Stocks dropped on Tuesday following a rise in Treasury yields, with recent positive economic data suggesting fewer rate cuts are needed this year.
United States
The S&P500 dropped -0.72% with 79% of stocks lower with energy a notable performer, up 1.37% following higher oil prices. The Dow Jones was also -1% along with the Nasdaq Composite -0.95% and Russell 2000 -1.80% with the VIX climbing 6.96% to 14.60. Several key pieces of economic data will be in focus tonight, including the latest ADP employment report, services PMI, and a speech by Fed Chair Jerome Powell.
Longer-dated Treasury yields rose with both the 10 and 30-year rates 4.6 and 5.1 basis points higher. This follows better-than-expected factory orders for February, rising 1.4% compared to 1% forecast. The move in yields also reflects recent positive economic data, which suggests fewer rate cuts will be needed this year, in the Citigroup Economic Surprise Index for the global economy which is at the highest levels since early 2023. Traders have now pared back their rate cut expectations, with Fed Fund futures now only pricing in 2.75 rate cuts by the end of the year. This follows comments by Fed Chair Jerome Powell late last week that the central bank isn’t in a rush to lower rates.
Citi Global Economic Suprise Index
Europe
European equities were also negative on Wednesday, tracking a drop in US equities. The Euro Stoxx 600 declined -0.8% along with the DAX -1.13%, CAC -0.92%, and FTSE100 -0.22%. In terms of economic data, German inflation for the 12 months to March rose 2.2% as forecast, moderating from 2.5% in February. Over the month, inflation rose 0.4% well under the 0.6% expected. Despite this, the Euro rose 0.23% to 1.0768. 10-year government bonds across the region tracked moves in US Treasury, ranging from 7.1 to 15.1 basis points.
Australia
The ASX is expected to open weaker this morning with ASX200 futures down -30 points or -0.38% to 7,907. The index finished -0.11% weaker on Tuesday with the majority of sectors lower, although heavyweight materials rose 1.08% helping to prevent deeper losses in the benchmark. Gains in materials were driven by a rebound in iron ore prices, with an increase in gold prices giving miners of the precious metal a boost. Meanwhile, biotech Mesoblast surged 71.17% after the US FDA cleared the way for the resubmission of a proposed treatment.
Commodities
Oil prices extended recent gains, with WTI and Brent crude up a further 1.7% and 1.75%, adding to concerns inflationary pressures may re-emerge. Other key commodities were higher, including iron ore which is up a further 1.27% this morning to US$102.85 and copper 0.72%. Gold climbed 1.13% to US$2,276 an oz along with silver 3.97%, while Bitcoin was -5.37% lower.
Economic Calendar
3rd April 2024
Chinese PMI (MoM Mar) 12:45
Eurozone Inflation (YoY Mar) 20:00
US ADP Employment (MoM Mar) 23:15
US ISM Services PMI (MoM Mar) 01:00
Fed Chair Jerome Powell Speech 03:10
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.
