U.S. stocks pared larger losses although still finished lower for the session as investors weighed weaker PMI and housing data ahead of key data later this week.
The S&P500 finished -0.81% lower although pared declines of as much as -2.48% with technology weighing -1.57% after Snap Inc lost -42.98% its profit warning after the close on Monday. Further declines in communications -3.70% and consumer discretionary -2.58% also weighed on the index however breadth was mixed with only 59% of stocks declining. Elsewhere the Nasdaq Composite slumped -2.35% paring a drop of as much as -3.84%, the Dow Jones edged +0.15% higher, the Russell 2000 weakened -1.56% and the VIX climbed +3.41% to 29.45. Treasury yields declined on weaker economic data with the 2-year yield down -14.4 basis points to 2.477%, with both the 10 and 30-year rates -9.7 and -8.5 basis points lower respectively, with the U.S. dollar index also -0.31% weaker.
In a sign that tighter monetary policy and higher interest rates are impacting the economy, sales of new family homes declined to a two-year low in April declining for a fourth consecutive month, down -16.6% in April from a revised lower -10.5% in March. Elsewhere flash PMI data for May pointed to weaker demand and lower sentiment on inflation and spending concerns with the composite index declining to 53.8 from 56 previously. Manufacturing PMI declined to 57.5 as forecast from 59.2 previously while services PMI declined more than expected to 53.5 from 55.6 previously, missing forecasts of 55.2. Chris Williamson, the Chief Economist of S&P Global Market Intelligence noted “Despite all of the headwinds facing businesses, the survey data remain indicative of the economy growing at an annualised rate of 2%, which is also supporting stronger payroll growth. However, cost pressures have risen to a new survey high which, alongside the encouraging output and employment numbers, will fuel further speculation about the need for further imminent aggressive rate hikes.”
European equities were also lower on Tuesday after PMI data showed business growth slowed in May, while a shortage of raw materials held back expansion in manufacturing. The flash manufacturing PMI for May declined to 54.4 from 55.5 previously, modestly lower than forecasts, with services down from 57.7 to 56.3 missing estimates of 57.5. From the report, “factories continue to report widespread supply constraints and diminished demand for goods amid elevated price pressures, the economy is being boosted by pent-up demand for services as pandemic-related restrictions are wound down”. The Euro Stoxx 600 declined -1.14% along with the DAX -1.80%, CAC -1.66% and FTSE100 -0.39% which was shielded somewhat by a -0.41% decline in the Pound following weaker than expected PMI data that “signalled a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies’ costs hit yet another all-time high.”
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Despite the negative lead from overseas markets, the ASX looks set to open modestly higher with ASX200 futures up +7 points or +0.10% to 7,127. The index finished -0.28% lower on Monday weighed by technology -3.02% and communications -1.88% while real estate +0.36% and financials +0.26% were the only positive sectors. Shares in TNE declined -1.63% despite a record first-half profit and revenue for the six months ending March 31st with net profit up +18% to $33.2 million and annual recurring revenue up +44% to $225.1 million. PMI data also showed a slow down in May with manufacturing PMI declining to 55.3 from 58.8 and services down to 53 from 56.6 previously noting the Australian economy continued at a solid pace in May. Still, ““Persistent supply chain constraints continue to pose challenges for firms in the private sector…That said, overall business sentiment remained positive while workforce expansion continued at a strong pace”. The Australian dollar was little changed at 0.7108 as was the 10-year yield at 3.318%.
Oil prices were mixed overnight with WTI crude down -0.11% to US$110.17 while Brent crude gained +0.24% to US$113.69. Iron ore futures in Singapore declined -3.76% on Tuesday although are +0.65% higher in early trade this morning at US$129.7. Gold gained +0.68% to US$1,866 as did silver +1.43% to US$22.11 with Bitcoin also +0.47% higher at US$29,451.
Economic data:
- RBNZ Rate Decision 12:00
- German GDP (YoY Q1) 16:00
- German GfK Consumer Confidence (Mom Jun) 16:00
- U.S. Durable Goods Orders (MoM Apr) 22:30
- FOMC Minutes 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.
