Equities declined on Monday while bond yields rose after firmer economic data and recent gains leaving equities stretched in the short term.
United States
A stronger-than-expected ISM non-manufacturing PMI report for November following Friday’s payroll data was seen as keeping the Federal Reserve on its tightening path, with good economic data bad for stocks currently. The PMI report for November rose to 56.5 from 54.4 previously while estimates had called for a decline to 53.3. According to Bloomberg economists, the report was driven by business activity over the holding period, with the prices sub-index confirming inflationary pressures remain within services. The ISM is more closely watched than the alternative S&P report which showed the final reading for services in November was in contractionary territory with a reading of 46.2 with the composite measure also in contractionary territory. Elsewhere, building permits for the month of October were lower than expected, declining -1.4% compared to estimates of a 3.9% increase. Economic data remains mixed, although the full effects of the Federal Reserve’s tightening are yet to fully show up in data, with forward looking indicators continuing to suggest economic growth is deteriorating, increasing risks as inflation remains well-above target leaving the Federal Reserve in a difficult position.
The S&P500 declined -1.79% along with the Dow Jones -1.40%, Nasdaq Composite -1.93 % and Russell 2000 -2.78% with the VIX rising 8.34% to 20.65. Several technical indicators have suggested the market recently had become overbought and vulnerable to a correction, a healthy part of trending moves. The percentage of S&P500 members trading above their 50-day moving average recently cycled from less than 3% to over 90%, with reading below 10% or above 90% signalling the market is oversold or overbought. Treasury yields were higher across the board with the 2-year rate up 13 basis points to 4.402% and both the 10 and 30-year rates also gained 11.3 and 6.6 basis points respectively.
Europe
European equities were also lower with economic data pointing to slowing growth. Retail sales for the Eurozone declined -2.7% over the 12 months to October, modestly below forecasts of -2.6% and -1.8% over the month compared to estimates of -1.7%. Elsewhere the final PMI reports for November showed the economy remained in contractionary territory with the S&P composite measure at 48.5 as readings below 50 signal contraction. The Euro Stoxx 600 declined -0.41% along with the DAX -0.56% and CAC -0.67% while the FTSE100 rose 0.15% protected by a weaker Pound -0.83%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX looks set to follow Wall Street lower this morning with ASX200 futures down -49 points or -0.67% to 7,294. The index rose 0.33% on Monday although masked broader weakness with the equal weight index down -0.18%. In focus today is the RBA rate decision at 2:30 pm AEDT where the central bank is widely expected to rise 0.25% to 3.10% with some analysts suggesting this may be the final rate increase before a pause. Major miners benefited from a rise in the iron ore price following reports Beijing may downgrade the threat classification of the current wave of COVID. FMG firmed 6.9% along with RIO 3.7%, BHP 2.3% and CIA 2.2%. Gas company Warrego Energy jumped 11.7% after determining Hancock Energy’s revised $0.28 takeover offer was superior to Beach Energy’s bid of $0.25.
Commodities
Oil prices declined overnight with both WTI and Brent crude down -3.29% and -2.99% respectively to US$77.34 and US$83.01 a barrel. In metals, iron ore rose 2.29% in Singapore on Monday although is -1.71% lower this morning at US$106.50 with copper -1.74% lower. Gold retreated -1.64% overnight to US$1,768 an oz, silver was also -3.93% lower at US$22.23 and Bitcoin -0.94% lower at US$16,953.
Economic data:
- RBA Rate Decision 14:30
- Canadian Balance of Trade 00:30
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.
