U.S. equities extended recent gains on Monday while Treasury yield declined with commodities after weaker economic data from China.
The S&P500 rose +0.40% lifted by technology +0.663% and consumer discretionary +0.61% while energy -1.98% and materials -0.09% were the only sectors negative. The Dow Jones also rose +0.45% along with the Nasdaq Composite +0.45% and Russell 2000 +0.23% while the VIX rose +1.84% to 19.89. In a point to the strength of recent gains from a technical perspective, more than 90% of stocks in the S&P500 are now trading above their 50-day moving average having reached a low of 1.98% back in June, known as a “breadth thrust” which typically signals the strength of gains are meaningful and coincides with major lows forming. However, many economic headwinds remain including weakening economic data that could weigh on earnings as well as the likelihood the Federal Reserve will continue to tighten policy, albeit at a slower rate as inflation remains at uncomfortably elevated levels.
Treasury yields declined following weak data from the New York Federal Reserve manufacturing survey. According to the survey the headline general business conditions index plummeted 42 points to -31.3 weighed by declines in new and unfilled orders while in an encouraging sign for inflation, the prices paid index moved lower. The 2-year Treasury yield weakened -4.8 basis points to 3.195% as did the 10 and 30-year rates, lower by -3.8 and -0.3 basis points respectively while the U.S. dollar index rose +0.82% to 106.499.
European equities were also higher with the Euro Stoxx 600 rising +0.34% along with the DAX +0.15%, CAC +0.25% and FTSE100 +0.11%. Gains were supported by the prospect of a pivot by major central banks after weaker Chinese data on Monday with the Chinese central bank modestly cutting interest rates in response to an economic slowdown. According to a survey by Bloomberg, economists are now pricing the risk of a recession in the Eurozone at the highest level since November 2020 as energy shortages threaten to drive already record inflation higher, although expectations are for any potential recession to be shallow. Data on Monday for China showed fixed asset investment year-on-year to July rose +5.7% compared to estimates of +6.2%, with industrial production rising +3.8% vs +4.6% forecast and retail sales also missing estimates of +5% rising +2.7%. The central bank cut the 1-year interest rate and seven-day lending rates by 0.10% which is seen more as signaling from the central bank with economists noting households and businesses remain nervous about borrowing as COVID controls remain in place.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is also expected to open higher this morning with ASX200 futures up +22 points or +0.32% to 6,996. The index gained +0.45% on Monday buoyed by materials +0.78%, real estate +1.95% and consumer discretionary +1.39%. Aerial imaging company Nearmap surged +24.8% after receiving a $1 billion takeover proposal from Thomas Bravo worth $2.10 per shares, an 83% premium to the prior closing prices. Meanwhile, Beach Energy was the biggest laggard, down -11% after lowering its expected production outlook expected to be between 20 and 22.5 million barrels of oil compared to analyst forecasts of 23.2 million. The Australian dollar is -1.38% lower overnight at 0.7023 weighed by weaker commodity prices with the 10-year government bond yield -6.4 basis points lower at 3.364% on Monday ahead of the release of the RBA policy minutes at 11:30 AEDT this morning.
Oil prices declined with both WTI and Brent crude -3.63% and -3.79% lower respectively at US$88.75 and US$94.43 a barrel. Iron ore futures finished -3.98% lower in Singapore on Monday following weaker data from China and have bounced a modest +0.21% this morning to US$106.20 with copper futures also -1.74% lower. Gold declined -1.30% to US$1,779.04 an oz with silver also -2.69% lower at US$20.26 along with Bitcoin -1.33% to US$24,000.
Economic data:
- U.K. Unemployment (3 Months June) 16:00
- Eurozone Economic Sentiment (MoM Aug) 19:00
- Canadian Inflation (YoY Jul) 22:30
- U.S. Industrial Production (MoM Jul) 23:15
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.
