Pre-Open Data
Key Data for the Week
- Thursday – AUS – Building Approvals rose 43.5% in February, well above expectations, after a 27.1% fall in January.
- Thursday – UK – Gross Domestic Product grew by 1.3% in the March quarter, ahead of expectations.
- Thursday – EUR – Unemployment Rate edged lower to 6.8% in February, a record low.
- Friday – US – Unemployment Rate
Australian Market
The Australian sharemarket posted its first loss in eight days on Thursday, down 0.2%, as the Technology (-2.2%), Consumer Discretionary (-1.3%) and Energy (-1.0%) sectors lost ground. On the other hand, a strong performance from the Materials (1.5%) sector partially offset losses. Ultimately, the ASX 200 experienced its best monthly performance since November 2020, up 6.4%, supported by elevated commodity prices.
Technology stocks followed Wall Street’s lead from Wednesday night, as losses were widespread. Most notably, Xero and Block fell ~4.6%, Appen tumbled 3.4% and Megaport dipped 1.5%. Energy related stocks also suffered from lower oil prices, as speculation rose that the US might release oil held in reserve in an attempt to dampen fuel prices. Consequently, Woodside Petroleum (-1.4%), Santos (-1.7%), Viva Energy Group (-2.5%) and Beach Energy (-2.2%) declined.
In company news, Qantas (-1.0%) released its “Climate Action Plan”, which outlined steps it will take to achieve the United Nation’s goal of net zero emissions by 2050. Interestingly, this plan involves research into next generation technologies like hydrogen and battery power. Meanwhile, uranium producer Paladin entered a trading halt, as it announced a $215 million equity raise to help fund the renewal of its Langer Heinrich Mine.
The Australian futures market points to a 0.56% decline today.
Overseas Markets
European sharemarkets declined on Thursday, as investors continue to be concerned about historically high inflation and the crisis in Ukraine. The STOXX Europe 600 dipped 0.9% yesterday, which represented a 6.5% loss for the March quarter. This signified the global risk-off tone that characterised the quarter, as the index had made gains for the last seven straight quarters. Meanwhile, the German DAX (-1.3%) and UK FTSE 100 (-0.8%) also fell. Losses were led by retail stocks, which broadly lost 5.0%. Sweden’s H&M was a major detractor, down 12.9%, after it reported weak quarterly profit and stated it would need to raise price to offset high raw material and transportation costs. Other notable movers included Tesco (-2.4%), Lloyds Banking Group (-2.2%) and Barclays (-2.1%).
US sharemarkets fell on Thursday, as optimism for progress on Ukraine-Russia peace talks faded. By the close of trade, the S&P 500, NASDAQ and Dow Jones all dropped between 1.5%-1.6%. Notably, the NASDAQ lost 9.1% in the March quarter, while the S&P 500 had its largest quarterly drop in two years, down 4.9%. The Financials (-2.3%), Consumer Discretionary (-2.0%) and Information Technology (-1.6%) sectors were key detractors in yesterday’s session. Key movers included Bank of America (-4.1%), Target (-4.4%), Amazon (-2.0%) and Meta Platforms (-2.4%).
CNIS Perspective
The relationship between the 2-year and 10-year treasury yield inverted for the first time since 2019 overnight, sending a possible warning signal that a US recession could be on the horizon.
The bond market phenomenon means the rate of the 2-year note is now higher than the 10-year note yield. This part of the yield curve is the most closely watched and typically given the most credibility by investors that the economy could be heading for a downturn when it inverts.
A simple way to look at the importance of the yield curve is to think about what it means for a bank. The yield curve measures the spread between a bank’s cost of money versus what it will make by lending it out or investing it over a longer period of time. If banks can’t make money, lending slows and so does economic activity.
Many economists believe the curve needs to stay inverted for a substantial amount of time before it gives a valid signal.
Despite this phenomenon, analysis shows that after the six instances where the 2-year and 10-year yields inverted going back to 1978, the stock market continued to perform positively. The S&P 500 was up an average 1.6% a month after the inversions and was up an average of 13.3% a year later.
Should you wish to discuss this or any other investment related matter, please contact your Wealth Management Team on (02) 4928 8500.
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