U.S. equities finished lower on Tuesday, reversing an initial rally after U.S. core inflation was softer than expected with Treasury yields falling, while oil spiked above US$100 after Russian President Vladimir Putin said peace talks with Ukraine had reached a dead end.
U.S. core inflation rose +6.5% over the year to march from +6.4% previously although lower than the +6.6% forecast due to a large drop in used-vehicle prices and a deceleration of prices in merchandise categories. Over the month, core prices rose +0.3%, down from estimates to remain unchanged at +0.5% from February. Headline inflation rose +8.5% compared with +7.9% previously, above estimates of a +8.4% with gasoline costs driving half of the monthly increase of +1.2%, which was in line with forecasts up from +0.8% in February. Treasury yields were generally lower with the 2-year rate down -9 basis points to 2.407%, as was the 10-year -5.1 basis points to 2.729% while the 30-year was unchanged at 2.809%. Breakeven inflation rates moved lower with the 1-year rate down -3.1 basis points to 5.757%, as did the 5 and 10-year rates by -8.5 and -5.7 basis points to 3.42% and 2.878% respectively.
Equity benchmarks initially rose before reversing those gains to close lower ahead of the start of Q1 2022 earnings tonight with JP Morgan the first major bank off the ranks. The S&P500 declined -0.34% weighed by health care -0.95% and financials -1.07% while energy outperformed +1.72% with the price of oil rising. The Dow Jones also weakened -0.26%, as did the Nasdaq Composite -0.30% while the Russell 2000 gained +0.33% and the VIX edged -0.45% lower to 24.26. Average analyst estimates are for earnings in Q1 to decline by -0.50% over the quarter for the S&P500 before picking up over the coming three quarters, with analysts forecasting 2022 earnings to grow +10.4% and revenue to rise +9.9%.
European equities trimmed declines although still finished lower following signs that U.S. inflation may be peaking and economic sentiment surveys weakening less than expected. The Euro Stoxx 600 finished -0.35% lower weighed by health care 1.98%, financials -1.07% and consumer staples -1.02% while energy +1.53% outperformed. The DAX was also -0.48%, along with the CAC -0.28% and FTSE100 -0.55%. Eurozone economic sentiment for April declined to -43 from -38.7 previously, with German economic sentiment declining to -41 from -39.3 previously, less than expectations of a decline to -48. Elsewhere, U.K. unemployment for the three months to February rose less than forecast, increasing by +10k compared with estimates of +52k while the unemployment rate remained stable at +3.8%. 10-year government bond yields echoed moves in the U.S. declining across the region between -5.7 basis points in Italy to -1.9 basis points in France.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to edge lower at the open this morning with ASX200 futures up -7 points or -0.09% to 7,417. The index declined -0.42% on Tuesday with all sectors negative and 68% of stocks lower as health care -1.40% and financials -0.23% weighed. Technology shares were a notable underperformer, declining -0.90% as a continued rise in yields weighed on valuations. Ahead of the day, investors will focus on the release of the Westpac consumer confidence index for April at 10:30 AEDT followed by a decision by the Reserve Bank of New Zealand at 11:30 AEDT where market pricing suggests the likelihood of a 50 basis point rate increase. The Australian dollar rose +0.53% overnight to 0.7456, the New Zealand dollar is also +0.38% higher at 0.6852 while the yield on the 10-year Australian government bond rose +7.3 basis points to 3.081% on Tuesday.
Oil prices climbed overnight following comments from Russian President Vladimir Putin that peace talks over Ukraine had reached a dead end and insisting the war would continue. Both WTI and Brent crude climbed +6.69% and +6.54% respectively to US$100.60 and US$104.92 a barrel. Iron ore futures in Singapore rose +2.53% on Tuesday although have partially reversed those gains this morning trading -1.36% lower at US$153.50. Gold climbed +0.68% on Tuesday to US$1,966 benefiting from lower real yields, silver also climbed +1.09% to US$25.37 and Bitcoin weakened -0.78% to US$39,534.
Economic data:
- Australian Consumer Confidence (MoM Apr) 10:30
- U.K. Inflation (YoY Mar) 16:00
- U.S. PPI (MoM Mar) 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.
