Global equities rose on Wednesday supported by a decline in yields.
As of 07:18 am AEDT the S&P500 was +1.10% higher, with all sectors positive and strong breadth with +87% of stocks trading higher. The largest contributors to the gains were technology +1.62%, communications +1.97% and consumer discretionary +1.20%. The Nasdaq Composite rose +1.49%, as did the Dow Jones +0.67% and Russell 2000 +1.64% with the VIX retreating -6.16% to 20.12. Earnings have been supportive of equities recently despite the likelihood of tighter monetary policy this year. Of the 317 S&P500 companies that have reported, 76% have beaten earnings estimates by an average of 5.79%, with 68% surpassing revenue estimates by an average of +3.10%.
Longer-dated Treasury yields declined with both the 10 and 30-year rates down -3.8 and -2.8 basis points to 1.925% and +2.229% respectively while the 2-year yield edged +0.3 basis points higher. There was little economic data to guide markets ahead of Thursday’s inflation report, with real yields over 5 and 10-years -2.1 and -5.2 basis points lower as breakeven inflation rates rose. The U.S. dollar index edged -0.15% lower to 95.50.
European equities also benefited from a decline in bond yields with the Euro Stoxx 600 rising +1.72% with 91% of stocks higher. All sectors were positive, with industrials +2.27%, consumer discretionary +2.51% and technology +3.32% the largest contributors to the index’s gains. The DAX also rose +1.57%, as did the CAC +1.46% and FTSE100 +1.01%. 10-year government bond yields were lower across the region, ranging from -9.6 basis points in Italy to -2.1 basis points in Greece. The Euro rose +0.15% to 1.1432 while the Pound edged -0.06% lower to 1.3535. The decline in yields followed France’s central banker commenting that markets may be getting ahead of themselves by pricing in rate hikes for later this year. Meanwhile, Bloomberg reported that several ECB policymakers are losing faith in the central banks inflation forecasting, emboldening a shift towards rate hikes and was behind ECB President Christine Lagarde’s hawkish shift last week.
*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 +24 points higher or +0.34% at 7,176. The index rose +1.13% on Wednesday lifted by financials +2.59% and technology +4.20%. Shares in CBA contributed strongly to gains, rising +5.6% after announcing first-half profit beat estimates by nearly $250 million while raising its interim dividend to $1.75 and announced a buyback of up to $2 billion. Temple & Webster rose +9.7% despite first-half profit declining by -40% after reporting a sales jump in January as consumers avoided brick-and-mortar stores. The Australian dollar is trading +0.50% higher at 0.7182 and the yield on 10-year government bonds eased -1.5 basis points to 2.105%. In economic data, the Westpac consumer confidence index for February eased to 100.8 from 102.2.
Oil prices rose after U.S. crude stockpiles unexpectedly declined for the week to February 4th, declining -4.756m barrels versus forecasts of a 369k gain. Gasoline stockpiles also declined -1.6644m barrels against estimates for a +1.623m increase. Both WTI and Brent crude gained +0.34% and +0.75% respectively to US$89.66 and US$91.46 a barrel. Iron ore futures in Singapore declined -1.76% on Wednesday although have reversed those losses in early trade this morning, up +1.64% to US$148. Gold rose +0.37% to US$1,832 supported by a weaker USD and lower real yields, silver also rose +0.36% to US$23.27 and Bitcoin rose +0.74% to US$44,557.
Economic data:
- Australian Building Permits (MoM Dec) 11:30
- U.S. Inflation (MoM Jan) 00:30
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.
