U.S. equities traded mixed on Thursday, although pared large declines into the final hour of trading.
The S&P500 recovered losses of up to -1.78% on Thursday to finish just -0.13% lower in mixed breadth with 58% of stocks rising as a -1.14% decline in technology offset gains in health care +0.92% and consumer discretionary +0.79%. The Dow Jones weakened -0.33%, while the Nasdaq Composite edged +0.06% higher paring a drop of -2.25% and the Russell 2000 gained +1.24% with the VIX retreating -2.43% to 31.77 declining for a third consecutive session. The major indices pared declines into the final hour of trading, typically when large institutions are most active with investors taking comfort in comments from the head of the Federal Reserve Bank of San Francisco Mary Daly. Speaking on Bloomberg, Daly who is a non-voted on policy this year said a +0.75% rate increase is “not a primary consideration” while adding the economy is in a strong place with withstanding tightening and expects financial conditions to tighten further.
Treasury yields declined across the board with the 2-year rate down -66.6 basis points to 2.572%, as did the 10 and 30-year rates down -6.3 and -2.8 basis points respectively and the closely watched 10-year yield seems to have made an intermediate high for now. Breakeven inflation rates declined, partially reversing a rise on Wednesday after the higher than forecast CPI print, with both the 5 and 10-year rates down -11.6 and -10.2 basis points to 2.918% and +2.633% while the U.S. dollar strengthened +0.89% to 104.77. Producer prices, which are a leading indicator of inflation were mixed in April data showed on Thursday, with core prices rising +0.4% over the month compared with estimates of +0.7% while headline PPI was in line with forecasts of +0.5% down from revised higher +1.6% in March.
European equities were lower having tracked weakness in U.S. futures. The Euro Stoxx 600 declined -0.75% with all sectors but communication services +0.50% down for the day, weighed by materials -1.64% and energy -2.51%. The DAX also declined -0.64%, as did the CAC -1.01% and FTSE100 -1.56% with benchmarks lower across the region. U.K. GDP over a year to Q1 rose less than forecast with the economy expanding at +8.7% from +6.6% previously, missing estimates of +9%. Over the month of March the U.K. economy modestly contracted -0.1% as a cost of living crisis squeezes real incomes a trend that is expected to continue in the coming months which may prompt the Bank of England to pause its tightening cycle after four back-to-back hikes. The Euro weakened -1.27% to 1.0380 and the Pound was also -0.40% lower at 1.2202 against a stronger USD.
*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 relatively flat open with ASX200 futures down just -6 points or -0.09% to 6,907. The index weakened -1.75% on Thursday with all sectors negative and 92% of stocks lower with materials -1.80%, technology -8.7% and financials -0.75% weighing the most heavily. The weakness followed heavy selling on Wall Street after inflation data was higher than expected, suggesting price pressures are not moderating as quickly as hoped. Cloud-based accounting provided Xero fell -11.6 to its lowest level since March 2020 after reporting revenue of NZ$1.1 billion a +29% increase for the year ended March 31 compared with +18% growth the same time last year with the net loss shrinking to NZ$9.1 million. Electronics design software company Altium sank -16.7%, as did Life360 -12% and Megaport -9.7%. The Australian dollar is -1.18% weaker overnight at 0.6856 while the 10-year government bond yield weakened -7.9 basis points on Thursday to 3.426%.
Oil prices edged higher overnight despite OPEC cutting its forecast for oil demand in 2022 with both WTI and Brent crude +0.40% and +0.37% higher at US$106.13 and US$107.91. In its monthly report, OPEC said world demand would rise by +3.36m barrels per day in 2022, down +310k for its previously forecast citing ongoing geopolitical developments in Eastern Europe as well as COVID-19 restrictions. Iron ore futures in Singapore weakened -4.7% on Thursday and are a further -0.46% lower this morning at US$125. Gold fell -1.65% on Thursday to US$1,821.82 with silver -4.14% lower at US$20.67 weighed by a stronger USD and rise in real yields, while Bitcoin edged +0.51% higher to US$28,546 following a sharp drop on Wednesday.
Economic data:
- Eurozone Industrial Production (YoY Mar) 19:00
- U.S. Consumer Sentiment (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.
