U.S. equities swung between gains and losses on Tuesday before finishing mixed as investors await a Fed policy decision overnight tonight.
The S&P500 declined -0.38% reversing initial gains of +0.76% while also paring losses of as much as -1.17%. Sector performance was mixed with technology rising +0.62% after a +10.41% rise in Oracle after topping quarterly earnings and revenue estimates with energy edging +0.07% higher while all other sectors were lower paced by utilities -2.59% and consumer staples -1.29%. The Dow Jones also weakened -0.50% along with the Russell 2000 -0.39% while the Nasdaq Composite edged +0.18% higher and the VIX finished -3.91% lower at 32.69. In economic data, U.S. producer prices rose in line with estimates with the headline measure increasing +0.8% over the month of May as forecast and rising +10.8% over the 12-month period also in line with estimates of +10.9%. A core measure which excludes food and energy rose +8.3% over the 12-month period, below forecasts of +8.6% and the prior reading of +8.8% suggesting an easing of price pressures in the coming months with producer prices a leading indicator of consumer prices.
Treasury yields continued to rise across the curve ahead of the Fed policy meeting at 04:00 AEDT on Thursday where futures markets have now fully priced in a +0.75% rate increase. Also in focus will be the updated economic projections from the FOMC, known as “dot plots” as well as retail sales data at 22:30 AEDT expected to show sales slowed in May. The 2-year yield rose +7.3 basis points to 3.427%, as did both the 10 and 30-year yields rising by +11.3 and +7.7 basis points respectively. The U.S. dollar index continued to 20-year highs rising +0.39% overnight to 105.48 supported by a rise in real yields as inflation breakevens moved lower on expectations that more aggressive rate hikes will bring inflation under control quicker.
European equities reversed initial gains to close lower for a sixth consecutive session as worries about a global recession weighed on sentiment, with a stagflationary environment in the Eurozone seen as a higher risk. The Euro Stoxx 600 declined -1.26% having initially risen +0.99%, with major benchmarks across the region lower with the DAX down -0.91%, along with the CAC -1.20% and FTSE100 -0.25%. Economic sentiment in both Germany and the Eurozone improved modestly in June although remained at pessimistic levels with the Eurozone reading rising to -28 from -29.5 previously and the German measure rising to -28 from -34.3 previously. In the U.K. the unemployment rate for the 3-months to April was higher than forecast at +3.8% compared t estimates of a decline to +3.6% while the number of employed rose more than forecast to +177k against estimates of +106k. The mixed employment data is likely to cool expectations of a +0.5% rate increase by the Bank of England on Thursday, although markets fully expect a +0.25% increase bringing the key rate to +1.25%.
*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 lower this morning with ASX200 futures down -46 points or -0.70% to 6,521. The index slumped -3.55% on Tuesday although pared an initial drop of -5% with all sectors negative led by energy -4.88%, technology -4.45% and materials -4.44% as 93% of stocks closed lower. The Australian dollar is a further -0.75% weaker overnight at 0.6871 ahead of the Westpac consumer confidence index for June released at 10:30 AEDT today. Also in focus, Chinese fixed asset investment, industrial production, and retail sales for May at midday.
Oil prices weakened overnight with both WTI and Brent crude -1.65% and -0.97% lower at US$118.93 and US$121.09 a barrel. Iron ore futures in Singapore declined -1.02% on Tuesday and are modestly lower by -0.16% this morning at US$133. Gold declined -0.59% to US$1,808 weighed by a stronger USD and higher real yields, silver edged -0.14% lower to US$21.05 and Bitcoin fell a further -5.36% to US$21,966.
Economic data:
- Australian Consumer Confidence (MoM Jun) 10:30
- Chinese Fixed Asset Investment, Industrial Production, Retail Sales (YoY May) 12:00
- U.S. Retail Sales (MoM May) 22:30
- Fed Rate Decision 04:00
- Fed Press Conference 04:30
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.
