Globally equities fell on Monday while bond yields climbed after Chinese inflation and producer prices were higher than forecast, as well as the ongoing COVID-19 outbreak despite restrictions weighed on sentiment and stoked concerns of continued higher inflation.
Chinese inflation for the year to March rose +1.5% from +0.9% previously, higher than the forecast +1.2% with prices unchanged over the month compared to +0.6% previously and estimates of a -0.1% decline. Producer prices, a leading indicator of inflation declined less than expected to +8.3% from +8.8% previously, missing estimates of a decline to +7.9%. Ongoing COVID-19 restrictions in the world’s second-largest economy have seen manufacturers forced to close prompting concerns of further disruptions to supply chains and therefore inflation.
The S&P500 slumped -by 1.69% in broad-based selling with 76% of stocks lower and all sectors negative with technology -2.60%, health care -1.97%, and consumer discretionary -1.89% weighing the most heavily. The Dow Jones also retreated -by 1.19%, as did the Nasdaq Composite -by 2.18% and Russell 2000 -by 0.71% with the VIX surging +15.17% to 24.37. The yield curve steepened with the 2-year yield down -1.2 basis points to 2.50% while the 10 and 30-year rates rose +7.6 and +9.0 basis points respectively ahead of a key week of economic data including U.S. inflation for March, producer prices, retail sales, consumer sentiment and the start of Q1 2022 earnings. A survey of consumer expectations released on Monday by the Federal Reserve of New York showed the median one-year inflation expectation rose to +6.6% in March from +6.0% previously, although longer-dated expectations of 3-years declined to +3.7% from +4.2% previously.
European equities were generally lower weighed by rising bond yields with the Euro Stoxx 600 down -0.59%, as was the DAX -0.64% and FTSE100 -0.67% while France’s CAC rose +0.12% after the first round of election voting gave incumbent President Macron a narrow lead over nationalist Marine Le Pen. 10-year government bond yields across the region rose ranging from +5.5 in France to +11 in Germany, the exception was Greece where the yield declined -2.3 basis points. Tuesday will bring key data in the form of German inflation expected to a show an annual increase to +7.3% from +5.1% previously driven by rising energy prices from the ongoing war in Ukraine, as well as economic sentiment for Germany and the Eurozone which is expected to decline. The Euro rose +0.06% to 1.0884 as did the Pound, up just +0.04% to 1.3030.
*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 weaker open this morning with ASX200 futures down -26 points or -0.35% to 7,436. The index pared initial gains to finish up just +0.10% on Monday as a +0.78% gain for financials offset weakness in materials -0.32% and consumer discretionary -0.73%. The big four banks rose led by NAB +1.5%, CBA +1.4%, ANZ +0.7% and WBC +0.6%. Stocks tied to China including A2M declined with shares in the company which sells baby formula to China declining -by 5.4%. Markets have begun responding to an escalation of the outlook for China as part of the latest COVID-19 outbreak, with lockdown regions likely to cause supply chain disruptions and increase inflation, although the central bank is expected to continue easing policy. The Australian dollar fell -0.55% on Monday to 0.7417 and the yield on the 10-year government bond yield rose +4.5 basis points to 3.009% topping the 3% level for the first time since 2015.
The situation in China weighed on commodities with oil declining with WTI and Brent crude -4.04% and -3.43% weaker at US$94.29 and US$99.25 a barrel. Iron ore futures in Singapore declined -2.12% on Monday and are a further -0.51% weaker this morning at US$151. Gold rose +0.31% to US$1,953 with silver +1.31% higher at US$25.10 while Bitcoin slumped -7.60% to US$39,846.
Economic data:
- German Inflation (YoY Mar) 16:00
- U.K. Unemployment (MoM Mar) 16:00
- German and Eurozone Economic Sentiment (MoM Apr) 19:00
- U.S. Inflation (YoY Mar) 22:30
- Fed Brainard Speech 02:10
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.
