U.S. equities declined to the lowest levels since 2020 on Thursday, weighed by a hawkish tone from a group of Federal Reserve officials ahead of Friday’s PCE inflation data.
The S&P 500 was down -2.11% on broad-based selling with the biggest laggards utilities, consumer discretionary, and real estate declining -4.07%, -3.38%, and -2.87% respectively. The Dow lost -1.54%, the Russell 2000 dropped -2.35% and the Nasdaq sank -2.84%. Technology stocks were down, with Tesla falling -7%, Apple down -5.7%, Amazon -3.8%, and Microsoft -2.4%. James Bullard, the St. Louis Fed President stated that investors will have now understood that they can’t escape additional rate hikes in coming months. The VIX was up by +5.33% to 31.81. The yield on the US 2-year bond rose by 4.9 basis points to 4.18%, while the 10-year bond yield rose 4.4 basis points to 3.776% and the 30-year bond yield traded at 3.71%. In economic data, new jobless claims fell by 16k to 193k in September, below the forecasts of 215k.
Better-than-expected second-quarter core PCE and personal consumption numbers also add to the probability of the Fed continuing an aggressive monetary policy tightening. The final reading of U.S. GDP for Q2 showed the economy contracted at a -0.6% annualized rate while core prices rose +4.7% over the quarter compared to estimates of +4.4%. In focus tonight is PCE inflation data for August expected to show core prices edged higher to +4.7% from +4.6% over the 12 months while headline prices are expected to ease to +6% from +6.3% previously.
The Euro STOXX 600 fell -1.7% as all sectors closed lower. Consumer discretionary, information technology, and real estate were the biggest laggards declining by -3.2%, -2.88% and -2.67% respectively. The FTSE fell -1.8%, the CAC declined -1.5% and the DAX -1.7%. Prime Minister Liz Truss spoke to BBC radio, announcing the government would proceed with spending plans, “We had to take urgent action to get our economy growing, get Britain moving, and also deal with inflation, and of course, that means taking controversial and difficult decisions”. The UK 10-year bond yield rose 13 basis points to 4.13%. BetaShares senior portfolio manager Chamath De Silva commented on the Bank of England’s recent actions to buy back treasury bonds, “UK pension funds were on the verge of a crisis due to margin calls on interest rate derivatives creating a forced liquidation spiral in UK government bonds”…“this left the BoE with no choice but to announce emergency gilt purchases to prevent a run on the system”. In economic data, the final reading of consumer confidence sentiment fell from -25 last month to -28.8 in September as expected, weighed by the rising costs of living. The European Commission also announced a fresh round of sanctions to include a price cap of Russia’s oil exports, after it announced annexation plans to parts of Ukraine. Eurozone inflation data is also released tonight for September expected to show core prices rising to +4.7% from +4.3% over the 12 months and headline prices rising to +9.7% from +9.1% 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 today, with ASX futures down 25 points or -0.38% to 6,522. The ASX closed +1.4% or 93 points higher to 6555 on Thursday, ending a 6-day slide. The biggest gains were in energy which jumped +2.78%, materials rose +2.17% and communications gained +1.83%. Premier Investments’ share price leaped 14.6% after announcing a rise in profits of 4.9% to $285.2 million, beating forecasts. AGL closed flat after disclosing an acceleration of closing its Loy Yan power station. Nuix fell -4.2% after announcing the company would defend itself against legal proceedings from the Australian Securities Commission. Iress dropped -17.3% after reducing profit guidance to range between $54 to $58 million. Woodside Energy was up by +3.1%, BHP Group +2.5% and Rio Tinto rose +1%. In economic data, the consumer price index inflation showed a rise by +6.8% in August, modestly lower than 7% in July. The yield on the Australian 10-year bond was-16 basis points lower at 3.93%, while the local currency declined -0.37% to 0.6498.
Investigations into the Nord Stream pipeline found 4 leaks which investigators are attributing to Russian Sabotage. In commodities, oil prices fell with WTI and Brent Crude declining -0.77% and -0.73% to $81.53 and $88.67 respectively. Spot gold edged higher by +0.05% to $1,660.03, spot silver fell by -0.36% to $18.83, and the price of bitcoin declined by -0.6% to $19,370. Iron ore futures in Singapore rose +0.62% on Thursday and are a further +1.24% higher this morning at US$96.65 with copper also +1.94% higher.
Economic Calendar:
- Chinese Manufacturing PMI (MoM Sep) 11:30
- U.K. GDP Final (QoQ Q2) 16:00
- German Employment (Mom Sep) 17:55
- Eurozone inflation (YoY Sep) 19:00
- U.S. PCE Inflation (YoY Aug) 22:30
- University of Michigan Consumer Sentiment Final (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.
