credit. The decline in financials hid strength in other sectors with energy +4.23% and utilities +3.19% the top performers. Atlas Arteria, the toll road operating was the top-performing stock rising +16.2% after announcing local fund manager IFM had taken a 15% stake that may lead to an offer to purchase the entire company. The Australian dollar is -0.53% lower at 0.7194 while the 10-year yield edged -1.1 basis points lower to +3.546% on Wednesday.
Oil prices rose overnight with both WTI and Brent crude +2.26% and +2.64% higher at US$122.11 and US$123.75 a barrel respectively. Iron ore futures in Singapore edged +0.09% higher on Wednesday and are a further +0.39% higher this morning at US$145.30. Gold was little changed at US$1,853 with silver weakening -0.82% to US$22.05 along with Bitcoin -3.67% to US$30.179.
Economic data:
- ECB Rate Decision 21:45
- ECB Press Conference 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.
