US equities rebounded on Wednesday as bond yields eased with Fed Chair Jerome Powell reiterated the Federal Reserve is on a wait-and-see approach.
United States
While Powell provided no new major news, investors are seemingly relieved to not hear any shift to more bearish language, although the bounce in equities should be viewed in the context of Tuesday’s losses. The S&P500 edged up 0.11% along with the Nasdaq Composite 0.23% and Russell 2000 0.54% and the VIX was -1.92% lower at 14.33. In economic data, the latest services PMI report for March showed expansion, albeit at a more moderated rate of 51.4 compared to 52.6 in February. Elsewhere, the latest ADP employment report for March showed 184k jobs were added, above the 148k forecast. The data comes ahead of Friday’s non-farm payroll report forecast to show 200k jobs were added in the month.
In Powell’s speech, the Fed Chair reiterated there was no rush to lower interest rates and that “If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year”. Powell also added the outlook is uncertain and there are risks to both sides, referring to either easy prematurely or hiking too much.
Europe
European equities were also modestly higher on Wednesday as inflation for March was weaker than forecast. For the 12 months to March, core inflation rose 2.9% slightly below expectations of a 3% increase. Meanwhile core prices rose 2.4%, also below the 2.6% forecast. The softer reading adds to the case for the ECB to lower rates in the coming months, with traders pricing in 3.5 rate cuts by the end of the year. The Euro Stoxx 600 rebounded 0.29% on Wednesday along with the DAX 0.46%, CAC 0.29% and FTSE100 0.03%.
Eurozone Inflation (YoY %)
Australia
The ASX is expected to open firmer this morning with ASX200 futures up 26 points or 0.33% to 7,855. The index slumped -1.34% on Wednesday following a weaker lead from Wall Street with most sectors lower and 82% of stocks finishing down. Interest rate-sensitive names were some of the hardest hit, with WiseTech and Xero both dropping -5.02% and -5.69% respectively. Property stocks, which are also sensitive to interest rates were lower, with Goodman down -2.4% along with Scentre -3.6%.
Commodities
Oil prices extended a run of gains with both WTI and Brent crude 0.55% and 0.64% respectively. The move comes despite an unexpected build in US crude oil inventories of 3.21m barrels compared to expectations of a -1.511m draw. This was partly offset by a significantly larger decline in gasoline inventories of -4.256m barrels vs -820k expected. Iron ore futures in Singapore finished -2.03% lower on Wednesday and are a further -1.31% weaker this morning at US$98.20 while copper finished 3.49% higher. Gold rose 0.77% to US$2,298 an oz, a new all-time high benefiting from a weaker USD, silver rose 3.62% to US$27.09 while Bitcoin was little changed at US$65,665.
Economic Calendar
Australian Building Permits (MoM Feb) 11:30
ECB Policy Minutes 22:30
Fed Barkin Speech 03:15
Fed Goolsbee Speech 03:45
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.
