US equities weakened on Wednesday, although pared back larger losses, while Treasury bill yields for June continued to rise as debt ceiling negotiations continue.
United States
Markets closed lower on Wednesday as the uncertainty of the debt ceiling loomed overhead, with US Treasury Secretary Janet Yellen once again warning the US would run out of cash by June 1. Historically, during similar situations, negotiations have gone down to the wire with a deal reached as the last minute as both sides push for leverage. Confidence in such an outcome has waned in recent weeks, with the yield on the Treasury bill due June 1st surging from sub 4% to 6.845% after a 1.1% spike overnight. Meanwhile, minutes from the last FOMC meeting revealed policymakers were divided on whether to pause further hikes in interest rates. Minutes from the latest May 2-3rd meeting showed several policymakers noting “if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary”, as officials weigh the lagging effect of their tightening along with tightening credit conditions.
June 1st 2023 Treasury Bill Yield
The S&P 500 closed -0.73% lower on Wednesday having initially dropped -1%, the Dow fell by -0.77%, the Nasdaq slid -0.61% while the Russell 2000 Index declined by -1.16%. The yield on the US 2-year treasury bond jumped up by 5 basis points to 4.37%. Meanwhile, the yield on the 10-year and 30-year treasury bonds rose by 5 basis points to 3.74% and 3 basis points to 3.98% respectively. The VIX Index jumped 8.09% to 20.03.
Europe
The European markets closed lower on Wednesday, weighed by a surprise increase in UK inflation. Over the 12 months to April, core inflation rose 6.8% against estimates to remain unchanged at 6.2% while headline prices eased less than expected to 8.7% from 10.1% previously, analysts had forecast a drop to 8.2%. The reaction in markets was swift with the 2-year Gilt yield up 23.7 basis points to 4.37% and investors repriced their expectations of peak interest rates, pricing in a further 1% of tightening by the end of the year.
UK Inflation (YoY %)
The Euro Stoxx 600 slumped -1.81% along with the DAX -1.92%, CAC -1.7% and FTSE100 -1.75% as concerns over sticky inflation and the US debt ceiling weighed on sentiment.
*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 this morning with ASX200 futures down -31 points or -0.43% to 7,196. The ASX 200 index closed -0.63% lower on Wednesday, weighed down by materials, healthcare, and information technology, declining by -1.66%, -1.13%, and -1.06% respectively. Energy was the star performer, rising up by 0.70%, while utilities gained 0.36% and consumer staples edged up 0.31%. Falling copper prices weighed heavily on the index, Fortescue Metals was down by 4.1%, BHP fell by 2.2%, Rio Tinto slipped -2.1%. Gold miners benefited, with the star performer of the index West African Resources climbing by 4.7%, Bellevue Gold jumped 2.4% while Regis Resources gained 1.5%. The biggest laggard was Lovisa Holdings, plummeting -6.89%. In energy, Karoon Energy was up 3%, Ampol rose by 1% and Santos by 1.4%. Qantas gained 1.9%, Webjet rose 3.8% while Eagers Automotive retreated -4.9%.
Elsewhere, the New Zealand dollar slumped -2.18% after the Reserve Bank of New Zealand hiked rates by 0.25% to 5.5% as expected, although unexpedetly signaled it believes it is now at the end of its tightening cycle.
Commodities
In commodities, oil prices extended gains after Saudi Energy Minister Prince Abdulaziz bin Salman earlier in the week told short-sellers to “watch out”, implying OPEC+ might further reduce output to support prices. WTI and Brent Crude rose by 1.96% and 1.98% to $74 and $78 respectively. In precious metals, spot gold fell by -0.91% to $1957.16, while spot silver fell by -1.68% to $23.05. Industrials metals declined with Copper falling by -2.42% to $355 and SGX Iron Ore sliding down -4.52 % to $95.46 as investors expressed pessimism over China’s economic recovery, waning demand from steel mills and rising COVID-19 cases. The price of bitcoin also fell -3.8% to $26,215.
Economic Calendar
25th May 2023
German GDP Growth Rate (YoY Q1) 16:00
German GfK Consumer Confidence (Jun) 16:00
US GDP Growth Rate (Q1) 22:30
US Chicago Fed National Activity Index (April) 22:30
US Jobless Claims (May 20th) 22:30
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.
