Equities were little changed overnight following Friday’s surge, while Apple briefly touched an all-time high before closing lower after unveiling its long awaited mixed-reality headset, The Vision Pro.
United States
Overnight, the ISM service report for May painted a less than flattering picture of the economy, missing expectations for a rise to 52.2, instead declining to 50.3 being modestly above the 50 level which defines expansion or contraction. The sub-component measuring employment pointed a weaker labour market outlook, declining to contractionary levels at 49.2 from 50.8 previously and prices paid also moving lower in an encouraging sign for inflation. According to deputy chief US economist at Capital Economics Andrew Hunter, “The weakness in the ISM surveys stands in contrast to the recent improvement in the S&P Global PMIs — which are currently consistent with positive GDP growth of about 2% annualized — and is clearly painting a dramatically different picture to May’s employment report”. Conflicting economic data adds weight to the view for the Federal Reserve to keep rates on hold this month, providing it with more incoming data as it assesses the impact of its tightening which operates with a lag. Traders are pricing in such an outcome, with only a 25% chance of a hike at the June 14th meeting, while July is pricing in a 50/50 chance of a hike or leaving rates unchanged.
ISM Services PMI (MoM)
The S&P 500 fell by -0.20% on Monday, the Dow retreated by -0.59%, the Nasdaq slid -0.09% while the Russell 2000 Index was down -1.32% and the VIX edged 0.89% higher to 14.73. The yield on the US 2-Year treasury bond fell 3 basis points to 4.46%, while the yield on the 10-Year bond fell 1 basis point to 3.68%. In corporate news, Apple’s share price jumped 2% to a record high of $184.95, before reversing those gains to weaken -0.76% after the unveiling of its new line of products which includes a new virtual reality headset, the Vison Pro which will retail at US$3,499.
Europe
The STOXX 600 Index closed -0.38% lower on Monday, the CAC receded -0.96%, the DAX slid by -0.54% while the FTSE fell -0.10% following a surge on Friday. There was little economic data to guide markets overnight, the final readings of PMI reports for May for the region were revised slightly lower across the service and composite measures, although both remain in expansionary levels. Having performed strongly on a relative basis for the year-to-date, Morgan Stanley’s Granham Secker said they expect European stocks to go through a period of underperformance, potentially weakening between 8-10% over the summer months due to slowing economic growth, and renewed outperformance of growth stocks, which have a higher weighting in US equity benchmarks compared to their European peers, which tend to be skewed towards more value stocks.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open lower today, after ASX futures were down by -41 points or -0.56% to 7,188. The ASX closed 1% higher on Monday at 7,216 rallying on positive sentiment following strong gains on Wall Street on Friday. Consumer discretionary was the star performer rising by 1.75%, materials followed rising by 1.49% while healthcare added 1.02%. The information technology sector was the biggest underperformer, losing -1.08% while utilities retreated-0.29%. In mining, Fortescue Metals jumped 3.6%, BHP advanced 1.7%, Rio Tinto added 1.3%. In energy, Santos gained 0.9%, Woodside energy rose by 0.6%, and Beach Energy firmed 0.7%. Traders will be focused on RBA’s decision on the cash rate today, with economist’s consensus of the rate to remain unchanged at 3.85%. Similar to US rate pricing, traders suggest there is a roughly 25% chance of an increase at today’s meeting, while a 50/50 likelihood is priced in for July. The yield on the policy-sensitive 3-year Australian bond was 13.8 basis points higher on Monday at 3.568%, while the local currency strengthened 0.1% against the US dollar to 0.66.
Commodities
Oil prices initially surged over 3% on Monday although pared back those gains after Saudi Arabia pledged to cut production by another 1 million barrels per day from July. The price of WTI and Brent Crude rose by 0.57% and 0.55% to $72.15 and $76.55 respectively. In precious metals, spot gold rose 0.71% to $1961.86, spot silver fell by -0.26% to $23.54. In Industrial metals, copper added 1.09% to $377 and SGX Iron Ore jumped 1.01% and is a further 0.72% higher this morning at US$105.80, benefiting from recently renewed speculation of stimulus from China with positive PMI reports for May also adding weight to that view. Meanwhile, the price of bitcoin fell -6% to $25,648, after news circulated that Binance and the company’s CEO were accused of breaking US security rules.
Economic Calendar
6th June 2023
RBA Interest Rate Decision 14:30
Eurozone Retail Sales (YoY April) 19:00
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.
