Global equities slumped on Friday, prompted by growing fears of recessions.
The S&P 500 fell by -1.7% due to broad-based selling, weighed down by energy which sunk by -6.75%, consumer discretionary was down -2.29%, and materials declined by -2.05%. The Dow was down -1.62% while the Nasdaq lost -1.8% as did the Russell 2000 -2.48% with the VIX rising +9.40% to 29.92. Fed chairman Jerome Powell stated that the Fed would continue to raise interest rates in the coming months to fight off rampant inflation. Chief Investment Strategist at BMO Wealth Management Yung-Yu Ma commented, “The reality is a heavy cloud will continue to hang over equities in the coming weeks and months until inflation eases significantly.” Analysts at Bank of Montreal forecast a high probability of a US recession, “Bluntly, it makes little sense to veer far from the Fed’s stated expectations at this time since it appears policymakers have strapped on the blinders and will keep at it until inflation has convincingly cracked.”
European indexes receded on the probability of a looming recession with U.K. equities falling sharply as yields surged with investors reacting to the new government’s proposed fiscal plans. The Euro Stoxx 600 index closed -2.02% lower, with all sectors lower. The biggest laggards were energy which was down -5.88%, consumer discretionary which fell -2.92%, while financials declined -2.65%. Analysts at the Bank of America commented on their outlook for inflation in Europe, “We now expect inflation to peak at 9.4% in the next couple of prints. On average, we forecast inflation of 8.1% in 2022 (+30bp) and 5.3% in 2023 (+60bp)”, while continuing to add, “Our forecasts for core inflation move marginally higher to 3.6% in 2022 (+10bp) and 2.6% in 2023 (+15bp), driven by goods inflation that was more resilient than we had been expecting in the past two months.” The Dax was down -1.97%, as consumer discretionary, healthcare, and information technology declined by -3.78%, -2.32%, and -2.18% respectively. U.K. Prime Minister Lizz Truss’ announced the UK’s largest tax cuts since 1972, adding to concerns over inflation and the Bank of England needing to tighten rates further to offset such actions. The FTSE declined -1.97%, dragged by energy which fell -5.37%, real estate falling -4.61%, and materials down -4.05%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is set to open lower today, as ASX futures were down 82 points or -1.25% to 6478. The ASX 200 declined by -1.87% due to broad-based selling on Friday, closing at 6574.7. The biggest declines came from consumer discretionary and information technology sinking -4.44% each, while real estate fell by -3.56%. Interest rate-sensitive technology stocks felt the brunt of the ASX loss. Block, Afterpay’s parent company, fell by -8.9%, Sezzle fell -9%, Cettire was down -8.6% and Xero lost -7.8% of its share price. Mineral Resources fell -3.3%, Rio Tinto was up +1.9%, BHP group rose by +0.6%. Whitehaven Coal and New Hope Cope gained +2.7% and 2.8% respectively. Woodside energy rose by +2%. Lithium stocks receded gains made earlier in the week, with Lake resources losing -6.6%, Liontown Resources fell -4.6% and Pilbara Minerals declined -1.8%. In economic data, the manufacturing and services PMI report results were a breath of fresh air at 53.9 and 50.4 respectively, compared to forecasts of 53.8 and 50.2. The yield on the Australian 10-year bond was 3.9%, while the local currency weakened 1.8% to 0.6528.
In commodities, oil prices sunk with WTI and Brent crude down -5.69% and -4.76% to $78.74 and $86.15 respectively. In precious metals, spot gold lost -1.63% to $1,643.94, spot silver was down by -3.9% to $18.87. News of China’s demand for steel failed to boost iron ore prices, as SGX Iron ore declined -0.30% on Friday and is down a further -1.96% this morning at US$96.05, while nickel was down -4.69% to $23,411, and the price of bitcoin rose +0.34% to $19.081.
Economic Calendar:
- Germany Ifo Business Climate (MoM Sep) 18:00
- Chicago Fed National Activity Index (MoM Aug) 22:30
- ECB President Lagarde Speech 23:00
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.
