U.S. equities rallied on Thursday as weaker than expected private payroll data and OPEC+ increasing production targets helped ease concerns around inflationary pressures.
The S&P500 climbed +1.84% in broad-based buying with 86% of stocks higher, led by consumer discretionary +3.03%, materials +2.68% and communications +2.58% while energy -0.30% was the only negative sector. The Dow Jones also rose +1.33%, along with the Nasdaq Composite +2.69% and Russell 2000 +2.31% while the VIX retreated -3.78% to 24.72. Shares in Microsoft rose +0.82% paring an initial drop of -3.97% despite issuing an FX warning cutting its fourth-quarter forecast for profit and revenue, making it the latest US company to warn of the impact of a strong dollar. The company receives about half its revenue from outside the United States, lowered its revenue forecast for all three segments, which include Windows products, cloud services and personal computing.
Helping to ease concerns around inflation, the ADP private employment report showed +128k jobs were added in May from a revised lower +202k in April, well below economist forecasts of +300k while initial jobless claims for the week ending May 28th were +200k, modestly below the +210k forecast. The figures come ahead of the all-important non-farm payroll data tonight expected to show +320k jobs were added in May down from +428k previously, with the unemployment rate edging lower to +3.5% from +3.6% previously and average hourly earnings expected to rise +0.4% over the month, up from +0.3% in April. Federal Reserve Bank of Cleveland President Loretta Mester said she favours raising rates by +0.5% at the next two meetings while cautioning the pace of rate increases could either speed up or down from September depending on what happens with inflation. Meanwhile, Vice Chair Lael Brainard said she saw no cause for pausing, “Right now it’s very hard to see the case for a pause. We’ve still got a lot of work to do to get inflation down to our 2 per cent target.”
European equities were higher on Thursday with the Euro Stoxx 600 up +0.57%, as was the DAX +1.01% and CAC +1.27% while the U.K. market was closed for the Platinum Jubilee leaving trading volumes relatively thin. Boosting sentiment was the announcement from OPEC+ that the group would add +648k barrels per day in July and August a 50% rise from increases seen in recent months. Still, analysts remained cautious about the increase given OPEC+ inability to hit recent increases in production targets, noting additional volumes that reach the market might be much smaller than headline figures.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is set for a stronger open this morning with ASX200 futures up +79 points or +1.10% to 7,247. The index declined -0.80% on Thursday weighed by financials -1.21% and health care -1.83% while energy +3.06% outperformed. The market took a weak lead from Wall Street which was lower on Wednesday fuelled by concerns of aggressive tightening by the Federal Reserve. Technology was the biggest laggard declining -2.5% with 360 down -5.3%, as was Block -5% and MP1 -6.04%. Shares in Woodside Energy climbed 5.2% on their first day of trading following the completion of the merger with BHP’s petroleum business. The Australian dollar is +1.25% higher overnight at 0.7265 ahead of PMI data this morning at 09:00 AEDT while the 10-year government bond yield rose +8.1 basis points on Thursday to 3.50%.
Despite the OPEC+ announcement to increase production, which was widely expected, oil prices gained with both WTI and Brent crude +1.40% and +1.66% higher at US$116.87 and US$118.22 a barrel. Iron ore futures in Singapore gained +5.26% on Thursday and are a further +1.13% higher at US$141.95 this morning boosted by Chinese steel mills replenishing inventories ahead of holidays. Gold gained +1.19% to US$1,868 benefiting from a weaker USD and lower real yields, silver also gained +2.17% to US$22.31 and Bitcoin rose +2.04% to US$30,225.
Economic data:
- Australian Services and Composite PMI (MoM May) 09:00
- Eurozone PMI (MoM May) 18:00
- Eurozone Retail Sales (YoY Apr) 19:00
- U.S. Non-farm Payrolls (MoM May) 22:30
- U.S. ISM Non-manufacturing PMI (MoM MaY) 00:00
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.
