U.S. Equities Rise In Quiet Session, U.S. CPI Dampens Rate Hike Expectations, ASX Futures -15

U.S. equity markets rallied on Monday in what was a light session for volume due to the Easter long weekend. Both the S&P500 & Nasdaq100 rose +0.86% & +0.85% with 468/505 securities on the S&P500 closing higher for the session and all sectors in positive territory. On Friday the U.S. dollar index was flat before closing -0.27% lower on Monday following U.S. CPI data that came in below expectations on Friday.

Year-on-year for March headline prices rose +2.4%, less than the +2.6% forecast and +2.7% prior. The core measure which excludes volatile items such as food and energy rose +2.0% also missing estimates for +2.3% and a previous reading of +2.2%. The bright news was that real average hourly earnings (YoY Mar) rose +0.3% from 0% previously after removing inflation. Still the data dampened expectations of a Fed rate hike in June, with the probability dropping from 54.8% to 46.5%.

U.S. earnings will remain in focus this week with heavy weights including Goldman Sachs, General Electric and Johnson & Johnson reporting. Analyst expectations are for +10.4% earnings growth year-on-year which would be the best year-on-year growth since Q1 2011.

The Chinese Offshore Yuan rose just +0.05% on Monday despite stronger economic data. Year-on-year for Q1 the Chinese economy expanded at +6.9%, higher than the +6.8% forecast. Retail sales also topped forecasts, rising +10.9% vs +9.7% expected, as did fixed asset investment excluding rural rising +9.2% vs +8.8% and industrial production increased +7.6% vs +6.3% forecast. The data remains in line with the trend carried over from 2016, that the Chinese economy remains stable.

Safe-havens continue to remain relatively well supported, although the Japanese Yen weakened -0.26% on Monday after touching the strongest levels in six months on geopolitical tensions. Spot gold also closed lower, down -0.07% after also touching the highest level in six months shown on the chart below. U.S. treasury yields which are also a measure of safe haven demand were little changed, with the two-year yield flat at +1.2011% while the ten-year yield rose +2 basis points to be at +2.2481%.

Locally the Australian dollar was +0.18% higher on Monday, supported by the stronger Chinese economic data. The ASX200 finished -0.74% lower on Thursday and we can expect a softer start to trading this morning with ASX SPI200 futures down -15 points. 

Data releases:

·        RBA April Meeting Minutes 11:30am AEDT

·        U.S. Housing Starts & Building Permits (MoM Mar) 10:30pm AEDT

·        U.S. industrial production (MoM Mar) 11:15pm AEDT

Chart 1 – XAUUSD (Spot Gold)

Source: Rivkin, RivkinTrader

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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 3631.

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