Evening Wrap: Bond yield breakout pushes ASX lower, Woodside rallies, US futures slip

The S&P/ASX 200 closed 54 points lower, down -0.80%.

 The local sharemarket finishes the week down -1.2% as bond yields break out to new highs, oil stocks have a crack at 2-year highs, the IMF expects global growth to decelerate to 2.7% next year, Asia tech exports take a dive and a scorecard of which countries are most behind the yield curve.

Let's dive in.

Markets

Rejigging the order of the Evening Wrap. We're moving some of the more word heavy segments like 'Announcements' and 'Broker updates' to the bottom.

An unsurprisingly weak session for the ASX 200, given the broad-based declines on Wall Street. A few thoughts in the Post Market Brief below.

• All sectors were red except Energy

• Energy weathered the storm as Woodside shares continued to rally following its production upgrade on Thursday. Coal stocks also rallied strongly, with most names up around 5%

• Tech heavyweights like Wisetech, Xero and Altium reversed early gains to mostly close around positive territory

• Materials also outperformed on a relative basis thanks to higher iron ore prices

• Rate sensitive sectors like Utilities, Real Estate and Industrials led to the downside

• 62% of the top 200 advanced

Economy

• Japan inflation was unchanged at 3.0% in September

  • Core inflation accelerated to an 8-year high of 3.0% in September from 2.8% in August

  • This is challenging the Bank of Japan’s ultra-dovish stance which has seen the Yen slump to 32-year lows against the US dollar 

• UK consumer confidence was -47 in October from -49 in September

  • Ahead of economist expectations of -52

  • Confidence remains close to September levels, which were the weakest level since the survey was launched in 1974 

• IMF’s World Economic Outlook expects global growth to slow from 3.2% this year to 2.7% next year

  • “The global deceleration will be broad-based, and the 2023 projection is less than half of last year’s 6 percent expansion,” the IMF report said

  • “Countries accounting for about a third of the global economy are estimated to have a two-quarter contraction in real gross domestic product this year or next.”

Commodities 

• Iron ore futures on the Dalian Commodity Exchange rose 1.6%

Quick bites 

• Asia tech exports nosedive: “Recent data from Asia’s tech-oriented economies suggest waning export demand and slowing production momentum. The adverse effects of macroeconomic and geopolitical risks suggest that demand for the region’s tech exports will slow in the coming months,” said ANZ Research

Source: ANZ Research

• Behind the curve scorecard: A chart of interest rates minus headline inflation across the world

Source: ANZ Research

• S&P 500 puts: Retail put/call ratios has risen to near all-time highs. But going long when everyone is hedging downside risk has seen some rather solid gains since 2000 

Source: SentimenTrader, Game of Trades

Latest news

Post market brief

Now that I think about it, the script has been pretty straightforward.

1. Yields go up, the market sneezes, possibly tests positive for covid

2. Depending on how aggressively yields go up, the market stumbles or takes another leg down

3. Yields plateau and start to trade sideways. The market thinks the Fed's going to pivot and bounces from oversold levels

4. Yields break out again and we go back to (1)

Right now, we're back at the beginning of the cycle. Bond yields are breaking out again, and climbing 2008 highs.

Index

S&P/ASX 200: Another red day. The ASX 200 has a bit more breathing room before a potential undercut of recent lows. Let's see how the 6,650 level holds

XJO chart (Source: TradingView)

S&P/ASX 200 Energy: Follow through strength from energy heavyweights Santos and Woodside. XEJ having a crack at levels not seen since February 2020

XEJ chart (Source: TradingView)

Announcements 

• Life360 (ASX: 360) +7.3% will roll out higher prices for new monthly subscriptions. Pricing for annual subscriptions remains unchanged

• Stanmore (ASX: SMR) +5.3% reaffirmed its 2H22 guidance despite the continued unseasonal wet weather and ongoing inflationary pressures   

• Adairs (ASX: ADH) +3.9% management reaffirmed FY23 guidance and said trading in the first 16 weeks remains in-line with expectations

• Siteminder (ASX: SDR) +3.1% recorded 1Q23 revenue growth of 30.5% to $35.7m

  • “Transaction revenue growth continues to significantly outperform the travel recovery reflecting the increasing customer uptake and usage rates across all of our transaction products.” 

• Mercury (ASX: MCY) +2.6% upgraded its FY23 EBITDA guidance by $40m to $620m due to higher hydro power generation 

• Aussie Broadband (ASX: ABB) -0.5% said 1Q23 revenue was up 4.6% QoQ to $184.4m despite “strong price based competition without the need for heavy promotion use” 

• Cleanaway (ASX: CWY) -1.9% said it expects FY23 earnings to be higher than FY22 due to contributions from its Sydney Resource Network takeaway

• Allkem (ASX: AKE) -1.8% expects its Olaroz Stage 2 expansion to hit production status in 2Q23 instead of 4Q22, total capital expenditure for the project also jumped 12% to US$425 

• Bowen Coking Coal (ASX: BCB) -13.3% successfully raised $85m at 30 cents per share, a 20% discount to its last traded price 

Broker updates 

• Evolution (ASX: EVN) Macquarie retains Neutral. TP $2.10 from $2.60

• IAG (ASX: IAG) Ord Minnett downgrades to Hold from Buy. TP $5.40

• Redbubble (ASX: RBL) Morgan Stanley retains Equal-weight. TP $0.55 from $1

• Suncorp (ASX: SUN) Ord Minnett upgrades to Buy from Hold. TP $13.25

• Zip (ASX: ZIP) Macquarie retains Underperform. TP $0.55 from $0.60. 

• Transurban (ASX: TCL) Ord Minnett upgrades to Buy from Accumulate. TP $15.00 from $15.80

Scans