Global equities snapped a winning streak on Wednesday following a strong rally that saw a recovery of roughly half of the recent drop from all-time highs.
The S&P500 retreated -1.23% on Wednesday in broad-based selling with 82% of stocks lower as declines in technology -1.50%, health care -1.77% and financials -1.84% weighed while energy +1.80% outperformed as oil prices rose. The Dow Jones also weakened -1.29%, as did the Nasdaq Composite -1.32% and Russell 2000 -1.73% with the VIX rising +2.75% to 23.57. A pause or pullback following sizeable gains recently is to be expected and tensions with Russia weighed on sentiment. Russia said it plans to demand ruble payment for natural gas purchases from European nations, deepening its standoff with the west with natural gas prices rising on Wednesday. Elsewhere President Biden is expected to announce further sanctions on “political figures” and oligarchs after leaving for a meeting of G7 and European leaders on Thursday.
Treasury yields declined following recent gains while further Federal Reserve members added to recent hawkish comments. Both Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly said they were open to +0.50% rate increases to frontload rate increases given the urgency to bring inflation down, echoing comments from Fed Chair Jerome Powell earlier in the week. Mester said “we need to be more aggressive earlier rather than later, because inflation is so much higher and because labour market conditions are very tight,” and Daly noted everything was on the table, depending on how the economy evolves. The 2-year yield weakened -6.2% basis points to 2.102% with both the 10 and 30-year rates down -9.1 and -12.5 basis points respectively, while the U.S. dollar index edged +0.17% higher to 98.66.
European equities reversed initial gains to close lower as tensions over Ukraine and Russia weighed, particularly given Europe’s reliance on Russian energy. The Euro Stoxx 600 weakened -1.01% weighed by a -1.63% decline in financials and -2.04% drop in consumer discretionary with 82% of stocks lower. The DAX also declined -1.31%, as did the CAC -1.17% and FTSE100 -0.22% with major benchmarks lower. In economic data, Eurozone flash consumer confidence for March declined more than expected to -18.7 from -8.8 previously, while the average estimated called for a decline to -12.9. 10-year government yields declined ranging from -8.1 basis points in the U.K. to -0.8 basis points in Greece, the exception was Sweden where the yield rose +3.6 basis points. The Euro weakened -0.21% to 1.1006 with the Pound also -0.39% lower to 1.3210.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open lower this morning with ASX200 futures down -54 points or -0.74% to 7,295. The index rose +0.50% on Wednesday boosted by financials +0.999% and technology +3.47% while materials -0.39% was the only negative sector. The Australian dollar is +0.44% higher to 0.7503 while the 10-year government bond yield rose +5.3 basis points to 2.775% on Wednesday.
Oil prices rose over concerns of further tensions between Russia and the west with both WTI and Brent crude +4.79% and +5.14% higher at US$114.54 and US$121.43 a barrel. Natural gas futures for delivery in the U.K. and Netherlands also climbed +18.79% and +18.49% on Wednesday. Iron ore futures in Singapore rose +1.60% on Wednesday and are trading a further +0.53% higher this morning at US$148.75. Gold climbed +1.29% to US$1,946 benefiting from a decline in real yields, silver rose +1.48% to US$25.15 while Bitcoin traded -0.75% lower to US$42,288.
Economic data:
- Australian PMI (MoM Mar) 09:00
- NATO Summit 11:00
- German PMI (MoM Mar) 19:30
- Eurozone PMI (MoM Mar) 20:00
- U.S. Durable Goods Order (MoM Feb) 23:30
- U.S. Manufacturing PMI (MoM Mar) 00:45
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.
