Morning Minutes

Stocks Drop as Pivot Hopes Fade




The Hang Seng rallied 5.9% overnight in catchup trading as it reopened from Chinese holidays, but since then, it has been downhill for stocks in Europe and North America.

The two-day rally which started the quarter has come to an abrupt end this morning. European trading finds the Dax and the FTSE both down 0.9% and the three main US index futures contracts are all down about 1.0%. Meanwhile the US 10-year treasury yield has climbed back up above 3.70%. The US Dollar is rallying again, gaining 1.0% against the Pound, 0.9% against Gold, 0.7% against the Canadian Dollar plus Bitcoin, and 0.6% against the Euro .  

Hopes among investors that the recent dovish pivot by the Bank of England and the smaller expected rate hike from the Reserve Bank of Australia were the start of a broader easing of hawkishness at central banks were dashed overnight. The Reserve Bank of New Zealand raised its overnight rate by 0.50% to 3.50% as had been expected, and in its statement, indicated plans to continue tightening monetary policy to battle inflation, with no dovish takeaways, noting that while headline inflation has eased a bit, core inflation remains “too high”.

Meanwhile, signs of a resilient US economy have dampened hopes for a dovish Fed pivot. US ADP payrolls came in stronger than expected (208K vs street 200K and previous 132K). Canada posted a smaller than expected trade surplus ($1.5B vs street $3.5B).

Service PMI reports from continental Europe have been disappointing for the most part generally coming in worse than last month, worse than expected, and in most cases, below 50 in contraction territory. The UK was a positive surprise (50.0 vs street 49.2). US ISM Service PMI is due at 10:00 am EDT today with the street expecting a reading of 49.2, unchanged from last month, for the headline number.

Commodity action is mixed today. WTI has shrugged off overnight softness and is trading up 0.1% as investors await this week’s OPEC+ production decision amid widespread media reports of a potential production cut. Natural Gas is down 1.7%, while Copper is down 0.5%. Platinum is down 1.3% ahead of today’s US auto sales reports.

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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