US equities declined on Tuesday, while the RBA increased the interest rate by 0.5%.
The S&P 500 fell -0.41%, 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 showed 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 makes 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. Utilities and materials declined by -1.86% and -0.7% respectively, 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.” 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 it’s nuclear plant. Super Retail Group lost 6.2% off it’s share price after going without the rights of a 43c/share final dividend. The yield on the Australian 10-year bond was 3.645, while the local currency lost -1% to 67.31.
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
- AUS GDP Growth Rate YoY 1130
- China Balance of Trade (AUG) 1300
- Japan Coincident Index and Leading Economic Index (JUL) 1500
- EURO GDP Growth Rate 1900
- US MBA Mortgage Applications 2100
- US Balance of Trade (JUL) 2230
- US Fed Barkin Speech 2300
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.
