U.S. equities finished mixed on Tuesday as investors likely square positioning ahead of Wednesday’s highly anticipated CPI data.
The S&P500 rose +0.25% after trading in a volatile session, swinging between gains and losses. Breadth was weak with only 42% of stocks trading higher, with a +1.58% gain in technology offsetting weakness in financials -0.80% and other sectors. The Dow Jones finished -0.26% lower, while the Nasdaq Composite gained +0.98% and the Russell 2000 was little changed and the VIX retreated -5.06% to 32.99. Following a rout in global equities that has erased $11 trillion since the end of March, Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer on Bloomberg noted “equities are starting to look attractive for medium-to-longer term buyers”. While downside risks still lurk, “all of that really is absorbed in the market already”. While concerns remain about further downside potential given valuations, the weakness in U.S. equities has seen valuations contract with the forward 12-month estimated P/E ratio on the S&P500 now trading back below pre-pandemic highs.
While Jerome Powell recently pushed back against the idea of a +0.75% rate increase, overnight Cleveland Fed President Loretta Mester on Bloomberg said “we don’t rule out 75 ever” noting “we will get to that point in the second half of the year If we don’t have inflation moving down”. Her colleague John Williams of the New York Fed said the central bank “will move expeditiously to bring the federal funds rate back to more normal levels this year” and Fed Governor Christopher Waller said the economy was strong enough to withstand higher rates. Treasury yields were mostly lower with the 10 and 30-year rates down -4.7 and -2.6 basis points respectively to 2.987% and 3.124% while the 2-year yield edged +1 basis point higher to 2.604% and the U.S. dollar index rose +0.25% to 103.91.
European equities rose as economic sentiment was better than forecast with the European ZEW sentiment index coming in at -29.5 compared with -43 previously, with the German measure came in at -34.3 compared with estimates for a modest decline to -42 from -41 previously. The Euro Stoxx 600 rose +0.68% with all sectors positive led by health care +1.14%, real estate +0.93% and financials +0.86% with 72% of stocks higher. The DAX also gained +1.15%, as did the CAC +0.51% and FTSE100 +0.37% with benchmarks higher across the region seeing some relief following recent selling. 10-year government bond yields were lower across the region ranging from -15 basis points in Italy to -4.7 basis points in Sweden, while the Euro weakened -0.30% to 1.0529 as did the Pound, -0.12% to 1.2317.
*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 slightly lower open this morning with ASX200 futures down -10 points or -0.14% to 7,012. The index weakened -0.98% on Tuesday although pared a decline of as much as -2.54% with materials weighing the most heavily down -2.38% as commodity prices fell amid concerns over China’s growth while communications +0.35% was the only positive sector. Fund manager Pendal climbed +0.81% after reporting underlying earnings +22% above market consensus while insurance aggregator AUB declined -10.6% after completing a $350 million equity raise to fund the $880 million acquisition of Tysers. The Australian dollar is -0.19% weaker overnight at 0.6939 while the 10-year yield was little changed on Tuesday at 3.565%.
Oil prices retreated further overnight with both WTI and Brent crude -3.65% and -3.69% lower at US$99.32 and US$102.03 a barrel respectively. Iron ore futures in Singapore weakened -2.23% on Tuesday although have reversed some of those losses in early trade this morning, up +1.12% to US$127.85. Gold declined -0.86% on Tuesday to US$1,838.27 and silver fell -2.45% to US$21.26 and Bitcoin edged +0.13% higher to US$31,000.
Economic data:
- Australian Consumer Confidence (MoM May) 10:30
- Chinese Inflation (YoY Apr) 11:30
- German Inflation (YoY Apr) 16:00
- U.S. Inflation (YoY Apr) 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.
