U.S. equities were mostly lower on Monday as investors assessed weak data from China and await key data overnight including Eurozone GDP, U.S. retail sales and a speech from Fed Chair Jerome Powell.
The S&P500 declined -0.39% weighed by technology -0.91% and consumer discretionary -2.12% while energy +2.62% outperformed. The Dow Jones edged +0.08% higher while the Nasdaq Composite declined -1.20% weighed by a drop in mega-cap names with TSLA down -5.9%, as was AAPL -1.1%, AMZN -2% and GOOGL -1.5%. The Russell 2000 was also -0.52% lower while the VIX retreated -4.85% to 27.47. Curiously the VIX has retreated over the past five consecutive sessions from 34.75 to 27.47 while the S&P500 has remained weak, this is unusual and suggests the dynamic is likely to change in the near term with either equities or the VIX moving higher.
Chinese data showed the economy is paying the price for the nation’s zero COVID policies with industrial output unexpectedly declining -2.9% in April from a year earlier against forecasts for a modest gain of +0.4%. Retail sales contracted -11.1%, nearly double the -6.6% decline forecast while the unemployment rate climbed to +6.1% compared to +5.9% forecast. While the data is the worst since the pandemic began, there is optimism that the data may mark the worst of the slump with Shanghai taking the first steps towards reopening on Monday, allowing some shops to gradually resume operations while normal life and production are expected to fully resume in mid-to-late June.
European equities finished the session mixed, with the Euro Stoxx 600 trimming initial losses of as much as -0.8% following the weaker Chinese data. Elsewhere, the FTSE100 rose +0.63%, while the DAX and CAC weakened -0.23% and -0.45% respectively. In a note, JP Morgan analysts suggest that European equities stand to recover from here as “peak Fed hawkishness is starting to get traction” while inflation is showing a turn lower for the first time in a while, suggesting the Federal Reserve might not be significantly behind the curve anymore.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set for a modest rise this morning with ASX200 futures +24 points or +0.34% higher at 7,101. The index gained +0.25% on Monday, paring initial gains of +1.05% following the weaker than forecast Chinese data. Financials +0.52% and industrials +2.42% did most of the heavy lifting for the index, while materials -0.48% and health care -0.60% were the largest drag. Transport and logistics company Brambles was the notable performer of the session, climbing +11.2% to $11.60 as Brambles confirmed it was in talks with private equity firm CVC about a potential takeover offer. Lithium stocks received a boost after broker Macquarie said investors should own lithium and rare earth miners with PLS rising +5.3%, as did LKTR +2.5% and AKE +3%. The Australian dollar is +0.45% firmer at 0.6971 ahead of the release of the RBA policy minutes at 11:30 AEDT today while the yield on 10-year government bonds declined -1.9 basis points on Monday to 3.384%
Oil prices are higher overnight with both WTI and Brent crude +3.01% and +2.12% respectively to US$113.82 and US$113.95 a barrel. Iron ore futures in Singapore rose +2.29% on Monday although are slightly weaker by -0.64% in early trade this morning at US$129.05. Gold is +0.68% higher at US$1,824.14 as is silver +2.40% at US$21.62 while Bitcoin weakened -3.58% to US$29,908.
Economic data:
- RBA Policy Minutes 11:30
- U.K. Unemployment (MoM Mar) 16:00
- Eurozone GDP (QoQ Q1) 19:00
- U.S. Retail Sales (MoM Apr) 22:30
- Fed Chair Powell Speech 04:00
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.
