U.S. equities rose into positive territory in the final minutes of trading on Friday, while shorter-dated yields climbed with more curves inverting after solid U.S. employment data supported the case for aggressive rate hikes. Locally, the ASX looks set to start the week on a positive note with ASX200 futures up +19 points or +0.25% to 7,488 at the close on Saturday morning.
The S&P500 swung between gains and losses before +0.34% higher into the close boosted by health care +0.91%, communications +0.89% and consumer staples -1.25% with the index little changed over the week. The Dow Jones also rose +0.40%, as did the Nasdaq Composite +0.29% and Russell 2000 +1.01% as the VIX retreated -4.52% to 19.63. Tesla Inc. shares will be closely watched on Monday following updated quarterly delivery and production figures released over the weekend. For the quarter, a record number of cars were delivered at 310,048 slightly above the average analyst estimate of 309,158 amid a difficult period in the face of supply chain disruptions and pandemic related issues in China with production temporarily suspended at the Shanghai factory. Tesla noted the delivery count is conservative and the final numbers could vary by +0.5% or more, and shares closed +0.77% higher on Friday.
U.S. non-farm payrolls were softer than analyst estimates although posting solid gains with unemployment declining, wages rising and participation also edging higher. +431k jobs were added in March missing estimates of +490k, down from a revised higher +750k in February from +678k initially reported. Average hourly earnings rose +5.6% over the year from +5.2% previously, modestly above forecasts of +5.5%, the participation rate ticked higher to +62.4% from +62.3% previously with underemployment declining to +6.9% from +7.2% prior. Elsewhere, manufacturing PMI was unchanged at 58.5 for March, missing estimates of a rise to 58.8 while prices paid climbed to 87.1 from 75.6 previously, above estimates of 80 adding to concerns about rising inflation while economic growth slows. Taken together, the data continues to support aggressive rate hikes from the Federal Reserve throughout 2022, with the market now closer to pricing in a further +9 hikes before the end of the year.
Following the data, the 2-year Treasury yield spiked +12.2 basis points to +2.456% while the 10-year rose +4.4 basis points, inverting the curve between the two rates to -6.9 basis points. While there is the case that a yield curve inversion may be different this time given the Fed’s unprecedented stimulus, the inversion highlights concern from investors about the outlook for economic growth. Ahead for this week, investors will focus on non-manufacturing PMI for March overnight on Tuesday, the latest FOMC minutes overnight on Wednesday, as well as several speeches by members of the Federal Reserve throughout the week.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
European equities gained on Friday, brushing off record levels of inflation with the Euro Stoxx 600 climbing +0.54%, as did the DAX +0.22%, CAC +0.37% and FTSE100 +0.30%. Core inflation for the year to March rose +3% from +2.7% previously, modestly below forecasts of +3.1% while headline inflation climbed more than forecast to +7.5% from +5.9% previously, well above estimates of +6.6% as the invasion of Ukraine interrupted supply chains and drove energy prices higher. Adding to concerns of further inflation, manufacturing PMI data on Friday showed input prices reached a four-month high in the Euro area, spurred by commodity, fuel and energy costs. Ahead for the week investors will focus on services PMI for March on Tuesday, followed by retail sales for February and the ECB monetary policy minutes on Thursday.
Oil prices closed lower on Friday, although trimmed heavier losses with the U.K. expected to join the U.S. in releasing strategic reserves in an effort to lower prices and dependence on Russian supplies. Both WTI and Brent crude were -1.01% and -0.31% lower at US$99.27 and US$104.39 a barrel with prices consolidating over the past month following prior strong gains. Metal prices were mixed for the week with aluminium down -4.30%, as was nickel -6.39% while copper rose +0.84% along with lead +4.21%, tin +5.87% and zinc +6.70%. Iron ore futures in Singapore rose +1.06% on Friday, taking a weekly gain to +4.61%. Gold weakened -0.61% to US$1,925 weighed by an increase in real yields, silver was also -0.66% lower at US$24.63 while Bitcoin rose +0.88% on Friday and trading a further +0.50% higher over the weekend at US$46,400.
Economic data:
- Eurogroup Meeting 10:00
- Australian Retail Sales (MoM Feb) 11:30
- U.S. Factory Orders (MoM Feb) 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.
