Stocks rose in a risk-on day for markets with sentiment lifted after Joe Biden signalled he is reconsidering China tariffs imposed by the Trump administration, as well as an optimistic outlook from JP Morgan and further signs of stimulus from China.
In addition to comments from President Biden about reconsidering Chinese tariffs, China will offer more than $21 billion in additional tax relief, mainly aimed at businesses as it seeks to offset the impact of strict COVID lockdowns amid at stabilizing the economy at a meeting of China’s State Council. Elsewhere, JP Morgan led gains for banks within the S&P500 after lifting its forecast for interest income and affirming its profitability target at its investor conference. The largest U.S. lender expects net interest income excluding markets of US$56 billion in 2022 compared with US$53 billion previously while noting it may achieve its target of 17% return on tangible capital equity in 2022, a key metric that measures how well a bank uses shareholder money to produce a profit.
The S&P500 climbed +1.86% with 84% of stocks advancing as financials +3.23%, energy +2.68% and technology +2.37% led gains. The Dow Jones also gained +1.98, as did the Nasdaq Composite +1.59% and Russell 2000 +1.10% with the VIX retreating -3.23% to 28.48. While technical indicators suggest equities are oversold, setting up the potential for a sharp bounce, most investors see any rally as more of a correction rather than signalling the decline from all-time highs is finished with a survey by Bloomberg of 1009 respondents suggests they expect a further decline of at least 10%. Treasury yields climbed ahead of a busy week of economic data, with U.S. GDP, PCE inflation and durable goods order for April all in focus this week.
European equities also rose on Monday, pushing higher after initially paring gains as ECB President Christine Lagarde said the central bank is likely to start raising interest rates in July and exit the sub-zero territory by the end of September. The Euro Stoxx 600 gained +1.26% in broad-based buying with 78% of stocks rising and all sectors positive, led by energy +2.03%, financials +1.93% and technology +1.91%. The DAX also gained +1.38%, as did the CAC +1.17% and FTSE100 +1.67% with benchmarks broadly higher across the region. The week ahead is filled with key European data including the release of PMI reports today for Germany and the Eurozone, as well as the final reading German GDP for Q1 on Wednesday and consumer confidence for June.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is set for a modestly higher open this morning with ASX200 futures ++16 points or +0.22% higher at 7,169. The index was little changed on Monday, paring initially gains to finish just +0.05% higher as materials +0.83% offset weakness in other sectors with rising cases numbers of COVID in Beijing dampening risk appetite. Childcare providers were notable performers following the election of the Labor government on the weekend with G8 Education rising +2.6%, as did Estia Health +3.8% while coal miners WHC and NHC declined -2.1% and -0.3% respectively. Shares in Codan jumped +14.25% on Monday after the company said it expects a record profit in 2022 despite warning the timing of project sales and unforeseen challenges in supply chains could hobble profitability towards the end of the financial year. The Australian dollar is +0.98% higher overnight at 0.7109 and 10-year government bond yields climbed +1.5 basis points to 3.328% on Monday ahead of manufacturing and services PMI data at 09:00 AEDT this morning.
Both WTI and Brent crude were higher overnight, rising +0.34% and +0.85% respectively to US$110.65 and US$113.52 a barrel. Iron ore futures in Singapore edged -0.13% lower and are a further -0.19% weaker this morning at US$133.65. Still, iron ore futures in China gained +4.4% on Monday after India increased export duties on some commodities with new iron ores and concentrates tariffs increases to 50% from 30% while increasing tariffs on pellets to 45% from zero previously. Gold rose +0.38% on Monday to US$1,853.59 as did silver +0.09% to US$21.79 while Bitcoin retreated -1.98% to US$29,314.
Economic data:
- Australian PMI (MoM May) 09:00
- German PMI (MoM May) 17:30
- Eurozone PMI (MoM May) 18:00
- U.K. PMI (MoM May) 18:30
- U.S. PMI (MoM May) 23:45
- Fed Chair Powell Speech
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.
