Morning wrap: Amazon pushes US stocks higher, ASX set to fall

ASX Futures (SPI 200) imply the ASX will open 41 points lower, down -0.6%.

US stocks closed mostly higher last Friday, buoyed by Amazon earnings and a stronger-than-expected jobs report.

Key points

• US earnings season continues to whipsaw the market between “it's the end of the world” and “it's going to be ok” 

• Amazon led gains for the S&P 500 (large cap) and Nasdaq (tech), rallying 13.5% on strong quarterly earnings, cloud revenue growth and a fast growing advertising business 

• Amazon will be hiking the price of its Prime membership for the first time in four years. Annual prime fees will increase from US$119 to US$139, with changes coming into effect in mid-February 

• On the economic front, the US added 467,000 jobs in January. Economists surveyed by The Wall Street Journal were expecting a reading closer to 150,000 

• The unemployment rate ticked slightly higher from 3.9% to 4.0%. However, the labor force participation rate hit a pandemic high of 62.2% 

• The strong reading reinforce the Fed’s view that the economy is ready for higher interest rates and less monetary stimulus 

• US 1, 2, 3, 5 and 10 year Treasury yields ended the week at their highest levels since the beginning of the pandemic

• Most notably, the US 2-year treasury yield - used to reflect short-term interest rate expectations - hit 1.31%.

• This means the Fed is well ‘behind the curve’. Rate hikes are coming

US Interest rates vs. 2-year Treasury yield, TradingView

Local bank and energy stocks could benefit from the same catalysts that drove their US counterparts higher last Friday.

That said, ASX futures is currently pointing towards a -0.6% fall at open. Investors should brace for yet another volatile session as markets attempt to price-in looming interest rate hikes.

▲ Consumer discretionary

Amazon’s 13.5% gain drove an outsized gain for the sector. 

Other eCommerce related stocks relished Amazon's positive result, with Etsy and eBay rallying 5.3% and 3.7% respectively.

▲ Financials 

US banks including Citi, JPMorgan and Wells Fargo rallied between 1.3% and 2.6%.

A higher interest rate environment can boost all-important net interest margins for banks, which have been contracting for the past decade.  

▲ Energy 

Crude oil prices closed at a fresh 7-year high of US$91.95.

“Crude prices seem to have a one-way ticket to US$100 oil,” said Oanda senior market analyst, Ed Moya. 

“This week’s rally in crude was supported by the OPEC+ decision to stick to their gradual increase strategy and as US production fell again.  An artic blast is also disrupting some production in Texas and that is driving this latest price surge.” 

“Everything seems to be turning very bullish for WTI crude and the bullish momentum might not see much resistance until the US$95 level,” Moya added. 

#1 Tech

Local tech stocks could be in for a positive session after the FinTech, Cloud and eCommerce ETFs all closed at least 2.6% higher last Friday. 

More specifically, US-BNPL rivals Affirm and Block both rallied 9.2% and 7.3% respectively. 

This will lead to a positive open for Block CDIs (ASX: SQ2) and local BNPL names including: 

• Zip Co (ASX: Z1P) 

• Sezzle (ASX: SZL) 

However, if not for Amazon, US tech stocks would have likely faced pressure from the jump in bond yields. With the ASX set to fall this morning, the tech and BNPL gains could very well be short-lived.

#2 Cryptocurrency 

Bitcoin rallied through US$40,000 with ease amid the renewed attitude towards risky assets. Bitcoin and cryptocurrencies pared gains last week that stemmed from Amazon’s upbeat earnings. 

This could position beaten up ASX names for a bounce, including: 

• Betashares Crypto Innovators ETF (ASX: CRYP) 

• DigitalX (ASX: DCC) 

ASX corporate actions occurring today:

• Ex-dividend: AMH, CIA

• Dividends paid: PCI, TCF

• Issued shares: 360, AII, AMC, ANN, AO1, AVH, BEX, BRK, CDM, CIA, CPV, EAI, ELT, EMT, ENX, GBZ, GDA, GWR, HT8, IDT, INL, JAT, KP2, LIT, LTR, MGF, MGT, MTR, NAB, NGE, NWS, ORA, PIC, PUA, QVE, RAB, RDT, RMI

Other things of interest 

• China services PMI for January will be released at 12:45 pm AEDT

  • Economists forecast a reading of 51 vs. the 53.1 reported in December. Any figure below 50 represents a contraction 

• US balance of trade for December will be released at 12:30 am AEDT