Energy stocks outperform as oil rises

On balance, it was a negative day’s trade for global markets in the end. Fresh doubts about the path and pace of the economic recovery lingered, as what was the predominant concern in the market about an overheating US economy and inflation pressures were kept to the side.

It wasn’t a dreadful day for risk-assets all-in-all: the S&P 500 gave-up its intraday gains in late trade, to finish 0.55 per cent lower for the session, with market breadth at a middling 50 per cent.

Intra-market action in equities defied recent trends

Interestingly, despite the new fears surrounding the virus and lockdowns and the consequent dip in global bond yields, intra-market action in equities defied recent trends. Despite the drop in risk-free rates, it was the US tech space that bore the brunt of the selling, with the tech heavy NASDAQ shedding just over 2 per cent.

While cyclical stocks generally outperformed the rest of the market – though it must be aid, the Russell 2000 still exhibited the fears of a weaker recovery, dropping 2.3 per cent.

The energy sector was the US market’s leader – though that wasn’t entirely indicative of a market any more optimistic than it was 24 hours ago about global energy demand. Energy stocks on Wall Street rallied in sympathy with a 5 per cent bounce in crude prices last night, as the bizarre blockage of the Suez Canal by a freight ship yesterday raised the prospect of temporary supply disruptions in global oil markets.

FX markets told a clearer story, about building macro-risks. Save-haven currencies, especially the [currencies:US Dollar] and Yen, are threatening to move higher, with a big turnaround in sentiment towards the Greenback unfolds in the markets.

Growth sensitive currencies also look as though their upward trends are breaking down, with the Australian Dollar pushing below 0.7600 overnight, as something of a broader reversion in the currency landscape appears afoot.

As far as the narrative regarding the economic outlook goes: and although it’s likely not to reflect the imminent lockdowns in Europe and another lift in COVID-19 infections global, US and European PMI numbers provided some reassurance that business sentiment is picking up. US Composite PMI came in roughly in line with expectations, but higher than what it was a month ago. While European PMI figures shot the lights out, with German Manufacturing PMI printing at a remarkable 66.1 reading.

There were some questions raised again about price pressures in the US economy courtesy of details in its PMI surveys. The price component continued to rise above its multi-year highs, suggesting higher consumer prices are waiting on the horizon.

Futures indicating a general drop for stock indices in the Asian region

The market shrugged off inflationary fears last night, however, with another testimony by US Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen hosing down such concerns as both continued to implore the transitory nature of future price pressures.

It’s shaping as a sluggish start for Asian markets, with futures indicating a general drop for stock indices in the region – with the exception of the Nikkei, which is looking at a little pop. SPI Futures are looking at a modest -0.17 per cent dip this morning. It’s another quite session for Asia on the data front today overall.

But interest will be directed to comments by BOJ Governor Haruhiko Kuroda, as the markets continue to discount the BOJ’s moves to loosen its yield target band last week.