U.S. equities were little changed on Friday while Treasury yields rose after stronger than forecast employment data for June helped cement expectations of a +0.75% rate increase by the Federal Reserve in July.
For the month of June, +372k jobs were added compared to estimates of +265k although the prior reading was revised slightly lower to +384k from +390k previously. The unemployment rate remained steady at +3.6% with the participation rate dipping slightly to 62.2% missing estimates for a modest increase to 62.4%. Average hourly earnings rose +0.3% over the month as forecast, rising +5.1% over the year, modestly above expectations of +5.0%. The data confirms the U.S. labour market remains tight for now despite growing concerns of a recession, empowering the Federal Reserve to maintain its intensity in fighting inflation. Pricing based on futures markets shows a +0.75% rate increase is priced in for July, likely followed by a +0.5% increase in September and the Federal Funds rate is expected to finish the year at +3.47%.
The S&P500 edged -0.08% lower trading in a narrow range on Friday in weak breadth with only +32% of stocks trading higher, and health care +0.27% along with technology +0.07% the only sectors in positive territory. The Dow Jones also finished -0.15%, the Russell 2000 was little changed while the Nasdaq Composite edged +0.12% higher, still, the VIX retreated -5.52% to 24.64. The 2-year Treasury yield climbed +9.2 basis points to +3.109%, as did the 10 and 30-year yields up +8.5 and +6.2 basis points respectively. Key spreads across the yield curve remained inverted, with the 2-10 and 5-10 spreads inverted by -1.9 and -3.9 basis points respectively, highlighting concerns around a recession in the coming months.
European equities were generally higher as investors turn their attention to Q2 earnings season as profit downgrades now exceed profit upgrades according to a Citigroup revision index. The Euro Stoxx 600 rose +0.51% along with the DAX +1.34%, CAC +0.44% and FTSE100 +0.10% with most major European benchmarks higher on Friday. Ahead in data this week, investors will be focused on Eurozone economic sentiment for July on Tuesday followed by the final reading of German inflation data on Wednesday for the 12 months to June. U.K. GDP for the 3 months to May is also released on Wednesday along with Eurozone industrial production year-on-year to May.
*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 higher this morning with ASX200 futures finishing +20 points or +0.30% at 6,597 on Friday. The index rose +0.45% on Friday boosted by materials +1.23% and energy +2.11% with both sectors benefiting from reports China was considering a 1.5 trillion yuan bond sale expected to be used for infrastructure projects to stimulate growth. St Barbara shares climbed +9.6% on news it met its full-year production guidance, with its June quarter cash balance rising +24% to $98 million. Local investors will be focused on the release of the Westpac consumer confidence index for July on Wednesday, followed by employment data on Thursday. For the month of June, +30k jobs are forecast to be added, down from +60.6k in May with the unemployment rate expected to edge lower to +3.8%. The Australian dollar finished +0.34% higher on Friday at 0.6861 while the 10-year bond yield was +1 basis point higher at 3.479%.
Oil prices also finished higher on Friday with news of Saudi Arabia boosting prices for oil sent to Asia suggesting tight demand offsetting concerns of lower demand on recessionary concerns. Both WTI and Brent crude were +2.01% and +2.26% higher at US$104.79 and US$107.02 a barrel. Base metals were lower for the week with aluminium down -0.31% along with copper -3.01%, lead -0.88%, nickel -1.11% and tin -4.83% while zinc rose +2.31%. Iron ore futures in Singapore were -0.55% weaker on Friday and are a further -1.74% lower this morning at US$110.95. Gold rose +0.13% on Friday to US$1,742.48 an oz along with silver +0.49% to US$19.32 with Bitcoin rising +1.09% although is -4% weaker over the weekend at US$20,972.
Economic data:
- China New Yuan Loans (MoM Jun) 18:00
- Fed William Speech 04:00
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.
