U.S. Equities Decline As Market Prepares For Jackson Hole Speech, Commodity Prices Weaker On Stronger USD & Crude Oil Inventory Increase, ASX SPI200 Futures Down 6 Points

U.S. equity markets declined on Wednesday with commodity prices as the dollar strengthened ahead of Friday’s speech by Fed president Janet Yellen in Jackson Hole, Wyoming. Both the S&P500 & Nasdaq100 indices declined -0.52% & -0.73% respectively shown on the first chart below while the U.S. dollar index gained +0.26% as investors took risk off the table ahead of Friday. All ten sectors of the S&P500 closed weaker with the largest losses coming from healthcare & basic materials down -1.64% & -1.44% respectively.

Elsewhere existing home sales (MoM Jul) dropped -3.2% against estimates of -1.1% and the house price index (MoM Jun) remained stable at +0.2% missing forecast of a rise to +0.3%. A report by the National Association of Realtors suggested the slump in sales is likely to be temporary as a result of a decline of the number of properties on the market as well as citing improving employment and historically low rates.

Janet Yellen has tended to lean on the more dovish side of monetary policy however following hawkish comments from regional Fed presidents Bullard & Williams as well as vice chair Stanley Fischer over the past week has prompted speculation for a hike by the end of 2016. The market will be looking for any indication of a potential December rate hike with the implied probability of a hike in December is just over 50%, while the probability for an interest rate increase at the September meeting is just under 20%.

September would seem highly unlikely given the recent weak economic growth seen in the second quarter GDP print (1.2% annualised) as well as subdued inflation despite the recent strength in payroll numbers and a lack of unity around the outlook to raise rates shown in the FOMC minutes from its July meeting.  A December rate hike is certainly a possibility if we see a pickup in inflation, economic growth and business investment, while the current situation would not justify a rate hike a lot can change over the next four months and we need to monitor the incoming data.

Commodity prices were broadly lower on Wednesday as the U.S. dollar strengthened and there was an unexpected increase in U.S. oil inventories for August 19th. Data showed that inventories increased by 2.5 million barrels against expectations for an 850,000 barrel decline, unsurprisingly both WTI & Brent crude oil finished -2.70% & -1.78% weaker respectively. The stronger dollar also weighed on copper prices which slipped -1.84% as did precious metals spot gold & silver down -1.05% & -1.44%. The second chart below shows the price of both precious metals which have weakened over the past few weeks as the prospect of higher rate reduces the appeal of the metals which have no yield.

European equities were boosted by a weaker Euro and data that showed the German economy grew at 3.1% (YoY Q2) as expected, the Euro Stoxx 600 gained +0.39% as did the DAX30 +0.28% while the Euro fell -0.35%. Meanwhile the Pound continued to move higher following better than expected data over the past week, up +0.27% which weighed on the FTSE100 that closed -0.48% weaker.

The ASX200 finished modestly higher on Wednesday up +0.14% while the market looks set to open weaker this morning with ASX SPI200 futures down 6 points in overnight trading. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account. 

Data releases:

·         German IFO Current Assessment & Business Climate Survey (MoM Aug) 6:00pm AEST

·         U.S. Durable Goods Orders (MoM Jul) 10:30pm AEST

·         U.S. Continuing & Initial Jobless Claims (Aug 13th & 20th) 10:30pm AEST

·         U.S. Markit Services & Composite PMI (MoM Aug) 11:45pm AEST

Chart 1 – S&P500 & Nasdaq100


Chart 2 – Spot Gold & Silver

Source: Rivkin, RivkinTrader

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via james.woods@rivkin.com.au or by phoning +612 8302 3600.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.