US equities were mixed on Thursday amid higher bond yields after Fed Chair Jerome Powell warned of the potential for one or two more rate hikes this year.
United States
Fed Reserve Chair Jerome Powell hinted on the possibility of further interest rate hikes in 2023, stating returning inflation to 2% was crucial to support the working class, “It is for the benefit of those people and all other people that we need to restore 2% inflation in this country on a sustained basis.” Powell told the senate banking committee that policymakers feel, “it will be appropriate to raise rates again this year, and perhaps twice” if the economy performs as expected. Fed Governor Michelle Bowman backed Mr. Powell’s statement, commenting that “additional policy-rate increases will be necessary”. The policy-sensitive 2-year yield rose 7.4 basis points to 4.79% with both the 10 and 30-year rates also 7.5 and 6.3 basis points higher respectively, strengthening the US Dollar index by 0.31% to 102.39.
The S&P 500 closed slightly higher on Thursday, rising by 0.37 along with the Nasdaq Composite 0.95% while the Dow Jones was little changed, the Russell 2000 slipped -0.8% with the VIX -2.2% lower to 12.91.
In economic data, the Chicago Fed National Activity Index declined to -0.15 in May, implying economic activity was shrinking. Meanwhile, initial jobless claims for the week ending June 17th were unchanged at 264k with the prior week’s figure having been revised slightly higher. The Conference Board’s leading index declined -0.7% over the month of May, as forecast, and points to a weakening outlook for growth. In focus tonight is the release of PMI reports for June.
Conference Board Leading Economic Index (MoM %)
Europe
The Bank of England surprised investors by raising the interest rate by half a percentage point from 4.5% to 5%, higher than forecasts of 4.75%. The decision follows sticker than expected inflation data on Wednesday, with investors expecting as many as a further 4 rate hikes by May 2024 which would bring the key rate to 6%. The Euro Stoxx 600 closed -0.51% lower on Thursday, the CAC retreated -0.79%, the DAX declined by -0.22% while the FTSE shed -0.76%. Meanwhile, the yields on the UK 2-Year bond rose to 5.04%, while the 10-Year and 30-Year bond fell to 4.35% and 4.47% respectively.
BoE Policy Rate
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX index is expected to edge lower this morning with ASX futures down -7 points or -0.1% at 7,145. The index slumped -1.63% on Thursday at 7195, amid broad-based selling. Information technology was the biggest laggard, plummeting -3.95%, real estate sank by -2.47% while communications lost -2.21%. In technology, Megaport plummeted by -8.21%, Xero fell by -4.40%, Brainchip shed -4.05%, and Life360 weakened -0.27%. Energy stocks were down, Paladin -4.08%, New Hope -2.42%, Karoon Energy -1.47%, and Whitehaven Coal -1.03%. In banking, NAB declined by -1.43%, Westpac fell by -0.85%, CBA lost -1.57%, and ANZ shed -1.60%. In focus for economic data, today is the release of PMI reports for June, expected to show manufacturing remains in contraction and a notable slowdown in services.
Commodities
In oil prices, WTI and Brent crude declined by -4.16% and -3.79% to $69.51 and $74.20 respectively. In precious metals, the price of spot gold fell by -0.96% to $1,914, while the price of spot silver shed -1.73% to $22.24. Copper receded -0.60% to $389 and SGX Iron Ore rose by 0.87% although has given back most of those gains this morning down -0.55% to US$111.05. Meanwhile the price of Bitcoin rose by 0.20% to $30,109.
Economic Calendar
23rd June 2023
Australia PMI (MoM Jun) 09:00
Japan Inflation Rate (YoY May) 09:30
UK Retail Sales (YoY May) 16:00
Eurozone PMI (MoM Jun) 18:00
Fed Bullard Speech 19:15
Fed Bostic Speech 22:00
US PMI (MoM Jun) 23:45
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.
