U.S. equities traded lower on Tuesday, catching up after markets were closed for a public holiday on Monday with continued geopolitical tensions weighing on sentiment.
As of 07:30 am the S&P500 was -0.71% lower, paring initial declines of over -1% with consumer discretionary -2.81% and technology -0.44% weighing. The Dow Jones also declined -1.16%, as did the Nasdaq Composite -0.71% and Russell 2000 -0.25% with the VIX rising +4.54% to 29.01. In response to Russia sending what it calls peace keeping forces to the Donbas region of eastern Ukraine, President Biden said the U.S. was working closely with Germany on halting the Nord Stream 2 pipeline for natural gas. Meanwhile, the U.K. and European Union added sanctions on Russian Banks, members of parliament and oligarchs in response.
Treasury yields rose following firmer PMI data for February that showed manufacturing PMI rose to 57.5 from 55.5 previously, higher than the 56 forecast. Elsewhere, the conference board’s consumer confidence measure for February was slightly better than expected as 110.5 versus 110 expected, down from 111.1 previously. The 2-year yield rose +9.8 basis points to 1.564%, as did the 10-year +1.9 basis points and 30-year +1 basis point. Breakeven inflation expectations rose across the curve following gains in energy prices around geopolitical tensions, meaning real yields were little changed, and the U.S. dollar index edged -0.07% lower to 96.01.
European equities were mixed although pared larger declines following the announcement of sanctions, providing some relief that further conflict may still be avoided or a protracted military conflict. Additionally, historically market corrections in the context of armed conflicts have offered good buying opportunities. The Euro Stoxx 600 reversed initial declines of -2% to edge +0.07% higher for the session, as did the FTSE100 +0.13% while the DAX and CAC were -0.26% and -0.01% lower respectively. Government bond yields were also higher in Europe, with 10-year yields rising between +1 basis point in Switzerland and +6.8 basis points in Sweden. The Euro rose +0.23% to 1.1337 reversing an initial drop, while the Pound edged lower by -0.07% to 1.3592. In economic data, Germany’s Ifo Business Climate report for September improved to 98.9 from 96 previously, higher than the 96.5 expected. In focus tonight will be both German consumer confidence for March as well as the final reading of Eurozone inflation for January which is expected to show core prices eased to +2.3% from 2.6% previously over the year.
*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 higher this morning with ASX200 futures +24 points or +0.35% higher at 7,105. The index declined -1.0% on Tuesday weighed by declines in financials -1.48% and materials -1.05% with 81% of stocks trading lower. Cochlear shares were a notable performer, rising +9% after reporting a 20% rise in underlying net profit to $157.5 million on a constant currency basis with revenue rising +10% to $815 million and lifting the interim dividend 15% to $1.55. Energy shares benefited from a rise in oil prices with STO up +3.2%, as was WPL +3.8% and BPT +3.4%. The Australian dollar is +0.49% higher this morning at 0.7225 ahead of quarterly wage growth data for Q4 2021 which is expected to show an increase of +2.4% year-on-year from +2.2% previously.
Oil prices rose overnight with both WTI and Brent crude +1.41% and +0.95% higher at US$92.35 and US$96.30 a barrel. Natural gas futures for delivery in the U.K. and Netherlands jumped +10.06% and +9.96% respectively following Germany’s announcement it would not switch on the new $13.8 billion Nord Stream 2 gas pipeline from Russia to Germany. Iron ore futures in Singapore weakened -2.31% on Tuesday and are a further -0.52% lower this morning at US$135.95. Gold declined -0.30% to US$1,900 while silver rose +1.19% to US$24.18 and Bitcoin also rose +2.48% to US$37,994.
Economic data:
- Australian Wage Growth (YoY Q4) 11:30
- RBNZ Rate Decision 12:00
- German GfK Consumer Confidence (MoM Mar) 18:00
- Eurozone Core Inflation (YoY Jan) 21:00
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.
