Global equities declined on Wednesday with bond yields rising as traders recalibrate rate-hike expectations.
The S&P500 retreated -0.78% weighed by declines in technology -0.96% and consumer discretionary -1.05% with 83% of stocks lower. The Dow Jones was also -0.88% lower along with the Nasdaq Composite -0.56% and Russell 2000 -0.62% while the VIX retreated -1.3% to 25.87. U.S. equity investors should be braced for more pain according to Morgan Stanley’s chief U.S. equity strategist Mike Wilson who noted “June probably was the low for the average stock…but index directions are down for at least next quarter or two” citing that trends in operating margins was worse than expected and will continue.
Treasury yields climbed ahead Friday’s all-important non-farm payrolls. The 2-year yield rose +3.9 basis points to 3.481% as did the 10 and 30-year rates by +8.3 and +7.6 basis points respectively. The ADP private employment report on Wednesday showed fewer than expected jobs were added in August, with 132k jobs compared to estimates of +300k. Economists expect Friday’s employment report to show +298k jobs were added over the month of August with the unemployment rate remaining stable at +3.5% with average hourly earnings expected to rise +5.3% over the 12 months, up modestly from +5.2 previously.
European equities were also lower after data showed inflation reached the highest level since the Eurozone was created. Over the 12 months, headline prices rose +9.1%, modestly above expectations of +9% with core prices up +4.3% also above expectations of +4.1%. The Euro Stoxx 600 fell -1.12% along with the DAX -0.97%, CAC -1.37% and FTSE100 -1.05% with major benchmarks across the region lower. Also adding to concerns was Russian gas supplies with a halt at the key Nord Stream pipeline for the next three days. Following the inflation data, investment banks Goldman Sachs, Bank of America and JP Morgan are calling for a +0.75% rate increase by the ECB next week saying faster than expected inflation will convince officials to react with more aggression.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is expected to open -72 points lower or -1.04% with ASX200 futures down to 6,836 this morning. The index pared initial losses on Wednesday to finish -0.17% lower with a +1.11% gain in financials helping to offset a -1.40% decline in materials while energy was -2.88% lower following declines in oil. Shares in Webjet climbed +8% after forecasting a cash surplus of more than $100 million in the first half of financial year 2023. The group said bookings were tracking at 95% of pre-pandemic levels and all three divisions were profitable so far during the current financial year which ends in March. The Australian dollar is -0.18% lower at 0.6842 overnight ahead of the final reading of PMI data for August due at 09:00 AEDT while the yield on 10-year government bonds was little changed on Wednesday at 3.595%.
Oil prices extended recent weakness with both WTI and Brent crude -3.0% and -2.89% lower at US$88.89 and US$95.01 a barrel. The move coincides with a decline in European natural gas which fell as much as -13% for contracts for delivery in the Netherlands after the European Union said it met its gas storage filing goal two months ahead of target. Separately, Gazprom said it would suspend gas sales to French utility Engie from Thursday because of a disagreement over payments. Iron ore futures in Singapore rebounded +3.37% on Wednesday although are slightly lower by -0.21% this morning to US$100.40 with copper -0.86% lower. Gold declined -0.78% to US$1,710 an oz along with silver -2.41% to US$17.98 while Bitcoin rose +1.17% to US$20,209.
Economic data:
- Australian PMI Final (MoM Aug) 09:00
- German Retail Sales (YoY Jul) 16:00
- Eurozone PMI Final (Mom Aug) 18:00
- Eurozone Unemployment Rate (MoM Jul) 19:00
- U.S. Initial Jobless Claims (27th Aug) 22:30
- U.S. ISM Manufacturing PMI (MoM Aug) 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.
