Global equities declined on Thursday with sentiment weighed by growth concerns after the ECB became the latest central bank to signal tightening policy to combat inflation.
The S&P500 declined -2.38% in broad-based selling with 95% of stock lowers and all sectors negative led by communications -2.75%, technology -2.72% and financials -2.61%. The Dow Jones also fell -1.94%, as did the Nasdaq Composite -2.75% and Russell 2000 -2.12% with the VIX spiking +8.89% to 26.09. TSLA rose +0.29% after a bullish note from UBS noting the companies operational outlook has never been stronger amid record-high order backlogs and two new gigafactories coming up with analysts commenting “We expect Tesla’s vertical integration in semiconductors, software and battery to result in superior absolute growth and profitability in the years ahead”. That offset an announcement from the US National Highway Traffic and Safety Administration that it is upgrading its probe into 830k Tesla vehicles with the advanced driver assistance system Autopilot, a move which is required before potentially seeking a recall.
Treasury yields rose in line with moves in Europe ahead of Friday’s all-important CPI print and University of Michigan consumer sentiment survey for June. The 2-year yield rose +3.9 basis points to 2.813%, as did the 10-year yield by +2.4 basis points to +3.044% while the 30-year yield edged -0.8 basis points lower to +3.164% with the U.S. dollar index rising +0.75% to 103.31. In economic data, initial jobless claims for the week to June 4th rose more than expected to +229k from +202k previously, surpassing estimates of +210k.
European equities declined with yields across the region climbing after the ECB announced it would end asset purchases this month as widely expected and signalled it will increase rates by +0.25% in July and potentially larger increase later in the year as soon as September. The central bank also revised up its inflation forecasts while lowering its growth outlooking, revising its inflation forecast for 2022 higher to +6.8% compared with +5.1% forecast in March and increasing its 2024 forecast to +2.1% from +1.9%. Simultaneously growth forecasts were revised lower to +2.8% this year from +3.7% previously, adding to concerns of a stagflationary environment.
The Euro Stoxx 600 declined -1.36% along with the DAX -1.71%, CAC -1.40% and FTSE100 -1.54% with benchmarks lower across the region. Yields gained in the wake of the meeting with the increase in inflation forecasts meaningful as they add to the case for more aggressive tightening. 10-year yields across the region climbed between +2.7 basis points in Sweden to +22.2 basis points in Italy, while the Euro declined -0.92% to 1.0617 and the Pound was -0.35% lower at 1.2493.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to follow global markets lower with ASX200 futures down -55 points or -0.78% to 6,964. The index fell -1.42% on Thursday with 83% of stocks lower and all sectors but energy +0.56% negative. Major banks were lower on concerns about how much lenders will need to set aside for bad loans as rates rise with CBA down -2.59%, as was NAB -2.28%, WBC -3.69% and ANZ -2.26%. Magellan was the top performer rising +2.9% after co-founder Hamish Douglas announced he would return as a consultant, providing investment insights across geopolitical and macroeconomic issues. The Australian dollar is -1.33% lower at 0.7098 while the 10-year government bond yield rose +6 basis points to 3.606%.
Oil prices edged lower overnight with both WTI and Brent crude down -0.57% and -0.53% to US$121.44 and US$122.95 a barrel respectively. Iron ore futures in Singapore fell -2.08% on Thursday and are down a further -1.50% to US$139.60 in early trade this morning. Gold weakened -0.29% to US$1,847.95 with silver also -1.63% lower at US$21.69 while Bitcoin was little changed at US$30,161.
Economic data:
- Australian Consumer Inflation Expectations (MoM Jun) 11:00
- Chinese Inflation (YoY May) 11:30
- Canadian Unemployment (MoM May) 22:30
- U.S. Inflation (YoY May) 22:30
- ECB President Lagarde Speech 23:45
- U.S. Consumer Sentiment (MoM Jun) 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.
