Global equities declined while bond yields rose as rising commodity prices continued to stoke concerns around inflation.
As of 07:15 am AEDT the S&P500 was -2.69% lower in broad-based selling with 86% of stocks trading lower with the index weighed by declines in technology -3.20%, consumer discretionary -4.60% and financials +3.42% while utilities +1.39% and energy +1.19% outperformed. The Nasdaq Composite also weakened -3.27%, as did the Dow Jones -2.20% and Russell 2000 -2.02% with the VIX climbing +10.3% to 35.27.
Rising energy and commodity prices as well as the uncertainty of the impact on economic growth amid the conflict in Ukraine are weighing on sentiment. The Biden Administration is considering whether to ban on Russian oil and energy products although is yet to decide on any ban as well as the potential timing and scope. Secretary of State Antony Blinken on Sunday said that under any ban, oil supplies would have to be ensured, and according to the Energy Information Administration the U.S. imports 700k barrels per day of Russian crude and petroleum products making up around 3% of crude shipments that arrived in the U.S. last year.
Treasury yields gained across the curve with the 2-year rate up +7.4 basis points to 1.55%, as were both the 10 and 30-year rates up +4.6 and +2.7 basis points respectively. Breakeven inflation rates also rose across the curve, with the 1-year rate rising +16.4 basis points to 5.512%, and both the 5 and 10-year rates up +11.2 and +10.6 basis points. The rise in breakeven rates drove real yields lower with the 5 and 10-year rates down -4.6 and -6.0 basis points to -1.657% and -1.032% respectively. Despite weaker real yields the U.S. dollar index strengthened +0.57% to 99.21.
European equities were weaker across the board although pared much larger initial declines, with the Euro Stoxx 600 finishing -1.10% lower after initially falling as much as -3.83%. The DAX also declined -1.98%, as did the CAC -1.31% and FTSE100 -0.40% with major benchmarks lower across the region with several benchmarks now within touching of a bear market, considered a 20% drop from highs. There was little economic data to guide markets other than German retail sales for the year to January which rose +10.3% from +0.8% previously, which was higher than the +9.8% forecast. 10-year government bond yields across Europe rose ranging from +0.8 basis points in Switzerland to +9.6 basis points in the U.K. The Euro weakened -0.55% to 1.0868 with the Pound also -0.88% lower to 1.3113.
*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 global equities lower with ASX200 futures down -30 points or -0.40% to 6,999. The index retreated -1.02% on Monday weighed by declines in financials +1.59% and health care -3.25% in broad-based selling with 77% of stocks lower. Health care was weighed by a -3.3% decline in CSL after the stock traded ex-dividend. Energy was a notable performer, rising +5.25% following continued gains in energy prices. The conflict in Ukraine continues to weigh on sentiment for travel stocks with QAN down -7.9%, as was FLT -4.2%, WEB -3.57% and CTD -3.59%. The Australian dollar is trading -0.72% weaker at 0.7317 while the 10-year yield on government bonds declined -1.4 basis points to 2.136% on Monday.
Oil prices extended recent gains although pared initial increases near 10% with both WTI and Brent crude trading +3.33% and +4.27% higher at US$119.56 and US$123.19 a barrel. The price of nickel spiked more than 60% on Monday adding more than US$10,000 to trade at a 15-year high above US$40,000 a ton, the biggest ever one day gain in the contract’s 35-year history. Russia is one of the world’s biggest suppliers of the metal, and fears of sanctions or the inability to ship the metal have spoked an already tight market with liquidity said to have deteriorated dramatically overnight. Iron ore futures in Singapore rose +5.77% on Monday although have given back half of those gains this morning, trading -3.45% weaker at US$160.15. Gold is trading +1.32% higher at US$1,996 following declines in real yields, while silver is -0.52% weaker at US$25.57 along with Bitcoin -3.89% to US$37,512.
Economic data:
- Eurozone GDP (QoQ Q4) 21:00
- U.S. Wholesale Inventories (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.
