Global equities rallied on Tuesday as investors assessed the outlook for earnings and speculation markets may be closer to bottoming with Q2 U.S. earnings so far averting more pessimistic concerns.
The S&P500 rallied +2.76% in broad-based buying with 98% of stocks rising and all sectors positive led by communications +3.64% and industrials +3.58%. The Dow Jones also gained +2.43% along with the Nasdaq Composite +3.11% and Russell 2000 +3.50% with the VIX retreating -3.16% to 24.50. Shawn Cruz, head trading strategist at TD Amertrade noted “Earnings, so far, there’s been some caution and there’s been a little bit of dialing down of expectations, but I don’t think the worst-case scenarios are really in play anymore….we’ve heard from enough companies that have had a big enough footprint that if there is something at the macro level severely impacting these businesses, it would have shown up in a lot of these earnings”. Elsewhere the latest Bank of America monthly fund manager survey showed fund managers’ allocation to stocks plunged to the lowest levels since 2008 and exposure to cash rose to the highest since 2001 as pessimism about the U.S. economy reached a “dire” level.
Treasury yields were higher with the 2-year rate up +6.3 basis points to 3.237% along with the 10 and 30-year yields by +4.1 and +2.5 basis points respectively while the U.S. dollar index retreated -0.62%. Key spreads in the yield curve remained inverted, signalling investors remain concerned about the outlook for economic growth, expecting rate cuts to follow the current Fed hiking cycle.
European equities rallied on a report that Russia will restart gas flows via the Nord Stream 1 pipeline on Thursday although a senior official had said the European Commission didn’t’ expect Russia to restart supplies to Germany as retaliation for sanctions. Elsewhere banking stocks rising as speculation grows the ECB will lift rates by +0.5% when it meets on Thursday with swaps implying a 50% chance for either a +0.25% or +0.50% increase. The Euro Stoxx 600 climbed +1.38% along with the DAX +2.69%, CAC +1.79% and FTSE100 +1.01% with benchmarks higher across the region. The Pound gained +0.39% to 1.2000 after better-than-expected employment data with +269 jobs added over the 3-months to May compared to estimates of +170k with the unemployment rate remaining steady at +3.8%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open decisively higher this morning with ASX200 futures +80 points higher or +1.22% at 6,627. The index slipped -0.56% on Tuesday weighed by a decline in health care -2.27% and materials -0.88% while energy outperformed +2.45%. Weighing on growth shares was the release of the RBA’s latest policy minutes pointing to the likelihood of further rate increases and expectations inflation is likely to continue to rise throughout the remainder of the year. Those comments were echoed by RBA deputy governor Michele Bullock noting “We’ve got to get it up to some sort of concept of what we call the neutral interest rate…we don’t know where that particularly is, but we know it’s a fair bit higher than where we currently are”. The Australian dollar is +1.28% higher overnight at 0.6899 supported by the risk-on move in markets while the 10-year bond yield rose +7.4 basis points on Tuesday to 3.510%.
Oil prices were higher overnight with both WTI and Brent crude up +1.17% and +0.83% respectively to US$103.80 and US$107.15 with crude barrels continuing to fetch a premium to futures signalling a tight market. Iron ore futures in Singapore were -3.49% lower on Tuesday although are trading +1.29% higher this morning at US$98.45. Gold rose +0.15% to US$1,711.71 an oz along with silver +0.32% to US$18.76 and Bitcoin +8.49% to US$23,311.
Economic data:
- RBA Lowe Speech 09:10
- Australian Westpac Leading Index (MoM Jun) 10:30
- U.K. Inflation (YoY Jun) 16:00
- Canadian Inflation (YoY Jun) 22:30
- Eurozone Flash Consumer Confidence (MoM Jul) 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.
