US equities were mixed on Monday following economic data that pointed to slowing price pressures, while oil surged after OPEC+’s production cuts.
United States
The ISM manufacturing PMI for March was lower than expected, declining to 46.3 from 47.7 previously surpassing estimates of a more modest decline. In an encouraging sign for price pressures, the sub-components of prices paid, new orders and employment were all below 50, signaling contraction. While this is a sign that the US economy is beginning to slow along with employment, it is also a welcome development in the fight against inflation, suggesting that aggressive rate hikes are having the desired impact and inflation should continue to cool.
ISM Manufacturing PMI Sub-components (MoM)
The weaker report helped Treasury yields reverse earlier gains after a surge in oil stoked fears of inflationary pressures. The 2-year yield reversed a gain of 9.5 basis points before finishing -6.1 basis points lower for the session at 3.967 with both the 10 and 30-year rates also lower by -5.6 and -2.2 basis points respectively. Equities had a mixed performance on Monday, with the S&P500 up 0.37% along with the Dow Jones 0.98% while the Nasdaq Composite was -0.27% lower although traded up off session lows while the economically sensitive Russell 2000 was little changed. Elsewhere, the VIX edged -0.8% lower to 18.55, a level typically associated with a low degree of fear by investors.
Europe
European shares were mixed overnight as investors assessed the outlook for inflation with oil prices rising sharply. The Euro Stoxx 600 was down just -0.03% along with the DAX -0.31% while the CAC rose 0.32% along with the FTSE100 0.54%. Despite the rise in oil, 2-year government bond yields were mostly lower across the region as concerns of slowing growth outweigh the potential impact on inflation. According to Joachim Klement of Liberum Capital, “the current market recovery is still on fragile ground and all that is needed is a series of negative news like OPEC+ to turn markets…but for now, we remain optimistic that the banking crisis calms down and central banks will not hike much more, thus removing some of the largest headwinds of recent months”. Meanwhile, analysts at JP Morgan remain skeptical that an upswing in activity in the first quarter because of falling gas prices and China’s reopening will translate into an acceleration in the second half of 2023, recommending investors remain underweight equities. In economic data, the final reading of manufacturing PMI for the Eurozone in March was modestly higher than estimates at 47.3 having declined from 48.5 previously, remaining in contractionary territory that points to an economic slowdown.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is set to edge higher this morning with ASX200 futures up just 4 points or 0.06% to 7,251. The index rose 0.63% on Monday, boosted by a rally on Wall Street to end the week closing at the highest level since the collapse of Silicon Valley Bank which sparked concerns of a financial crisis. Oil producers gained following OPEC+’s production cuts with Woodside Energy (WDS) up 2.7% along with Santos (STO) 2.5% and Karoon Energy (KAR) 6.5%. A fall of lithium carbonate prices in China of -4.8% weighed on lithium miners with Pilbara Minerals (PLS) down -3.6% along with Allkem (AKE) -0.93%. The Australian dollar is 1.51% higher at 0.6786 ahead of today’s RBA rate decision on which economists are split whether the central bank will keep rates unchanged or increase by 0.25%. Either way, financial markets continue to suggest that the RBA has reached peak rates and will shortly begin moving towards easier policy over the coming months.
Commodities
Both WTI and Brent crude jumped 6.28% and 6.21% respectively overnight to US$80.42 and US$84.85 a barrel. The move follows a shock production cut from OPEC+ which includes Russia totaling 1.15m barrels per day of production beginning in May until the end of 2023 surprising analysts who had expected the cartel to keep output steady. In metals, iron ore futures in Singapore weakened -3.61% on Monday and are a further -0.46% lower at US$120.25 this morning with copper also -1.2%. Gold rose 0.778% to US$1,984 benefiting from a softer USD and weaker real yields, while silver was -0.48% lower along with Bitcoin -1.74% to US$27,588.
Brent (orange) & WTI (Black) crude oil
Economic Data
Tuesday 4th April
RBA Rate Decision 14:30
US Factory orders (MoM Feb) 00:00
Wednesday 5th April
Fed Cook Speech 03:30
Fed Mester Speech 08:45
This article was written by Oliver Gordon, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
