US equities were mostly lower on Thursday as investors await Friday’s non-farm payroll data for May.
United States
Ahead of the release, the S&P500 was little changed just -0.02% lower along with the Nasdaq Composite -0.09% and Russell 2000 -0.70% while the Dow Jones rose 0.20%. Bond yields were modestly higher after retreating the prior few sessions, with the 2-year up just 0.2 basis points and the 10-year 1.2 basis points higher.
Tonight’s employment report is expected to show 180k jobs were added in the month, up slightly from the 175k in April, with the unemployment rate forecast to remain unchanged at 3.9%. Average hourly earnings will also be a focus, expected to have risen 3.9% over the year. A reading below expectations would be a welcome sign, alleviating recent concerns that inflation will take longer to bring down to target, although a significant miss to the downside would only add to concerns the economy was significantly weakening following a sizeable slowing in GDP. Such a scenario would complicate the outlook for the Federal Reserve, particularly if inflation remains stubborn, as well as mix the outlook for corporate earnings.
Europe
European equities were higher on Thursday after the ECB cut interest rates by 0.25% as forecast. This represents the first rate cut to the Main Refinancing Rate since 2016, and while investors are trying to figure out the likely speed and depth of cuts, ECB President Christine Lagarde provided little insight. In the post meeting press conference, Lagarde noted that while the central bank had now shifted to a “dialling-back phase” the governing council would remain data dependant and take a meeting-by-meeting approach, with no pre-commitment to any particular path. The central bank also provided its latest economic forecasts, raising projections for both economic growth in 2024 and inflation in 2025. Inflation in 2024 is now expected to rise at 2.8%, before moderating in 2025 to 2.2% and 2% in 2026. Meanwhile, growth for the Eurozone is expected to rise 0.9% in 2024, accelerating to 1.4% in 2025 and 1.6% in 2026.
Lagarde’s statement makes sense from the perspective of the central bank, there is little incentive for policymakers to suggest more rate cuts are coming soon and risk a re-acceleration of inflation. Investors disagree based on interest rate swaps, which are pricing nearly three more rate cuts by April 2025. The Euro Stoxx 600 rose 0.66% along with the DAX 0.41%, CAC 0.42% and FTSE100 0.47%.
Australia
The ASX is expected to rise this morning, with ASX200 futures up 18 points or 0.23% to 7,852. The index rose 0.68% on Thursday as Wall Street rising to record highs boosted sentiment, driving broad-based gains on the ASX with all sectors positive, led by technology 1.41% and 70% of stocks higher. Shares in CBA rose 1.1% to a new record high, with all major and regional banks higher. A notable underperformer was IDP Education, which lost -7.5% after warning of a large reduction in revenue due to restrictive policies in Australia and around the world for students. SkyCity, the operator of Auckland casino tumbled -13.7% after cutting guidance for net profit to between NZ$120-125m for financial year 2024, citing a weak economy and delaying a hotel project.
Commodities
Oil prices extended a rebound overnight with both WTI and Brent crude 2% and 2.02% higher respectively. Iron ore futures in Singapore were 1.81% higher on Thursday and extending gains by 3.35% this morning to US$112.30 and copper advancing 1.56%. Gold is 0.888% higher at US$2,376 an oz, along with silver 4.38% while Bitcoin was -0.74% lower.
Economic Calendar
Eurozone GDP (QoQ Q1) 19:00
Canadian Employment (MoM May) 22:30
US Employment (MoM May) 22:30
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
