U.S. equities finished modestly lower on Tuesday weighed by higher Treasury yields while PMI data weakened, signalling business activity remains in contractionary territory.
The S&P500 Global composite PMI report for August showed business activity declined to 45 from 47.7 previously, well below the 50 level that determines either expansion or contraction and the lowest level since May 2020. Manufacturing PMI weakened more than expected to 51.3 compared to estimates of 52 with services falling to 44.1 against estimates of 49.2. The new orders gauge contracted for the second time in three months amid weaker demand at both manufacturers and service providers, prompting employers to scale back their hiring efforts, according to the report. In a positive sign for inflation, price metric eased across both factories and services providers with input price growth decelerating and a gauge of output prices falling to the lowest level in 18 months.
The S&P500 declined -0.22% as declines in health care -1.39% and technology -0.25% offset a +3.62% gain for energy after oil prices rose. The Dow Jones also slipped -0.47% while the Nasdaq Composite was unchanged, the Russell 2000 gained +0.18% with the VIX also +1.3% higher at 24.11. The 2-year Treasury yield weakened -1.2 basis points to 3.295 following the weaker PMI reports, while longer-dated yields rose with the 10 and 30-year rates up by +4.5 and +4.1 basis points.
European equities were lower over concerns of an ongoing energy crisis as winter approaches as well as PMI data that showed business activity contracted for a second consecutive month. Eurozone composite PMI for August declined to 49.2 from 49.9 in July with both manufacturing and services reports weaker citing the cost-of-living crisis as forcing consumers to cut spending while supply constraints hurt manufacturers. Elsewhere, the flash consumer confidence reading for August unexpectedly improved to -24.9 from -27 previously, while analysts had called for a modest decline to -28. The Euro Stoxx 600 weakened -0.42%along with the DAX -0.27%, CAC -0.26%, and FTSE100 -0.61% with most benchmarks across the region lower.
*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 up +12 points or +0.18% to 6,877. The index fell -1.21% on Tuesday weighed by financials -2.05% and consumer discretionary -3.80% while energy outperformed +1.31%. Endeavour Group tumbled -12.3% after reporting a rise in costs alongside higher earnings, with flat margins spooking investors despite profit rising +11.2% for the financial year. Shares in Altium rose +19.75% after reporting revenue that grew +23% to US$220.8m and after-tax profit rising +57% to US$55.5m and expects revenues to grow a further +20% in 2023. In economic data, Australian manufacturing PMI for August weakened modestly to 54.5 from 55.7 previously, while services moved into contractionary territory down from 50.9 to 49.6.
Oil prices climbed overnight following comments by Saudi Arabia on Monday flagging the possibility of cuts to balance a market it describes as “schizophrenic” while several OPEC sources told Reuters on Monday that any cuts are likely to coincide with the return of Iranian oil should it clinch a nuclear deal. Both WTI and Brent crude rose +3.64% and +3.85% respectively to US$93.64 and US$100.19 a barrel. Iron ore futures in Singapore rose +1.50% on Tuesday and are a further +1.95% higher this morning at US$105.25 with copper also +0.92% higher. Gold rose +0.66% to US$1,747 benefiting from a weaker USD, silver also rose +0.67% along with Bitcoin +1.72%.
Economic data:
- U.S. Durable Goods Orders (MoM Jul) 22:30
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.
