U.S. equities extended a three-day advance on Thursday supported by economic data after initially paring earlier gains as Russia cooled expectations that peace talks were progressing.
The S&P500 climbed +1.23% in broad-based buying with 83% of stocks higher and all sectors positive, with health care +1.61%, consumer discretionary +1.86% and technology +0.69% contributing the most to gains. The Dow Jones also rose +1.23%, as did the Nasdaq Composite +1.33% and Russell 2000 +1.69% with the VIX retreating -3.75% to 25.67. The VIX retreating below 30 has historically seen a key low form in equities, and the VIX curve having recently shifted from backwardation to contango also adding weight to a positive short-term outlook. However, geopolitical risks remain, and markets are likely to continue to be driven by headlines as well as concerns for the economic outlook as investors question whether the Fed’s optimistic outlook for growth and lowering inflation while raising interest rates.
Treasury yields were little changed, with the 2-year rate remaining at +1.936% while the 10 and 30-year rates edged +1.1 and +3.1 basis points, modestly steepening the yield curve while the U.S. dollar index weakened -0.64% to 97.99. At 0.263% the yield curve remains close to becoming inverted, which historically has signalled the heightened probability of a recession and weakness in risk assets, although the timing between occurring following a signal has typically been greater than 6 to 12 months. In economic data, U.S. initial jobless claims for the week ending 12th March declined to 214k from a revised higher 229k previously, better than the 220k forecast. Elsewhere, industrial production for February was in line with forecasts, cooling to 0.5% for the month as forecast from 1.4% previously while expanding 7.5% over the year.
European equities rose on Thursday with the most recent gains nearly erasing losses since Russia’s invasion of Ukraine. The Euro Stoxx 6000 rose +0.45% as did the CAC +0.36% and FTSE100 +1.28% while the DAX weakened -0.36%. In economic data, the final reading of Eurozone core inflation for the year to February was in line with estimates at 2.7% from 2.3% previously, while headline inflation was slightly ahead of estimates, rising 5.9% over the year from 5.1% previously versus estimates of 5.8%. Elsewhere the Bank of England raised interest rates by 0.25% for a third time as expected although pared back expectations of a higher terminal rate. Before the meeting, market pricing expected seven more rate hikes taking the benchmark to 2.25 although this has been pared modestly to 2%. Governor Andrew Bailey tempered the outlook amending the language around the outlook for further rate increases in the coming months as “might be” appropriate from “likely” previously. The Pound was little changed at 1.3152 while the Euro climbed +0.54% to 1.1095.
*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 higher this morning with ASX200 futures up +37 points or +0.51% to 7,255. The index rose +1.05% on Thursday to a one month high lifted by gains in materials +1.36% and financials +1.0% while utilities -0.61% and consumer staples -0.22% lagged. Gains were also boosted by strong than forecast employment data for February that showed +77.4k jobs were added from a revised higher +28.3k previously, topping estimates of +37k. That saw the unemployment rate lower to +4.0% from +4.2% previously, also better than the +4.1% expected. The stronger data adds further weight to the view the RBA will need to begin raising interest rates to combat rising inflation, although given inflation remains lower relative to levels seen overseas the RBA has room to manoeuvre as it waits for stronger wage growth to ensure inflation is sustainably within the 2 to 3% target. The Australian dollar climbed +1.22% to 0.7379 and the yield on 10-year government bonds edged +1.1 basis point higher to 2.509%.
Oil prices rebounded following recent selling, also boosted by Russia talking down progress on peace talks with both WTI and Brent crude rising +8.71% and +8.89% to US$103.32 and US$106.73 a barrel. Iron ore futures in Singapore edged -0.29% lower on Thursday although are trading +1.72% higher this morning at US$152.55. Gold rose +0.53% to US$1,937 as did silver +0.82% to US$25.29 while Bitcoin traded -1.22% lower to US$40,755.
Economic data:
- Bank of Japan Rate Decision 14:00
- U.S. Conference Board Leading Index (MoM Feb) 01:00
- Fed Barkins Speech 03:30
- Fed Evans Speech 05:00
- Fed Bowman Speech 06:00
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.
