U.S. equities reversed initial gains to finish lower on Monday, weighed by Apple’s plans to slow hiring and spending to cope with a potential downturn.
The S&P500 declined -0.84% weighed by health care -2.15% and technology -1.03% while energy gained +1.96% with a rise in oil prices. The Dow Jones also retreated -0.69% along with the Nasdaq Composite -0.81% and Russell 2000 -0.34% with the VIX rising +4.42% to 25.30. The announcement from Apple to slow hiring and spending follows a similar move by Alphabet last week, weighing on sentiment that the continued strength in the jobs market may soon end adding weight to the economy will likely enter a recession. Elsewhere Goldman Sachs shares rose +2.51% after posting a smaller than expected -48% decrease in quarterly profit with investment banking revenue declining -41% to US$2.14 billion with CEO David Solomon noting the market environment has become more “complicated” due to macroeconomic conditions and geopolitics.
In economic data, U.S. homebuilder sentiment fell to the lowest level since May 2020 with the NAHB survey decreasing to 55 from 67 previously compared to estimates of 65. Confidence slipped as mortgage rates hover near the highest levels since 2008 and homes become less affordable with inflation eroding buying power while bottlenecks and rising costs are causing some builders to halt construction. Treasury yields rose with the 2-year rate +4.8 basis points higher at 3.168% along with the 10 and 30-year rates by +7 and +8.3 basis points respectively. Breakeven inflation rates rose with the price of oil with the 1-year rate climbing +15 basis points to 3.781%. Markets continue to price in further rate hikes by the Federal Reserve with a further 0.75% increase expected next week with rates viewed as peaking at +3.5% in February before expectations of rate cuts from May to finish 2023 at 3.045%.
European equities closed higher missing the turn lower in U.S. markets although pared gains after Gazprom was said to have declared force majeure on several European buyers, signalling it intends to keep gas supplies capped. Investors will be watching closely to see if the Nord Stream 1 pipeline resumes flows on Thursday after 10-days of scheduled maintenance or where gas continues to be weaponised as part of the ongoing conflict in Ukraine. The Euro Stoxx 600 rose +0.93% along with the DAX +0.74%, CAC +0.93% and FTSE100 +0.90% with benchmarks higher across the region. The ECB meeting is in focus on Thursday where the central bank is expected to raise rates by +0.25% and +0.50% in September as the central bank deals with a worsening energy crisis, a likely worsening recession as well as political turmoil in Italy. The Euro rose +0.63% to 1.0144 along with the Pound, +0.82% to 1.1952 with 10-year government bond yields across the region generally higher.
*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 lower this morning with ASX200 futures down -22 points or -0.33% to 6,559. The index rose +1.23% on Monday with materials +2.38% and financials +1.44% boosting the index with sentiment also tracking U.S. futures higher during Asian trading. Also supporting a risk-on mood was China’s pledge to maintain finance to the stricken property sector to avert a wave of defaults on planned projects with the banking regulator instructing banks to lend to eligible developers. Shares in Nuix closed -13% lower after saying its 2022 revenue will decline as much as -14% to between $151-154m with EBITA expected to be just $10-12m weighed by substantial legal costs. Shares in Suncorp rose +6.1% after ANZ agreed to buy its banking business for $4.9 billion with ANZ shares in a trading halt pending a $3.5 capital raise to fund to acquisition.
Oil prices rose on concerns of a worsening energy crisis in Europe as well as Saudi Arabian ministers insisting their policy decisions will be taken according to market logic within the OPEC+ coalition which includes Russia despite U.S. officials confident Persian Gulf producers will raise output. Both WTI and Brent crude rose +4.58% and +4.46% to US$102.05 and US$105.68 a barrel respectively. Iron ore futures in Singapore rose +4.37% on Monday lifted by China’s actions to support the property sector and are trading a further +1.68% higher this morning at US$102.40. Gold edged +0.06% higher to US$1,709.22 an oz along with silver +0.08% and Bitcoin +2.66% to US$21,487.
Economic data:
- U.K. Employment (3-months May) 14:00
- Eurozone Inflation Final (MoM Jun) 19:00
- U.S. Home Building Permits (MoM Jun) 22:30
- BoE Governor Bailey Speech 01:00
- Fed Brainard Speech 04:35
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.
