U.S. cash equity and bond markets were closed on Monday for the Memorial Day public holiday, while U.S. futures rose although trimmed larger gains after higher than expected inflation in Europe offset optimism from easing Chinese lockdowns.
Futures on the S&P500 rose +0.52% having traded as high as +1.12% with similar moves in futures for the Dow Jones and Nasdaq 100 which rose +0.6% and +1.04% respectively while the VIX rose +3.195 to 26.54. While the best weekly gain since November 2020 helped lift sentiment somewhat, risks around hawkish central banks, weaker growth and food costs all remain in focus as investors await Friday’s non-farm payroll data at the end of this week to gauge the Fed’s tightening path as well as the scheduled start to shrink its $8.9 trillion balance sheet beginning on Wednesday. Federal Reserve Governor Christopher Waller said overnight he wants to keep raising interest rates by +0.5% potential over the next several meetings until inflation is easing back towards the target rate of 2%.
European equities rose, boosted by optimism around easing restrictions in China although higher than expected inflation in Germany and Spain dampened the mood. The inflation data comes before an ECB meeting on the 9th of June where it is widely expected to announce the end of large-scale asset purchases and confirm plans to raise interest rates in July for the first time in more than a decade. The preliminary reading of German inflation year-on-year to May rose +7.9% from +7.4% previously, topping estimates of +7.6% with prices increasing over the month by +0.9% missing estimates of a decline to +0.5% from +0.8% previously. 10-year government bond yields across the region climbed with the exception of Sweden, ranging from +3.6 basis points in Greece too +9.9 in Italy with the Euro climbing +0.42% to 1.0780 and the Pound gaining +0.19% to 1.2655 with money market traders pricing in over 1.10% of tightening by the end of the year for the ECB.
The Euro Stoxx 600 rose +0.59% boosted by consumer discretionary +1.96% and industrials +1.27% with easing COVID-19 restrictions in China lifting luxury brands such as LVMH, Hermes, Pernod Ricard and Burberry. The DAX also gained +0.79%, as did the CAC +0.72% and FTSE100 +0.19% with Spain’s IBEX lagging -0.03% after stronger than expected inflation data.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX200 looks set for a modestly lower open with ASX200 futures down -9 points or -0.12% to 7,286. The index climbed +1.45% on Monday lifted by materials +2.30%, financials +0.63% and health care +1.85% after authorities in China’s Shanghai began easing a city-wide lockdown and announcing stimulus plans to boost the economy including issuing local government bonds and asking banks to renew loans for small and medium-sized businesses while Beijing also moved to ease restrictions. The beaten-down technology sector was the best performer, climbing +4.6% after U.S. inflation showed signs of easing, adding to hope that the Federal Reserve may deliver less aggressive rate hikes. The top performer was Bubs Australia, which produces goad-based infant formula after U.S. President Joe Biden announced a deal for 27.5 million bottles of formula to ease a shortage, with shares initially surging as much +77.3% before finishing +40.21% higher. The Australian dollar is +0.47% higher at 0.7196 ahead of the ANZ Business Confidence survey for May at 11:00 AEDT and Building permits for April at 11:30 AEDT.
Oil prices climbed on Monday following the easing of restrictions in China as well as the European Union closing in on a plan to ban imports of Russian crude. Both WTI and Brent crude rose +1.82% and +1.88% to US$117.17 and US$121.67 a barrel. Iron ore futures climbed +1.53% on Monday and are trading a further +1.63% higher at US$137.30 early this morning. Gold edged +0.08% higher on Monday to US$1,885.23 with silver -0.63% lower to US$21.97 while Bitcoin surged +7.19% to US$31,257.
Economic data:
- Australian Business Confidence (MoM May) 11:00
- Australian Building Permits (MoM Apr) 11:30
- Chinese PMI (MoM May) 11:30
- German Unemployment (MoM May) 17:55
- Eurozone Inflation (MoM May) 19:00
- U.S. Consumer Confidence (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.
