U.S. equities initially rose strongly following the easing of COVID-19 measures in Beijing, before paring those gains following a rise in Treasury yields.
Stocks rallied earlier in the session, lifted by sentiment that easing COVID-19 restrictions in China would help reduce supply-chain pressures, however, a move in the 10-year yield above 3% soon weighed on sentiment. The S&P500 initially gained as much as +1.47% before finishing +0.31% higher boosted by communication services +0.98% and consumer discretionary +0.67%. The Dow Jones edged +0.05%, with the Nasdaq Composite up +0.40% along with the Russell 2000 +0.36% and the VIX rose +1.13% to 25.07. Shares in AMZN rose +2.22% after implementing a 20-for-1 stock split, while TWTR declined -1.28% after Elon Musk, who waived due diligence, said he believes the company is in breach of their merger agreement by not providing information about spam and fake accounts which he has recently demanded.
Treasury yields were higher across the board ahead of this weeks key consumer inflation report, which is expected to moderate although remain at elevated levels. The 2-year yield traded +7.8 basis points higher at 2.728%, as did the 10 and 30-year rates by +10.5 and +10.1 basis points. Inflation breakeven rates edged higher, resulting in higher real yields and the U.S. dollar index gained +0.25% to 102.40. respectively pushing real yields higher. The tightening of U.S. financial conditions, highlighted by the Bloomberg U.S. Financial Conditions index, have moderated over the past week although Friday’s strong employment data gives scope for the Federal Reserve to continue to tighten aggressively.
European equities gained on Monday, boosted by the easing of Chinese restrictions lifting banks and commodity-linked stocks. The Euro Stoxx 600 rose +0.92%, as did the DAX +1.34%, CAC +0.98% and FTSE100 with most major benchmarks across the region higher for the session. The focus for the week remains on the ECB meeting on Thursday, with investors looking for clues as to whether the ECB will begin tightening in an easy or more aggressive manner. Elsewhere, the Pound gained +0.31% to 1.2527 after U.K. Prime Minister Boris Johnson survived a leadership vote in a secret ballot on Monday with 211 Tory MPs voting for Johnson while 148 voted against.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set for a flat open with ASX200 futures down -3 points or -0.04% to 7,209. The index weakened -0.45% on Monday with materials -0.93% and financials -0.58% weighing on the index, while energy was the best performing sector rising +2.13% supported by rising oil prices. All eyes are on the RBA meeting today at 2:30pm AEDT with a rate hike seen as a done deal, while economists vary on how much they expect the central bank to increase rates. NAB expects no more than +0.25% citing measured increases as “sufficient to bring about a significant change in the stance of Australian monetary policy over a relatively short period of time”. Elsewhere, TD Securities noted “The risks to inflation lean towards the upside and we expect the RBA to hike by 40bps to address this” also pointing to wage growth acceleration following Q1 as pressuring inflation higher. The Australian dollar is -0.17% weaker overnight at 0.7195 while the 10-year government bond yield was unchanged at 3.484% on Monday.
Oil prices edged higher overnight with both WTI and Brent crude up just +0.11% and +0.21% to US$119 and US$119.97 a barrel. Iron ore futures in Singapore gained +0.81% on Monday lifted by easing Chinese restrictions and are a further +0.49% higher at US$144.55 this morning. Gold weakened -0.51% weighed by a stronger USD and higher real yields, while silver rose +0.68% to US$22.07 along with Bitcoin +5.02% to US$31,429.
Economic data:
- RBA Rate Decision 14:30
- U.S. Balance of Trade (MoM Apr) 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.
