U.S. equities rose sharply on Friday, helping to pare a weekly loss although closed lower for a sixth consecutive week.
Following heavy selling recently that pushed indices to oversold levels, the S&P500 rose +2.4% on Friday, as did the Dow Jones +1.5% and Nasdaq100 +3.8%. With a downtrend in place from all-time highs and the S&P500 within touching distance of a bear market, often defined as a -20% decline many analysts and market commentators remain sceptical about any rallies, suggesting risks remain to the downside. Goldman Sachs analysts led by David Kostin lowered their year-end target for the S&P500 to 4,300 from 4,700 previously, citing concerns about rising rates and the impact on economic growth. In a note, the analysts outline their base case of avoiding a recession and suggest that the worst has already been priced into the risk asset prices. “In one downside scenario, a recession would push the S&P 500 11 per cent lower to 3600. Our economists assign a 35 per cent probability of recession in the next two years.”
Ahead for the week, investors will focus on retail sales for April due at 22:30 on Tuesday expected to show a rise to +0.8% over the month from +0.5% previously. Several Federal Reserve members are also due to give speeches, with the focus on a speech by Fed Chair Jerome Powell early Wednesday morning Australian time. Thursday will see the release of the weekly initial jobless claims for May 14th to provide further insights into the labour market, forecast to modestly decline to +200k from +203k the prior week. The final focus for the week will be the Conference Broad’s leading index for April, expected to be unchanged over the month following a +0.3% gain in March.
European equities were also broadly higher, with sentiment lifted following strong gains in U.S. futures and gains in cash markets once trading opened. The Euro Stoxx 50 climbed +2.5%, as did the DAX +2.1%, CAC +2.5% and FTSE100 +2.6%. In economic data for the week, Tuesday will bring the second estimate of Q1 GDP for the Eurozone expected to show the economy grew +0.2% in the second quarter from +0.3% previously but rose +5% over the year from +4.7% previously. Wednesday will then bring core inflation data expected to show prices rose +3.5% over the year to April from +2.9% in March and headline prices rise +7.5% from +7.4% previously. Finally, the flash consumer confidence measure for May is due on Friday expected to remain subdued at -21.5 compared to -22 in April.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set for a positive open this morning with ASX200 futures up +54 points or +0.8% to 7,110 while the index gained +1.9% on Friday, paring a weekly loss to -1.8%. The ASX took a positive lead from Wall Street where equities reversed a sharp decline of -1.9% to be little changed as investors took comfort from comments by San Francisco Fed President Mary Daly and Chairman Jerome Powell backing +0.5% increases at the next two meetings. Buy now, pay later stocks gained after Nasdaq listed Affirm surged +23% following stronger than forecast earnings, which helped Block rise +15% following a -17.6 decline on Thursday, with Zip also rising +5.9% after a -6% decline the prior session. Ahead in economic data for the week, Tuesday will see the release of the RBA policy minutes at 11:30 AEDT, followed by the Westpac leading index for April on Wednesday and wage-price data. For the year to the end of Q1 wages are forecast to have risen +2.5% from +2.3% previously, while unemployment data on Thursday is forecast to show +25k jobs were added and the unemployment rate edge lower to +3.9% from +4.0% in March. Finally, the Federal Election will take place over the weekend, with most polls forecasting a win by the Labour party.
Both WTI and Brent crude were higher on Friday, rising by +4% and +3.7% respectively to US$110.35 and US$111.46 a barrel. Iron ore weakened -0.2% on Friday to US$127.35 a ton, with copper also gaining +1.82%. Gold weakened -0.7% to US$1,809.76 an oz, while silver was +2% higher at US$21.10 while Bitcoin has risen +5.65% over the weekend to US$31,023.
Economic data:
- Chinese Fixed Asset Investment, Industrial Production and Retail Sales (YoY Apr) 12:00
- Fed Williams Speech 22:55
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.
