US equities finished mixed on Tuesday with bond yields little changed ahead of release of CPI data for March tonight.
United States
The average analyst estimate for inflation data compiled by Bloomberg is for headline prices to ease to 5.1% and core prices to edge higher to 5.6% over the 12-month period, and while both monthly readings are expected to moderate, they remain uncomfortably above target on an annualized basis. In a note ahead of the data release, TD Securities said they “forecast inflation to print 0.1 per cent/0.4 per cent month over month for headline/core CPI” and expected core inflation to remain at a 0.4% monthly pace throughout Q2. Lower-than-expected figures would likely trigger a rally across risk assets and repricing of interest rate expectations lower. However, it is probable that the data will show headline prices eased while core prices remain sticky, which given the importance of core prices which so far remain sticky, would only add to concerns of a stagflationary environment developing. Also in focus overnight will be the release of the latest Federal Reserve policy minutes as investors look for signs officials may be beginning to switch to a more easing stance.
3m – 10yr Yield Spread & Recessions (Red)
The S&P500 was unchanged overnight, the Nasdaq Composite weakened -0.43% while the Dow Jones and Russell 2000 rose 0.29% and 0.80% respectively with the VIX also 0.69% higher at 19.10. The 2-year Treasury yield was 1.5 basis points higher at 4.022% with the 10-year also 0.9 basis points higher while the US Dollar index retreated -0.41%. Investors continue to price a further 0.25% increase by the Federal Reserve in May which is likely to mark the start of a pause by the central bank as these become guided by data. New York Fed President John Williams overnight said that one more increase was a “reasonable starting place”. Meanwhile, the spread between the 3-month Treasury bill yield and 10-year yield continues to move lower, now at the most inverted level in history. The spread has previously been highlighted by Fed Chair Jerome Powell as a key indicator of a forthcoming recession, and while this time can always be different, at a minimum it signals rates will need to be lower in the future to offset weakening growth.
Europe
European equities rose after resuming trading from the Easter holidays, with France’s CAC 40 reaching a record high, driven by a rally in luxury companies following China’s reopening. The Euro Stoxx 600 rose 0.6% along with the DAX 0.37%, CAC 0.89%, and FTSE100 0.57%. With the focus also now turning towards earnings, the following chart from Citi Group analysts and Bloomberg highlights that analysts remain more optimistic about European earnings than their US counterparts, with Citi’s European ex-UK revision index rising in recent weeks while the US measure has moved lower. According to Joachim Klement of Liberum Capital “Many investors seem to expect that the slide into recession will lead to more earnings downgrades, but we think markets in Europe, though less so in the US, have already priced in these downgrades”.
Citi Group Earnings Revisions Index
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open higher this morning with ASX200 futures 25 points or 0.34% higher at 7,357. The index climbed 1.26% on Tuesday, boosted by both financials and materials which gained 1.15% and 2.24% respectively. Shares in BHP Group (BHP) climbed 2.1% after Vietnam’s competition regulator approved its proposed acquisition of OZ Minerals, with gold miner Newcrest Mining (NCM) rising 5.2% after US Newmont lobbed a revised takeover offer 16% higher than the initial offer from February, valuing its shares at $32.87 with NCM’s shares closing at $29.74. In economic data, the Westpac Consumer Confidence index for April improved to 85.8 from 78.5 in March, boosted by easing price pressures and the latest pause in rate increases from the Reserve Bank of Australia. Elsewhere, in a welcome sign for easing inflation across the region, Chinese inflation rose 0.7% over the 12 months to March, below forecasts of 1%, declining -0.3% over the month compared to expectations to remain unchanged.
Commodities
Oil prices are higher overnight with both WTI and Brent crude up 2.24% and 1.57% respectively to US$81.53 and US$85.50 a barrel despite an unexpected increase in API crude stockpiles of 377k barrels compared to forecasts of a -1.3m barrel draw. Oil prices have risen strongly over the past month, with the past fortnight driven by an unexpected cut of OPEC+ production. Iron ore futures in Singapore rose of Tuesday, up 1.92% although are -0.84% lower this morning at US$118.75 with copper gaining 1.08% overnight. Gold rose 0.61% to US$2,003 an oz with silver also 0.76% higher at US$25.06 and Bitcoin rose a further 3.6% to US$30,192 extending year-to-date gains of 82%.
Bitcoin
Economic Data
Wednesday 12th April
US Inflation (YoY Mar) 22:30
BoE Governor Bailey Speech 23:00
Bank of Canada Rate Decision 00:00
Thursday 13th April
FOMC Minutes 04:00
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.
