Equities declined on Wednesday with bond yields jumping sharply after a slightly hotter than expected inflation print, and the latest Fed minutes signalled there was not rush to cut interest rates.
United States
For the 12 months to March, headline prices climbed 3.5% slightly higher than the 3.4% forecast. Core prices were also slightly above estimates at 3.8% vs 3.7% forecast. Meanwhile, the latest Fed policy minutes showed “almost all” officials judged it would be appropriate to begin lowering borrowing costs “at some point” this year. Officials also noted “the disinflation process was continuing along a path that was generated expected to be somewhat uneven”. Finally, officials also generally favoured slowing the pace at which they’re shrinking the central banks balance sheets, by roughly 50%.
US Inflation (YoY %)
In reaction, yields jumped with the 2-year spiking 23 basis points to 4.973% with the 10-year yield also 18.2 basis points higher driving the US dollar index up 0.99%. The gains in yields weighed on equities, with the S&P500 -0.95% weaker along with the Nasdaq Composite -0.84% and Russell 2000 -2.52% with the VIX rising 5.47% to 15.80. The weakness was most likely driven by the US inflation print, given most of the session losses occurred before the release of the FOMC minutes.
Europe
European stocks were mostly higher despite the US inflation print, having closed before the release of the latest FOMC minutes. The Euro Stoxx 600 rose 0.15% along with the DAX 0.11% and FTSE100 0.33% while the CAC was -0.05% lower. Again, there was no major data for the region to guide investors, who now change their focus to tonight’s ECB policy decision where no changes are expected.
Australia
The ASX200 is expected to open weaker this morning with ASX200 futures down -65 points or -0.82% to 7,828. The index rose 0.31% on Wednesday with materials up 0.84% following a continued rise in commodity prices, while financials and technology lagged -0.39% and -1.19%. In economic data today, investors will look towards the latest consumer inflation expectations for April due out at 11:00 AEDT, followed by Chinese inflation data for March at 11:30 AEDT.
Commodities
To commodities, oil prices climbed overnight despite a larger-than-expected build in oil inventories of 5.841m barrels vs 2.366m forecast. Both WTI and Brent crude were up 1.15% and 1.34% respectively, attributed to the US and its allies believing an imminent missile strike on Israel was imminent by either Iran or its proxies. Iron ore futures in Singapore are softer this morning by -0.23% to US$106.45 with copper modestly lower by -0.08%. A rise in yields and stronger USD weighed on precious metals, with spot gold down -0.8% to US$2,334 an oz along with silver -0.72% to US$27.95.
Economic Calendar
Australian Consumer Inflation Expectations (MoM Apr) 11:00
Chinese Inflation (YoY Mar) 11:30
ECB Rate Decision 22:15
US Producer Prices (MoM Mar) 22:30
ECB Press Conference 22:45
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.
