ASX 200 pre-market wrap: inflation and omicron hammer stocks again

Before the bell

KEY POINTS 

ASX SPI futures are currently pointing to a 34 point fall, down 0.5% to 7,346.

Wall Street fell on Tuesday as the Federal Reserve kicked off a closely watched, two-day policy meeting. 

Nervousness began to set in across the market after the US released fresh inflation data, right before the Fed meeting. The November reading for producer price index showed a year-over-year increase of 9.6%, well above Dow Jones economist expectations of 9.2%. 

The Fed is widely expected to announce the acceleration of bond tapering due to higher inflation. Particular attention will be paid to the Fed’s updated economic projections and interest rate expectations.

Omicron jitters are resurfacing after the UK reported the world’s first publicly confirmed omicron death and China reported its first case of the variant. 

US Sector breakdown

KEY POINTS 

Financials rallied with higher bond yields and the expectation of interest rate hikes in 2022. Banks benefit from higher interest rates through increased net interest margins. Major US banks including Citi, JPMorgan and Bank of America all closed the session around 1% higher. 

The prospect of higher interest rates continues to take a toll on tech stocks. The valuation of tech stocks rely heavily on outsized future earnings. Higher rates lower the present value of future cash earnings, meaning investors will be looking to pay less for the stock. 

The Nasdaq briefly tested its 100-day moving average before closing well above session lows. Mega caps weighed with names like Microsoft (-3.2%), Alphabet (-1.3%) and Netflix (-1.1%) leading the declines.

Energy stocks are caught in limbo amid renewed concerns about omicron. Crude oil declined slightly overnight and continues to test the US$70/b level. China’s first case of omicron could see Beijing implement a sweep of lockdowns or travel restrictions as part of its ‘zero-tolerance’ policy. 

ASX Sectors in play

MAJOR ETFS

ETF GAINERS

The Bitcoin ETF bounced off all-time lows as cryptocurrencies recovered from Sunday’s sharp selloff. On a side note, Dogecoin soared as much as 40% overnight after Elon Musk said Tesla will let people purchase some of its merchandise with the meme cryptocurrency. 

• DigitalX (ASX: DCC) fell 7.8% on Tuesday, in-line with the decline of cryptocurrencies. The overnight bounce could bring some strength back into the depressed Bitcoin company

• Betashares Crypto Innovators (ASX: CRYP) could also see some positive flow after hitting record lows on Tuesday 

The Steel ETF was one of few bright spots overnight, briefly hitting intraday highs of 3%. Major US steelmakers including Arcelormittal, Nucor and United States Steel Corp rallied between 2.5% and 7%. 

• BlueScope Steel (ASX: BSL) held up relatively well amid a weak market and currently near a 3-month high

ETF LOSERS

The Hydrogen ETF is about 2% away from an all-time low (listed on 14 July). It's down almost 30% since its record high on 9 November. 

• This could put ASX names like Hazer Group (ASX: HZR), Lion Energy (ASX: LIO) and Pure Hydrogen (ASX: PH2) at risk 

The Cloud ETF hit fresh 6-month lows in overnight trade. Encouragingly, it closed well above session lows of -3.3%. 

• The bigger picture of sliding to 6-month lows vs. the intraday bounce of lows could point to a mixed session for ASX players like Xero (ASX: XRO), NextDC (ASX: NXT) and WiseTech Global (ASX: WTC) 

The Uranium ETF has continued to bleed, keeping nuclear hopefuls at bay. The ETF bounced off its 200-day moving average and closed well above session lows of -3.1%.

• ASX uranium stocks fell heavily on Tuesday with Paladin Energy (ASX: PDN) plunging 10.3%, Boss Energy (ASX: BOE) down 5.2% and Deep Yellow (ASX: DYL) down 2.8% 

• The bounce off lows vs. weak broader market will likely send mixed signals for Wednesday’s trading session 

The Jets ETF rallied 1.7% after open before closing at session lows of -0.8%. Investors are clearly nervous about what the new omicron news might mean for the travel industry, especially heading into the all-important Christmas holidays.

• ASX travel stocks like Corporate Travel (ASX: CTD), Flight Centre (ASX: FLT) and Webjet (ASX: WEB) all fell around 3% on Tuesday

• The overnight reversal of the Jets ETF could flag more negative flow for airlines and travel-related stocks

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