US equities pared larger gains on Wednesday after the latest policy minutes from the Federal Reserve affirmed the central bank's commitment to tame inflation.
Officials in December noted, “an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the committee’s reaction function, would complicate the committee’s effort to restore price stability”. Additionally, the minutes showed officials remained concerned that inflation would become entrenched should the labour market remain resilient, adding additional focus to Friday’s upcoming employment report for December. While no officials see rate cuts in 2023, financial markets continue to price rates peaking around 5% in July 2023 before modest cuts in the latter half of 2023 and early 2024. Elsewhere, in economic data the ISM manufacturing PMI report for December slowed to 48.4 in line with estimates from 49 previously, with readings below 50 signaling contraction. The report showed improving supply chain conditions, a decline in input prices as well as slower demand, all of which will be welcomed by the Federal Reserve as it seeks to cool inflation by dampening demand.
The S&P500 pared larger gains after the release of the policy minutes although once again rose into the close, up 0.75% after initially rising as much as 1.28%. All sectors rose and 82.5% of stocks rising as a rebound in Apple and Tesla following falls on Tuesday helped to lift the index. The Dow Jones also gained 0.40% along with the Nasdaq Composite 0.69% and Russell 2000 1.23% with the VIX retreating -3.49% to 22.10. Treasury yields were lower with the 2-year rate down -0.6 basis points to 4.364% as both the 10 and 30-year rates declined -4.5 and -2.9 basis points respectively.
European equities were also higher after encouraging inflation data from France which missed estimates while the final reading of services PMI’s across the region improved slightly more than expected but remained in contractionary territory. Over the year to December, French inflation rose 5.9% from 6.2% previously, missing estimates of a rise to 6.4% and declined -0.1% over the month compared to forecasts of a 0.4% gain. All eyes will be on Friday’s inflation data for the Eurozone, expected to show core inflation rose 5% over the 12 months with headline inflation expected to increases 9.7%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
To commodities, oil prices slumped overnight with both WTI and Brent crude down -4.94% and -4.95% respectively, while natural gas rose 4.19%. Oil prices remain under pressure over concerns of rising COVID cases in China as well as expectations of milder winter weather. Palladium led gains across precious metals, rising 4.97% followed by gold which rose 0.74% to US$1,853 an oz while platinum and silver lagged -0.52% and -1.28% respectively.
Looking to the Australian market, ASX200 futures are pointing to a higher open this morning, up 26 points or 0.37% to 7,025. The index climbed 1.63% on Wednesday with energy -1.32% the only negative performer. Coal stocks rose after reports China was discussing plans to resume imports of Australian coal, with WHC up 3.28% along with NHC 1.55% and SMR 1.75%. A2 Milk rose 4.1% despite Morningstar removing the company from its best ideas list, noting the company was still likely to benefit from increased market share in China despite a shrinking market.
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.
