U.S. equities were mixed on Thursday as investors await Friday’s all-important non-farm payroll data.
The S&P500 edged -0.08% lower with consumer discretionary +0.54% and technology +0.42% outperforming while energy fell -3.60% on weaker oil prices. The Dow Jones was also -0.26% lower along with the Russell 2000 -0.13% while the Nasdaq Composite gained +0.41% and the VIX retreated -2.32% to 21.44. In focus tonight is the release of non-farm payroll data for July expected to show +250k jobs were added, down from +372k in June with the unemployment rate expected to remain unchanged at +3.6%.
Treasury yields were mixed with the 2 and 10-year rates lower by -1.8 and -1.3 basis points respectively while the 30-year yield rose +3.1 basis points, with key spreads remaining inverted. Cleveland Fed President Loretta Mester reiterated the central bank’s promise to bring down inflation by raising interest rates noting “We raise interest rates, and then when we get up to a sufficiently high level where we’ve seen that compelling evidence, then we hold them there for a while, and then we can bring them back down, right as we get inflation closer to goal”. In economic data, U.S. initial jobless claims for the week ending 30th of July rose +260k in line with estimates, while continuing claims for the week ending 23rd of July were above estimates of +1.37m with a reading of +1.416m. The data points to early indications that the labour market is beginning to weaken after having remained resilient despite tightening financial conditions, a sign that would likely be well received by Federal Reserve officials.
European equities rose on Thursday with the Euro Stoxx 600 up +0.18% along with the DAX +0.55%, CAC +0.64% and FTSE100 +0.03%. The Pound edged +0.09% higher to 1.2160 as the Bank of England raised interest rates by +0.5% to 1.75%, the largest increase since 1995. The central bank warned the British economy will spend the next year in a stagflationary recession raising its inflation forecast for the fourth quarter to +13.3 on a year-on-year basis up from 11% previously and current levels of 9.4%. Unemployment is also forecast to rise to +6.3% by 2025 compared with the current historically low rate of +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 edge higher at the open this morning with ASX200 futures up +8 points or +0.11% to 6,893. The index reversed initial gains to finish little changed on Thursday with a -1.07% decline in materials offsetting a +0.60% gain in financials, while energy paced losses down -2.24% while technology outperformed +1.87%. According to Perpetual’s head of investment strategy Matt Sherwood the potential for lower equity prices remains, noting “the yield curve is inverted, and I think that’ll lead to some pretty sizeable downgrades for what I still think are optimistic earnings expectations. The earnings risk is not priced in and that’s going to be the Achilles heel for the market over the second half of the year, at the moment I just think it’s a short squeeze”. The Australian dollar is +0.29% higher overnight at 0.6968 while the 10-year government bond yield rose +7 basis points on Thursday to 3.144%.
Oil prices extended a recent drop with both WTI and Brent crude -2.86% and -3.33% lower at US$88.09 and US$93.56 respectively. Iron ore futures in Singapore were -3.84% lower on Thursday although are trading +1.22% higher this morning at US$107 with copper rising +0.35% overnight. Gold rose +1.45% to US$1,790 an oz benefiting from a weaker USD despite a rise in real yields, silver also gained +0.59% while Bitcoin was -3.55% lower at US$22,500.
Economic data:
- Fed Barkin Speech 22:00
- Canadian Employment (MoM Jul) 22:30
- U.S. Non-farm Payrolls (MoM Jul) 22:30
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.
