U.S. equities reversed losses on Thursday, edging higher before Friday’s highly anticipated non-farm payrolls report.
The S&P500 ended a four-session losing streak, reversing initial losses of up to -1.30% before finishing +0.30% higher. Energy shares were notable underperformers with the sector down -2.30% as the price of oil continued to drop. The Dow Jones also rose +0.46% while the Nasdaq Composite was -0.26% lower and the Russell 200 fell -1.15% with the VIX -1.20% lower to 25.56. Shares in Nvidia slumped -7.67% after warning new rules governing the export of artificial intelligence chips to China may affect hundreds of millions of dollars in revenue. Meanwhile, Bank of America noted their Sell Side Indicator had reached levels where subsequent 12m S&P 500 returns were positive 94 percent of the time (vs. 82 percent over the full history) and the median 12m return was 20 percent.
Treasury yields continued to climb ahead of tonight’s non-farm payroll report. The 2-year yield rose +1.9 basis points to 3.512% as did both the 10 and 30-year rates by +6.1 and +6.8 basis points respectively. Economists are forecasting +300k jobs to have been added in the month of August and continued strength would add weight to the Federal Reserve’s resolve to raise interest rates. Data on Friday showed initial jobless claims for the week ending August 27th were lower than expected at 232k compared to estimates of 248k.
European equities finished lower on Thursday with the Euro Stoxx 600 down -1.80% along with the DAX -1.60%, CAC -1.48% and FTSE100 -1.86% tracking U.S. markets lower although closing before the reversal in U.S. equities. Also weighing on sentiment was the announcement of China locking down the city of Chengdu to contain a covid outbreak. Economic data on Thursday showed the Eurozone unemployment rate was modestly lower at 6.6% in July as forecast, while the prior figure from June was revised slightly higher to 6.7%. Elsewhere the final reading of manufacturing PMI for Germany and the Eurozone showed activity remained narrowly in contractionary territory at 49.1 and 49.6 modestly below estimates suggesting economic growth in the region is likely to slow.
*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 higher this morning with ASX200 futures up +23 points or +0.34% to 6,820. The index fell -2.02% on Thursday although a significant portion of this was attributed to BHP going ex-dividend. According to CoreLogic’s home value index, national prices roped -1.6% in August with Sydney and Melbourne falling -2.3% and -1.2% respectively, and both REA Group and Domain lost -2% and -4.8% respectively with Dexus and Charter Hall also -3.1% and -4% lower. According to Jarden economist Carlos Cacho, “Looking forward, we continue to expect a peak-to-trough decline in house prices of 15 to 20 percent – the largest correction since the 1980s, with prices down 10 percent in 2022 and 5 to 10 percent in 2023”. The Australian dollar is -0.77% lower overnight at 0.6789 while the 10-year bond yield rose +9 basis points on Thursday to 3.685%.
Both WTI and Brent crude extended recent weakness, down -3.53% and -3.71% to US$86.39 and US$92.09 a barrel respectively. Iron ore futures in Singapore tumbled -5.12% on Thursday over concerns of lockdowns and is a further -0.43% lower this morning at US$95.05 with copper also -2.9% lower. Gold fell -0.81% overnight to US$1,697.24 an oz, silver was also -1.04% lower at US$17.81 with Bitcoin -0.51% lower at US$20,094.
Economic data:
- U.S. Non-farm Payrolls (MoM Aug) 22:30
- U.S. Factory Orders (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.
