U.S. equities advanced on Wednesday as bond yields declined despite U.S. producer prices rising to the highest level since 2010 and above analyst forecasts.
The S&P500 climbed +1.12% on Wednesday in broad-based buying with 80% of stocks higher, lifted by technology +1.59%, consumer discretionary +2.51% and communications +1.31%. The Dow Jones also gained +1.01%, as did the Nasdaq Composite +2.03% and Russell 2000 +1.92% with the VIX retreating -10.06% to 21.82. Shares in JP Morgan declined -2.76% after Q1 earnings were marred by a US$524 million loss tied to the market fallout from Russia’s invasion of Ukraine. Comparable adjusted EPS was US$2.63, -3.34% below forecasts of US$2.721, while comparable revenue rose to US$31.59 billion from US$30.349 billion in Q4 2021, +0.48% than the average forecast. Meanwhile, shares in Blackrock rose +0.33% after posting better than expected quarterly profit, benefiting from investors pouring money into various funds. Adjusted profit rose to US$1.46 billion or US$9.52 per share compared with US$8.04 per share previously and the average analyst forecast of US$8.75 per share.
U.S. producer prices rose +1.4% for the month of March from +0.8% previously, higher than the +1.1% expected with core prices also rising and exceeding estimates. Prices rose +11.2% over the year to March, up from +10% previously and again higher than the +10.6% forecast in contrast to slightly weaker CPI figures on Tuesday given producer prices are a leading indicator of inflation. The data reflects intensifying pipeline pressures as a result of the war in Ukraine as well as transportation bottlenecks and labour shortages as manufacturers and producers try to keep up with demand. Still, Treasury yields declined with the 2-year rate down -4.3 basis points to 2.362% as was the 10-year down -2.3 basis points to 2.699% while the 30-year was unchanged at 2.806% while breakeven inflation rates longer than 2-years weakened. Ahead on Thursday investors will also focus on retail sales for March expected to rise +0.6% from +0.3% previously and consumer sentiment for April is expected to be little changed at 59.
European equities were mixed ahead of the start of Q1 2022 earnings while U.K. inflation surged to a three-decade high. The Euro Stoxx 600 edged +0.03% higher, as did the CAC +0.07% and FTSE100 +0.05% while the DAX weakened -0.34%. Ahead of earning, Goldman Sachs has cut their 2022 earnings forecast to 2% from 8% previously, well below the consensus of 13% citing rising energy bills, weaker consumption, supply issues and potential gas disruptions. U.K. inflation climbed +7% to March from a year earlier, higher than the +6.7% forecast and prior reading of +6.2% while core prices rose +5.7% from +5.2% previously, also higher than the +5.4% expected. 10-year government bond yields were lower across the region, echoing moves in the U.S. followed Tuesday’s CPI report, ranging from -4.1 basis points in Switzerland to -0.3 basis points in the U.K. The Euro climbed +0.60% to 1.0893 and the Pound climbed +0.89% to 1.3117. The ECB will make a policy decision at 21:45 AEDT tonight, with no changes expected and analysts suggesting ECB President Lagarde will remain vague on the timing of future rate increases.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open modestly higher this morning with ASX200 futures up +17 points or +0.23% to 7,471. The index gained +0.34% on Wednesday with materials +0.64% and financials +0.20% the largest contributors to gains with breadth mixed as 59% of stocks rose. In New Zealand, the central bank rose rates by +0.50%, the largest increase in 22 years in an effort to control rising inflation which is expected to peak at 7% this year. In economic data, the Westpac consumer confidence index for April edged lower to 95.7 from 96.6 in March with investors focusing on unemployment data today. The average analyst forecast from Bloomberg suggests +30k jobs will be added over the month, with the unemployment rate edging lower to +3.9% from +4.0% previously. The Australian dollar edged -0.07% lower overnight o 0.7451 while the 10-year yield was little changed at 3.074% on Wednesday.
Oil prices rose overnight, extending gains that the war in Ukraine will continue to disrupt supplies with both WTI and Brent crude +3.62% and +4.02% higher at US$104.25 and US$108.85 a barrel. Iron ore futures in Singapore declined -2.50% on Wednesday although are +1.46% higher this morning at US$153.95 as the commodity remains rangebound as investors assess the outlook for China’s COVID-19 restrictions. Gold gained +0.56% to US$1,977.80 overnight, as did silver +1.42% to US$25.73 and Bitcoin +4.35% to US$41,254.
Economic data:
- Australian Unemployment (MoM Mar) 11:30
- ECB Rate Decision 21:45
- U.S. Retail Sales (MoM Mar) 22:30
- U.S. Initial Jobless Claims (9th Apr) 22:30
- U.S. Consumer Sentiment (MoM Apr) 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.
