Global equities tumbled on Tuesday as U.S. inflation data for August missed expectations, leaving the Federal Reserve on path to maintain its aggressive tightening.
The markets in the US sank on Tuesday, after reports showed inflation was higher than forecast. The S&P 500 fell –4.32% in broad-based selling, with the largest declines in communications, technology and consumer discretionary, down by –5.64%, -5.35% and –5.22% respectively. The Dow shed -3.94% or 1,276 points to 31,1104, while the Nasdaq Composite dropped by -5.16%. Share prices of technology stocks also declined, with Netflix down -6.2%, Amazon -5.9%, Apple -5.1%, Alphabet -4.7%, Microsoft -4.4% and Tesla -3.3%. The CPI report for August showed inflation rose by 8.3% while core inflation rose 6.3% year on year missing estimates of +8.1% and +6.1% respectively, with consumers paying more for necessities such as food, rent, healthcare, and power, despite a reduction in gas prices.
Investor focus will now shift to the Fed’s meeting next week, where analysts forecast interest rates to be raised by another 75 basis points. CIO of fixed income at BlackRock Inc. Rick Rieder, commented, “Overall, today was a surprising day against the trend of what had appeared to be some moderation across most indicators of growth and pricing pressure, so the Fed’s job is clearly not finished.” Bond yields in the US soared with the yield on the 2-year bond up by +16.8 basis points to +3.74%, and the yield on the 10-year bond was up 5.2 basis points to +3.41%. The VIX index jumped 14.24% to 27.27.
In Europe, the markets were down after the release of economic data. The Europe Stoxx 600 declined -1.49% due to broad-based selling. The biggest losses were seen by the interest rate-sensitive real estate and technology sector, declining by -3.82% and -3.32% respectively. The FTSE fell by -1.2%, the CAC -1.4% and the DAX -1.6%. Economic data showed the Euro ZEW Sentiment index fell from -54.9 in July to -60.7 in August, while inflation in Germany rose 7.9% year on year for the month of August in line with expectations. Elsewhere, U.K. employment rose less than expected, increasing +40k over the three months to July compared to expectations of a +125k gain while the unemployment rate declined to 3.6% from 3.8% previously.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX 200 is expected to open lower today following the declines in the US markets. ASX futures were down -158 points or -2.25% to 6,855. The index rose +0.65% on Tuesday with real estate and consumer discretionary were the biggest gainers, rising by +1.59% and +1.17% respectively, offsetting the declines in healthcare of -0.75% and technology of -0.28%. Link group’s share price plunged -20.1% over fears a proposed $2.5 billion takeover from Canada’s Dye & Durham would be wrecked by the British financial regulatory demanding Link set aside 306 million pounds to cover potential fines linked to the collapse of a Woodford investment fund in 2019. Elsewhere shares in Ramsay fell -10.35% after KKR said it would not bump its prior cash price of $88 under an alternative proposal mentioned last week. Star Entertainment Group’s share price rallied +4.5% after a regulator’s ruling in its favor. In energy, Pilbara Minerals gained +3.7% as the price of its lithium stock rose due to higher demand. Core lithium also added +4.7%, Allkem rose +3% and Mineral Resources gained +1%. Whitehaven Coal’s shares fell +1.6% after it’s announcement of a share buyback. Lynas Rare Earths lost -0.3% after disclosing water supply disruptions impacting its Malaysian plant. In economic data, the Westpac Consumer Index rose from 81.2 in August to 84.4 in September. The yield on the Australian 10-year bond rose by +6 basis points to 3.565, while the local currency lost -2% of its value to $67.54.
Oil prices edged lower paring larger declines with WTI crude down -0.14% to $87.67 and Brent Crude -0.49% to $93.55 on reports the Biden administration was discussing plans to replenish the U.S. strategic petroleum reserves. In precious metals, spot gold lost -1.3% of its to US$1,702.57 an oz, with spot silver also -2.25% lower to US$19.35 and Bitcoin slumped -9.33% to US$20,317. Elsewhere in metals, SGX Iron Ore gained 1.21% on Tuesday although is -0.29% lower this morning at US$103 with copper -1.88% lower.
Economic Calendar:
• UK Inflation Rate (YoY Aug) 16:00
• Euro Industrial Production (YoY Jul) 19:00
• US MBA Mortgage Applications (09/Sep) 21:00
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.
