U.S. equities closed lower on Thursday in broad-based selling on expectations of a higher terminal Fed Fund rates.
The S&P 500 declined -1.13%, weighed down by energy, information technology and utilities which declined -2.54%, -2.52%, and -2.37% respectively. The Dow slipped -0.58% along with the Nasdaq Composite -1.43% and Russell 2000 -0.772% with the VIX little changed at 26.27. Analysts predict the Fed to continue to raise interest rates by 75 basis points at the September meeting to battle surging inflation that has gripped the US economy and is now pricing a terminal interest rate of 4.25-4.50% before cuts in late 2023. The Chief economist at Comerica Bank, Bill Adams commented, “Data in hand means the Fed is most likely to raise the fed funds by three-quarters of a percent at its decision next week”.
Economic data released on Thursday showed an improvement in retail sales by +0.3%, beating forecasts to remain unchanged while the prior figure for July was revised lower to -0.4% having been reported as initially unchanged. Elsewhere, initial jobless claims for the week ending 10th of September were better than expected at 213k compared to estimates of 226k suggesting the employment market remains robust for now. Meanwhile, the Philadelphia manufacturing index declined by -9.9 % in September compared to +6.2% in August. The yield on 2-year Treasuries rose +6.8 basis points to 3.858% as did the 10-year and 30-year yields up +4.1 and +0.9 basis points respectively. The main focus for economic data on Friday is the University of Michigan consumer sentiment survey for September expected to show a modest improvement to 60 from 58.2 previously.
In Europe, markets closed lower weighed by concerns over inflation and expectations of further hawkish policy by central banks. The Euro Stoxx 600 closed -0.65% lower with energy, technology and consumer discretionary being the biggest laggards down -1.92%, -1.76% and -1.17% respectively. The CAC and DAX fell by -1% and -0.6% respectively, while the FTSE edged +0.1% higher benefiting from a weaker Pound which slipped -0.62% to 1.1468. In focus tonight is the final reading of inflation for the Eurozone for August, expected to show core inflation rose +4.3% over the year and headline inflation rose +9.1%, up from +4.0% and +8.9% previously.
*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 lower as futures were down by -0.59% or 40 points to 6,803. The index rose +0.21% on Thursday with gains in financials +1.11%, energy +3.72% and industrials +0.29% enough to offset weakness in other sectors.. In energy, Coronado Global Resources rose by +.1%, New Hope Corp. climbed +6% followed by Whitehaven Coal going up +4.6%, Woodside Energy gained +4.3% and Beach energy adding +3.3%. Link fell -0.9% despite a takeover approval by Toronto-based Dye & Durham. The employment report for August remained resilient giving the Reserve Bank of Australia little reason to slow the pace of monetary tightening. The report showed a modest increase in the rate of unemployment to 3.5% in August compared to 3.4% in July, despite an additional 33.5k jobs being added in line with expectations. Senior Economists at ANZ commented, “An overall solid labour market report adds to the case made by the strong NAB business survey and US CPI data earlier this week for the RBA to hike the cash rate 50 basis points in October”. The yield on the Australian 10-year bond rose +4.7 basis points to 3.68% while the Australian dollar is -0.71% weaker overnight at 0.6700.
In commodities, oil prices slumped with WTI crude and Brent falling by –3.71% and -3.39% to $85.20 and $90.89 respectively after the U.S. Department of Energy said its plans to restock oil reserve does not include a trigger price and deliveries won’t happen until after fiscal year 2023. Elsewhere, news out of China stated an easing of COVID-19 lockdowns in Chengdu and Sichuan and despite this news, iron ore futures in Singapore finished little changed on Thursday although are -0.60% lower at US$100.10 this morning and copper prices were -0.93% lower. Spot gold retreated -1.94% to US$1,664 an oz weighed by an increased in real yields, silver also slipped -2.37% to US$19.16 and Bitcoin was -0.81% lower at US$19,784.
Economic Calendar
• China Retail Sales YoY and Industrial Production YoY (AUG) 12:00
• Eurozone Inflation (YoY Aug) 19:00
• University of Michigan Consumer Sentiment (MoM Sep) 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.
