U.S. equities pared losses on Thursday, closing well off session lows as comments by Fed policymakers lowered expectations of a +1% increase in July.
Both Christopher Waller and James Bullard on Thursday said they would back a +0.75% rate increase in July following the higher inflation print this week although could go bigger if data warranted. The S&P500 pared losses of as much as -2.11% before finishing just -0.30% lower with a +0.93% gain in technology offsetting weakness in materials -1.92% and communications -1.06%. The Dow Jones was also -0.46% lower along with the Russell 2000 -1.07% while the Nasdaq Composite was little changed and the VIX traded -1.57% lower at 26.40. Investors got a reality check as earnings season began on Thursday, with JPMorgan Chase & Co. temporarily halting buybacks as earnings fell short of estimates while Morgan Stanley announced a plunge in investment-banking revenues. Shares in JPM declined -2.55% while Morgan Stanley rose +0.59%.
U.S. producer prices, which are a good leading indicator of inflation, rose more than expected in June up +1.1% over the month compared with estimates to remain unchanged at +0.8% while prices grew +11.3% over the year, missing estimates of +10.7%. Elsewhere initial jobless claims for the week ending July 9th were higher than forecast, rising to +244k compared to expectations of remaining unchanged at +235k. Treasury yields were mixed with the 2-year rate down -2.7 basis points to 3.128% along with the 30-year down -1.2 basis points to 3.107% while the 10-year was +2.4 basis points higher at 2.958%. Key economic data is due out tonight in the form of U.S. retail sales for June expected to advance +0.8% from -0.3% previously, as well as the University of Michigan consumer sentiment survey for July expected to remain unchanged at a reading of 50.
European stocks fell on Thursday tracking U.S. futures lower with sentiment also weighed by a drop in commodity prices. The Euro Stoxx 600 retreated -1.53% along with the DAX -1.86%, CAC -1.41% and FTSE100 -1.63% with major indices lower across Europe. Adding to economic woes, draft projections by the European Commission showed that the euro area’s rebound from the pandemic will be weaker than anticipated while inflation will be faster because of the war in Ukraine. GDP is likely to advance 2.6% this year and 1.4% in 2023, down from May predictions of 2.7% and 2.3% for the same periods with rising prices weighing on demand and confidence. Inflation is also seen at 7.6% in 2022 before easing to 4% in 2023, up from earlier projections of 6.1% and 2.7%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set for a weaker open this morning with ASX200 futures down -51 points or -0.78% to 6,490. The index climbed +0.44% on Thursday boosted by materials +1.57% and technology +2.07% while real estate -1.06% and financials -0.83% lagged. Also boosting sentiment on Thursday was stronger than forecast employment data which showed +88.4k jobs were added in June compared to forecasts of +30k with the unemployment rate declining to 3.5% from 3.9% previously. While this adds to the case the economy can withstand higher interest rates, it now piles on more pressure for the RBA to pursue aggressive rate increases in the coming months. Beaten down technology names outperformed with EML Payments rising 12.3% along with Imugene 8.7%, PointsBet 7.1%, Mesoblast 4.4% and Clinuvel Pharmaceuticals 4.5%. Bega Cheese dropped 8.5% after an after-market profit downgrade on Wednesday warning prices paid to Victorian farmers for milk in June and July were up 30% on financial 2022 levels.
WTI crude reversed a decline of as much as -5.96% on Thursday to edge +0.18% higher along with Brent +0.29% to US$96.47 and US$99.86 a barrel respectively. Iron ore futures in Singapore sunk -7.84% on Thursday and are +0.51% higher this morning at US$100.75 with recent weakness weighed by expectations of lower demand as economic growth slows. Gold was -1.47% lower overnight at US$1,710 weighed by a strong USD and higher real yields, silver was also lower by -4.13% to US$18.42 while Bitcoin rose +5.16% to US$20,670.
Economic data:
- China GDP (YoY Jun) 12:00
- U.S. Retail Sales (MoM Jun) 22:30
- U.S. Consumer Sentiment (MoM Jul) 00:00
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.
