Equities fall, yields rise after stronger than expected retail sales.
United States
For the month of March, retail sales rose 0.7% compared to estimates 0.4%. Importantly the retail sales control group, which is used in GDP calculations, rose 1.1% well above the 0.4% forecast. This data adds further evidence to the strength and resilience of the US economy and consumers despite higher interest rates. As a result, investors are paring their expectations of easing interest rates later this year, with interest rate futures now only pricing two rate cuts by January 2025, down from three previously.
US Retail Sales Control Group (MoM %)
In reaction, treasury yields were higher across the curve with the two-year rate up 2.4 basis points to 4.92% with the ten-year rate 8 basis points higher. The higher yields weight on equities with the S&P 500 down -1.2% along with the Nasdaq composite -1.79% and Russell 2000 -1.37% while the VIX jumped 11.09 to 19.23.
Europe
While European stocks closed higher overnight, they pared back larger gains with Euro Stoxx 600 up 0.13% after initially trading as high as 0.95%. Elsewhere the DAX and CAC were up 0.54% and 0.43% respectively while the FTSE 100 was -0.38 lower. In economic data, the only notable release was Eurozone industrial production which declined -6.4% over the 12 months to February versus expectations of -5.5%. In focus tonight is UK employment data for the month of February as well as the latest economic sentiment indices for April.
Australia
The ASX is expected to follow the weak lead from Wall St and fall -0.81% this morning based on ASX200 futures. On Monday the index fell -0.46% as a fall in financials and healthcare of -0.68% and -1.01% offset 0.35% gain for materials. A rise in bond yields weight on technology with WiseTech -1.2% and Xero down 1.7%. Data centre provider NextDC declined 3.9% after resuming trading following the completion of a capital raise. While there is no domestic economic data today, the latest Chinese GDP for Q1 will be in focus for investors at midday with expectations of 4.8% over the year.
Commodities
In commodities oil prices were modestly lower with WTI and Brent down -0.29% and -0.39% respectively as geopolitical tensions eased somewhat given Iran’s attack on Israel over the weekend was less severe than had an anticipated, although Israeli military officials reiterated the need to respond. Iron ore futures in Singapore rose 1.05% on Monday however are -0.32% lower this morning while copper rose 2.83%. Precious metals were higher overnight with gold up 0.28% to US$2,389 an oz and silver rose 0.25%.
Economic Calendar
Chinese GDP (YoY% Q1) 12:00
UK Employment (MoM Feb) 16:00
Eurozone Economic Sentiment (MoM Apr) 19:00
Canadian Inflation (YoY Mar) 22:30
US Building Permits (MoM Mar) 22:30
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.
