U.S. equities pared early losses on Tuesday finishing modestly lower as investors await a speech by Fed Chair Jerome Powell on Wednesday.
United States
Traders expect Powell to announce a further interest rate hike at a slower pace, in his upcoming speech while signalling that rates need to continue to rise in order to tackle above target inflation. New York Life Investments economist and portfolio strategist Lauren Goodwin commented, “Volatility and risk premia are likely to remain elevated as long as the Fed is fighting inflation in a growth slowdown.” Meanwhile, the dollar continued to decline, mainly on speculation, fueling the rumor of the Fed to slow its pace of interest-rate hikes. The S&P 500 declined by -0.16%% on Tuesday along with the Nasdaq Composite -0.59% while the Dow Jones was little changed and the Russell 2000 rose 0.31% and the VIX closed -1.71% lower at 21.83.
Economic data revealed the consumer confidence index in November continued to decline, down to 100.2 from 102.2 previously implying consumers are less likely to spend their income on high ticket items in the face of rising inflation and interest rate hikes. The report showed signs of the labour market beginning to cool although consumers still see jobs at least as plentiful as in 2019. On Friday, the focus will be on the non-farm payrolls report for November expected to show 200k jobs were added in the month with the unemployment rate stable at 3.7%. Oxford Economics commented, “Consumers’ increased pessimism is consistent with our view that consumer spending and the broader economy are downshifting to a much slower growth path amid high inflation, rapidly rising interest rates, and financial market volatility”.
Europe
European equities were mixed on Wednesday as investor assessed the potential for China’s economy reopening as well as inflation for Germany, Spain and Belgium which was below expectations. German inflation for the 12 months to November rose 10%, below forecasts to remain unchanged at 10.4%, declining -0.5% over the month versus -0.2% forecast. The softening in price gains adds weight to the view inflation may have peaked globally although remains uncomfortably above target, keeping central banks on a tightening path. The Euro STOXX 600 index was modestly lower by -0.13% along with the DAX -0.19% while the CAC edged 0.06% higher and the FTSE100 rose 0.51%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX 200 is expected to open flat this morning with ASX futures unchanged at 7260. The ASX 200 index rose by +0.33% on Tuesday to close at 7253.3. Materials, healthcare and information technology boosted the index up, rising +1.68%, +0.56% and +0.25% respectively. Real estate was the biggest laggard down by -0.82% followed by consumer discretionary edging -0.48% lower. Fisher & Paykel jumped +9.84%, while KFC merchant Collins Foods share price dropped -19.8% due to rampant inflation impacting wages and food costs. Rio Tinto and the BHP Group gained 3.5% and 2.1% respectively. Software company Gentrack climbed +14.9% on higher sales and profits. The local currency gained strength against the US Dollar by rising +0.6% to 0.66, while the yield on the 10-year Australian bond was 3.60%.
Commodities
WTI and Brent Crude rose by +1.79% and 0.18% to $78.62 and $83.34 respectively. Spot gold rose +0.47% to $1,479.48, spot silver +1.51% to $21.25. Copper edged up +0.55%, nickel rose +0.82% and SGX Iron Ore rose 2.61% on Tuesday although is -0.30% lower this morning. The price of Bitcoin was 1.2% higher to $16,424. TD securities on the outlook for commodities in 2023 noted “Crude oil prices are projected to move higher into 2023, with base metal prices expected to post relatively modest cyclical declines in the early part of the year, followed by a robust recovery.”
Economic Calendar:
- RBA Kearns Speech 11:00
- Australian Business Confidence (November) 11:00
- Australian Monthly CPI Indicator (October) 11:30
- China NBS Manufacturing PMI (November) 12:00
- ECB Non-Monetary Policy Meeting 19:00
- German Unemployment Rate (November) 19:55
- Eurozone Inflation (YoY November) 21:00
- US MBA Mortgage Applications 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.
