U.S. equities fell along with Treasury yields on Tuesday after weak consumer confidence data signaled the increased likelihood of a recession.
The Conference Board’s measure of consumer confidence for June declined more than forecast to 98.7 from 103.2 previously, missing estimates of 100.4. A measure of expectations also declined to 66.4 from 77.5 previously with the spread between the current situation and expectations reaching levels that often proceed a recession. The S&P500 declined -2.01% in broad-based selling with 89% of stocks lower weighed by consumer discretionary -4.03% and technology -3.01% while energy was the only positive sector rising +2.70% on higher oil prices.
Treasury yields mostly declined as investors sought haven assets with the 10 and 30-year rates down -2.8 and -3.6 basis points respectively, while the 2-year yield was little changed at 3.11%. Federal Reserve Bank of New York President John Williams said on Tuesday he expects a debate between policymakers in July on whether to raise rates by +0.50% or +0.75% which is likely to be determined by economic data. Williams noted “my view is we’ve got to get interest rates higher, and we have to do that expeditiously supporting a rise in rates to between +3% and +3.5%. On Wednesday, investors will be focused on the final reading of U.S. GDP for Q1 as well as a speech by Fed Chair Jerome Powell at 23:00 AEDT.
European equities rose although pared larger gains, boosted by attractive valuations with the Euro Stoxx 600 12-month forward P/E ratio reaching the lowest levels since the start of the pandemic. The Euro Stoxx 600 rose +0.27% along with the DAX +0.35%, CAC +0.64% and FTSE100 +0.90%. Sentiment was also boosted after China moved to ease COVID-19 protocols, cutting its mandatory quarantine period for inbound visitors to 10 days from three weeks. Elsewhere ECB President Christine Lagarde affirmed plans for a +0.25% rate increase in July, while noting policymakers are ready to step up action to tackle inflation if warranted. The ECB will also use its bond-buying as a first line of defense against a possible debt-market crisis on Friday to address spreads in yields across the Eurozone. Consumer and economic sentiment for the Eurozone are in focus on Wednesday, along with German inflation forecast to show a modest rise, as well as a speech by Christine Lagarde.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to follow Wall Street Lower with ASX200 futures down -82 points or -1.23% to 6,595. The index rose +0.86% on Tuesday boosted by materials +3.01% and energy +3.62% while consumer discretionary lagged -1.34%. Shares in BWX, the maker of Sukin skincare slumped -40.6% after warning of a downturn in retail conditions, along with an overhaul of its board and a $23.2 capital raising to repair its balance sheet noting rising inflation and interest rates had created a downturn in conditions over the past six weeks. Collins Foods, the KFC merchant, was the best performer, rising +11.52% after sayings its net profit rose +47.2% to $54.8 million for the year ended May 1st with revenue rising +11.1% to $1.18 billion. The Australian dollar traded -0.26% lower on Tuesday to 0.6908 and locally investors will be focused on the release of retail sales for the month of May, forecast to rise by +0.4% compared to +0.9% in April.
Oil prices climbed overnight over concerns for OPEC+ ability to increase production, with the group pumping a collective 562 million barrels less than levels stipulated, or 2.7 million barrels per day less than production targets. The group has struggled to increase volumes to meet increased production pledges with members citing diminished investment and operational issues. Both WTI and Brent crude rose +2.0% and +2.66% respectively to US$111.76 and US$118.15 a barrel. Iron ore futures in Singapore gained +3.65% on Tuesday although are slightly lower by -0.25% in early trade this morning at US$123.90. Gold edged -0.16% lower to US$1,820 an oz with silver falling -1.52% to US$20.84 along with Bitcoin -3.11% to US$20,247.
Economic data:
- Australian Retail Sales (MoM May) 11:30
- Eurozone Consumer Confidence, Economic and Industrial Sentiment (MoM Jun) 19:00
- German Inflation (YoY Jun) 22:00
- U.S. GDP Final (QoQ Q1) 22:30
- ECB President Lagarde Speech 23:00
- BoE Governor Bailey Speech 23:00
- Fed Chair Powell Speech 23:00
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.
