U.S. stocks rose on Tuesday, climbing in the final hour of trading as Treasury yields retreated.
The S&P500 climbed +0.95% in broad-based buying with 83% of stocks higher with energy +3.14% leading gains while consumer discretionary -0.37% was the only sector negative, weighed after Target cut its profit outlook for the second time in three weeks amid an inventory surplus. The Dow Jones also added +0.80%, as did the Nasdaq Composite +0.94% and Russell 2000 +1.57% with the VIX retreating -4.19% to 24.02.
Treasury yields were mostly lower with the 10 and 30-year rates down -6.4 and -7 basis points respectively, while the 2-year yield edged +0.6 basis points higher to 2.733%. The Atlanta Federal Reserve lowered its GDPNow forecast for Q2 growth to +0.9% on an annualised basis from +1.3% a week earlier citing a decrease in personal consumption and private investment with the forecast below the bottom range expected by economists. With no Federal Reserve speakers this week, investors remain focused on Friday’s consumer inflation data for May expected to show core prices moderated from +6.2% to +5.9% while headline inflation is expected to be unchanged at +8.3%. Also in focus is the preliminary University of Michigan consumer sentiment reading for June expected to decline edge lower to 58 from 58.4 in May.
European equities weakened although pared larger declines after a decline in the 10-year U.S. yield brought back dip buyers in late trading. The Euro Stoxx 600 declined -0.28% paring an initial decline of -0.88%, with the DAX -0.66% lower along with the CAC -0.74% and FTSE100 -0.12%. An ECB policy decision remains in focus for Thursday where it is set to end trillions of Euros of asset purchases and outline the path to exiting eight years of negative rates. The key question will be whether the ECB adopts a gradual approach when it begins lifting rates in July or follows other central banks in opting for larger increases of +0.5%. Tonight will also bring the final estimate of Eurozone GDP for Q1 expected to show the economy expanded +5.1% from +4.7% previously. The Euro edged +0.09% higher to 1.0706 and the Pound rose +0.47% to 1.2591 while 10-year government bond yields were mostly lower ranging from -12.5 basis points in Italy to -0.7 in Switzerland, the exception was Sweden where the yield gained +4.4 basis points.
*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 up +47 points or +0.66% to 7,148. The index fell -1.53% with sharp declines following a surprise rate increase of +0.5% by the Reserve Bank of Australia, the range of economist forecasts had mostly been between +0.25% and +0.40%. A statement by the RBA focused on inflation, noting the central bank will do what is necessary to rein in inflation. Governor Philip Lowe said, “the board expects to take further steps in the process of normalising monetary conditions in Australia over the coming months”. The implied policy rate for the end of 2022 based on cash rate futures rose from +2.9% to +3.1% in the wake of the decision. The Australian dollar is trading +0.54% higher at 0.7232 and government bond yields climbed with the 10-year rate up +7.4 basis points to 3.557%.
Oil prices extended gains overnight with both WTI and Brent crude +0.91% and +0.96% higher at US$119.58 and US$120.67 a barrel. Iron ore futures in Singapore rose +0.53% on Tuesday and are little changed in early trade this morning at US$144.50. Gold gained +0.60% to US$1,852.42 benefiting from a lower USD and yields, with silver also rising +0.71% to US$22.23 while Bitcoin edged -0.30% lower to US$31,344.
Economic data:
- Eurozone GDP (QoQ Q1) 19:00
- U.S. Wholesale Inventories (MoM Apr) 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.
