U.S. equities declined on Tuesday although pared larger losses after resuming trading following Monday's Labor Day public holiday.
The S&P 500 fell -0.41% on Tuesday trimming larger losses, with communications and energy declining by -1.26% and -1.06% respectively. The Dow declined by -0.55% while the Nasdaq dropped -0.74% to 11544.91. Economic data was mixed, with the ISM services report results showing an improvement, rising from 56.7 in July to 56.9 in August. The ISM report is commonly used to assess the state the economy, as services make up more than two-thirds of the economy. In contrast, the S&P global PMI report showed a decline in services, dropping 7% to 43.7 in August. Analysts at Blackrock Investment Institute weighed in their opinion on the possibility of a recession, “We think getting inflation back to central bank targets means crushing demand with a recession. That’s bad news for risk assets in the near term”. The yield on the US 10-year bond surged by 14 basis points to 3.342 while the VIX index was up +3.54% to 26.91.
Markets in Europe closed higher on Tuesday, after the announcement of Liz Truss being appointed the new Prime Minister. The Euro Stoxx 600 gained +0.17%, while the FTSE was up +0.2%, the CAC +0.2% and the DAX rose by +0.9%. The new PM faces uphill challenges of a looming economic recession, soaring deficits, and industrial strife. Investors are nervous over the PM’s proposal for a revival through tax cuts and providing a $116 billion for improving the energy sectors. Investors in Europe will have a keen interest in the upcoming ECB meeting. Analysts on Wall Street are forecasting a hike in the interest rate by 75 basis points, as an energy crisis looms over the European economy.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is set to open lower today as ASX futures were down 33 points or 0.48% to 6784. The index declined -0.37% on Tuesday with utilities and materials declining by -1.86% and -0.7% respectively weighed by concerns over COVID-19 restrictions in China, offsetting gains in energy of +0.5% and technology +0.67%. The market reacted to RBA’s decision to continue to raise the interest rate by 0.5% to 2.35%, while announcing further hikes should be expected in the months that follow. The Chief Economist for BetaShares, David Bassanese, was not surprised, stating, “It was as expected, no new revelations in the statement” with the central bank highlighting the path of further rate increases would be dependent on economic activity. Economic data released on Tuesday was a ray of positivity, showing the country’s current account was in a surplus at $18.3 billion for the quarter ending June. Coal exports soared to above $100 billion for the first time, Whitehaven Coal share price was up +3.7% and Yancoal also rose +6.3%. Paladin Energy gained +7.8% when Japan announced plans to restart nuclear power plants. Super Retail Group lost 6.2% after going without the rights of a 43c/share final dividend. The yield on the Australian 10-year bond was little changed at 3.645%, while the local currency lost -1% to 67.31. In focus today is Q2 GDP data expected to show the economy expanded at a +3.5% rate over the 12 months and +1% over the quarter, an modest improvement from Q1.
In commodities, oil prices fell with WTI Crude down -0.21% to $86.68 while Brent declined by -3.23% to $92.65. OPEC+ announced further cuts in output by 100,000 barrels a day for October, leading to a rise in oil futures. In metals, prices soared with the US and Europe increasing their purchase of industrial metals in light of supply chain concerns due to the ongoing Russia-Ukraine conflict. Spot gold and spot silver rose by +0.57% & 1% to a price of $1,700 & $17.97 respectively. Copper rose +0.5% to $7,653.5, nickel rose +4.53% to $21458 while SGX iron ore lost -0.7% to $US97.30. The price of bitcoin continued to decline by -4.4% to $18,855
Economic Calendar
- Australian GDP Growth Rate (YoY Q2) 11:30
- China Balance of Trade (MoM Aug) 13:00
- Eurozone GDP (YoY Q2) 19:00
- Japan Coincident Index and Leading Economic Index (MoM Jul) 22:30
- US Fed Barkin Speech 23:00
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.
