US equities declined on Thursday after producer prices showed an increase in cost pressures, as well as retail sales that were softer than expected.
United States
For the month of February, retail sales rose 0.6% missing forecasts of 0.8%. Importantly, the retail sales control group, which are used in GDP calculations, were unchanged vs expectations of a 0.4% increase. Separately, producer prices, a leading indicator of consumer inflation, climbed more than expected, up 0.6% over the month vs forecasts of 0.3%.
Producer Prices & Retail Sales (MoM %)
In reaction, Treasury yields were higher with the 2-year up 5.5 basis points with both the 10 and 30-year rates up 9.8 and 9.1 basis points respectively. While traders pared back expectations of a rate cut, the probability of a cut in June is at 54%. Equities were weaker, with the S&P500 down -0.29% along with the Nasdaq Composite -0.3% and Russell 2000 -1.96%. While the reaction in equities can be attributed to the latest data overnight, however, the context of a five-month rally that has left prices looking stretched should also be considered.
Europe
European equities were also lower on Thursday, tracking US markets lower with no key data in the region to guide investors. ECB Governing Council member Yannis Stournaras noted the central bank should lower rates twice before the August summer break, and then twice more before the end of the year. The comments come after the ECB’s latest policy meeting, which added to investor confidence of a June rate cut. The Euro Stoxx 600 finished -0.18% lower along with the DAX -0.11% and FTSE100 -0.37% while the CAC rose 0.29%.
Australia
The ASX is expected to open lower this morning with ASX200 futures down -56 points or -0.73% to 7,665. The index finished -0.2% lower on Friday, with a -1.88% fall in financials offsetting a 1.85% gain in material. In focus this morning at 11:00 AEDT are the latest consumer inflation expectations for March, while the Australian Dollar is -0.57% lower at 0.6583.
Commodities
Oil prices extended gains overnight with both WTI and Brent crude up 1.74% and 1.36% respectively, this follows larger than expected draws in oil and gasoline inventories on Wednesday. Iron ore futures fell a further -2.2% on Thursday, and are a further -1.39% weaker this morning at US$101.80 with copper also -0.38% lower. Gold declined -0.52% overnight to US$2,163 with silver also -0.64% lower at US$24.84 and Bitcoin -3.66%.
Economic Calendar
15th March 2024
Australian Consumer Inflation Expectations (MoM Mar) 11:00
US Industrial Production (MoM Feb) 00:15
US Consumer Sentiment (MoM Mar) 01:00
US Business Inventories (MoM Jan) 01:00
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.
