U.S. equities gained on Wednesday while Treasury yields were little changed after the FOMC policy minutes showed the committee saw aggressive hikes as providing flexibility later this year.
“Most participants judged that 50 basis-point increases in the target range would likely be appropriate at the next couple of meetings,” according to minutes from the May meeting, in line with market pricing which forecasts an implied +1.8% of further tightening this year. By front-loading rate hikes, the committee is seen as being more flexible later this year allowing them to become more data-dependent. “Many participants judged that expediting the removal of policy accommodation would leave the committee well-positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments.”
The S&P500 gained +0.95% lifted by technology +1.21%, consumer discretionary +2.78% and energy +1.96% with 75% of stocks higher. The Dow Jones rose +0.60%, as did the Nasdaq Composite +1.51%, Russell 2000 +1.95% while the VIX retreated -3.67% to 28.37. Treasury yields were little changed following weaker economic data in the form of durable goods orders for April which declined to +0.4% from a revised lower +0.6% previously, missing estimates of +0.60%. The 2-year yield was -2 basis points lower at 2.494%, with the 10-year little changed at 2.749% while the 30-year rate edged +0.6% basis points higher to 2.973%. Tonight will see the second estimates of Q1 GDP forecast to show the economy contracted at a -1.3% annualised rate compared with +6.9% in Q4 2021 followed by PCE inflation on Friday expected to show that inflation moderated year-on-year to April.
European equities were also higher after slightly better than expected GDP for Germany which rose +3.8% year-on-year to the 1st quarter compared with estimates of +3.7% and up from +1.8% previously. Meanwhile, German consumer confidence remained subdued at -26 as forecast compared with -26.6 previously. The Euro Stoxx 600 gained +0.63%, as did the DAX +0.63%, CAC +0.73% and FTSE100 +0.51% with most benchmarks higher across the region. The Euro weakened -0.52% to 1.0680 while the Pound gained +0.39% to 1.2581 with 10-year government bond yields generally edging lower between -1.4 to -2.6 basis points.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open slightly higher this morning with ASX200 futures up +13 points or +0.18% to 7,157. The index gained +0.37% on Wednesday although breadth was weak with only +40% of stocks higher with financials +0.81% and materials +0.81% contributing the most to gains. Consumer staples were the best performing sector, rising +1.5% buoyed by a positive announcement from Costa Group that said earnings would likely be $5 million higher in the calendar year 2022 with higher costs partly offset by strong demand internationally for fresh produce. Shares climbed +8.6%, along with WOW +1.9%, COL +2% and EDV +1.9%. The Australian dollar is -0.25% lower overnight at 0.7088 while the 10-year government bond yield declined -7.7 basis points to 3.240%.
Oil prices were might overnight with both WTI and Brent crude up +0.87% and +0.67% respectively to US$110.73 and US$114.33 a barrel. Iron ore futures gained +2.04% on Wednesday although are -0.87% lower in early trade this morning at US$130.35. Gold weakened -0.70% to US$1,853.47 with silver also -0.58% lower at US$21.99 while Bitcoin gained +1.11% to US$29,764. In its latest monthly bulletin, the International Copper Study Group said the copper market shows a 25k tonne deficit in March compared to a 95k surplus in February, still copper prices eased -1.34% to US$9,460.
Economic data:
- U.S. GDP (QoQ Q1) 22:30
- U.S. Initial Jobless Claims (May 21st) 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.
