US equities climbed on Tuesday following positive economic data that points to economic resilience.
United States
The Conference Board’s measure of consumer confidence for June climbed to 109.7 surpassing estimates of 104 reaching the highest levels since January 2022. Adding to other signs of resilience, new home sales jumped 12.2% in May, the highest level since February 2022 compared to forecasts of a -1.2% decline. Elsewhere, durable goods orders for May also surprised, rising 1.7% over the month compared to estimates of a -1% decline. Economist Mohamed El-Erian noted that “the US economy continues to display impressive resilience in the face of global and policy headwinds…the latest data releases are consistent with my long-held view that there is no reason for the US to fall into recession unless there is a huge exogenous shock and /or another Federal Reserve policy mistake”. Following the stronger data, analysts at Morgan Stanley now view “the bar for July hike is significantly lower than we had initially expected and have added a 25bp hike to our policy path. The revision is a level shift upward to 5.375 per cent fed funds end-23, and 4.375 per cent end-24. We continue to see a soft-landing staving off rate cuts to next year”.
US Consumer Confidence
The S&P500 rose 1.15% amid broad-based buying with 82.3% of stocks higher, and all sectors but healthcare positive. The Dow Jones also gained 0.63% along with the Nasdaq Composite 1.65% and Russell 2000 1.46% with the VIX retreating -3.58% to 13.74. Government bond yields rose following the stronger economic data, with the 2-year yield up 7.5 basis points to 4.755% with both the 10 and 30-year rates 4.3 and 2.8 basis points higher respectively.
Europe
European equities swung between gains and losses before finishing little changed as investors digested hawkish comments from central bankers. At the ECB’s annual forum, President Christine Lagarde said the central bank won’t be able to declare the end of its historic cycle of interest-rate increase anytime soon. Lagarde noted “It is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached… Barring a material change to the outlook, we will continue to increase rates in July”. The Euro Stoxx 600 edged 0.05% higher, the DAX rose 0.21% along with the CAC 0.43% and FTSe100 0.11% with the Euro rising 0.50% against the USD
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX looks set to follow Wall Streets’ positive lead with ASX200 futures up 26 points or 0.37% to 7,095. The index gained 0.56% on Tuesday although performance was mixed with only 53% of stocks higher and an even split between positive and negative sectors. Real estate was the top-performing sector, rising 1.94% after NSW Premier Chris Minns wants to loosen development rules for Sydney apartment developers. Goodman Group rose 1.2% along with Scentre Group 4%, GPT 2.7%, and Dexus 2.8%. Medibank Private was a notable underperformer, falling -3.9% after the company will set aside $250m as insurance against issues relating to last year’s data breach. In focus today is the release of the monthly CPI estimate for May, with the average consensus for a decline to 6.1% from 6.8% previously. The data is the final piece of key information before the RBA’s July 4th meeting with financial markets implying a 25% chance of a rate hike, however, traders are still betting on further rate hikes over the remainder of the year, expecting a further 0.5% in tightening.
RBA Cash Rate Futures
Commodities
Despite positive economic data from the US and a larger-than-expected draw in US crude oil inventories, oil prices fell overnight with both WTI and Brent crude -2.41% and -2.26% lower at US$67.70 and US$72.50 a barrel respectively. API crude oil stockpiles for the week ending June 23rd declined -2.408m barrels, compared to estimates of a -1.467m barrel draw. According to Oanda’s Ed Moya “It’s going to take a lot to change the minds of energy traders…In the US, good news is bad news as that will suggest the Fed might have to do more tightening. Inflation is stubbornly high in Europe that could trigger a lot more rate hikes and a harsher recession”. Iron ore futures climbed 3.22% on Tuesday and are a further 0.56% higher this morning at US$113 while copper prices are -0.36% lower. Gold declined -0.5% to US$1,913 an oz while silver rose 0.30% to US$22.86 along with Bitcoin 1.63% to US$30,655.
Economic Calendar
27th June 2023
Australian Monthly CPI (MoM May) 11:30
German Consumer Confidence (MoM Jul) 16:00
Fed Chair Jerome Powell Speech 23:30
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.
