Equities slip after PMI reports show acceleration, ASX to fall

Last update - 24 May 2024 By Rivkin

US equities decline on Thursday as an increase in bond yields weighed on investor sentiment after a report showed US business activity has accelerated, adding to the case for rates to remain higher for longer.

United States

The latest PMI reports for May showed a significantly higher than expected reading in both services and the composite measure of 54.8 and 54.4 respectively, highlighting an acceleration in the US economy with readings above 50 signalling expansion. Manufacturing also surprised to the upside although by a smaller amount coming in at 50.9 compared to 50 in April.

In reaction, Treasury yields were higher with the 2-year rate up 6.6 basis points to 4.935% while the 10 and 30-year rates rose 5.5 and 4.4 basis points respectively, with the US dollar index edging up 0.1%. The rise in yields weighed on equities, with the S&P500 declining -0.74% along with the Nasdaq Composite -0.39% and Russell 2000 -1.6%. The Dow Jones Industrial Average dropped 1.5%, primarily due to a significant decline in Boeing Co. -7.55%, which announced it will continue to burn cash both this quarter and for the entire year.

Europe 

European equities edged up with investors likely reacting to the same US PMI reports, and reports for the region which also showed an acceleration. For the month of May, the composite measure increased to 52 from 51.7 previously, driven by services at 53.5 while manufacturing remains at contractionary levels of 46.2. The Euro Stoxx 600 edged up 0.07% along with the DAX 0.06% and CAC 0.13% while the FTSE100 retreated -0.37%.

Australia

The ASX is expected to open lower this morning, with ASX200 futures down -83 points or -1.06% to 7,759. The index retreated -0.46% on Thursday driven by a -2.15% fall in materials and -0.58% drop in financials, while technology shares rose 2.25% following Nvidia’s beat on earnings. The drop in materials was driven by a -2.9% fall in BHP after takeover target Anglo American rejected the miners latest offer. Meanwhile, Xero climbed 8.7% after reporting a 22% increase in revenue to $1.6 billion. Nufarm was a notable laggard, down -7.1% after profit and revenue fell in the face of challenging conditions in its half year report.

Commodities

Oil prices are lower overnight with both WTI and Brent crude down -0.9% and -0.66% respectively.  Iron ore futures in Singapore fell -2.24% on Thursday and are a further -0.27% weaker this morning at US$119.35 with copper also -0.43% lower. Gold declined -2.08% weighed by a rise in bond yields as the precious metal pulls back from record highs, silver is -.13% lower along with Bitcoin -2.39%.

Economic Calendar

Japan Inflation (YoY Apr) 09:30

German GDP (QoQ Q1) 16:00

US Durable Goods Orders (MoM Apr) 22:30

Fed Waller Speech 23:35

 

 


 

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.

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