Morning Wrap: ASX 200 futures flat, markets in waiting mode + Breaking down two massive mid-cap rallies

The S&P 500 finished flat and the Nasdaq edged lower ahead of the Fed's interest rate decision and key earnings from stocks like Microsoft, March rate cut expectations ease on strong US JOLTs data, major corporations continue to announce major job cuts, UPS shares tumble as both earnings and guidance miss expectations, Eurozone GDP unexpectedly but narrowly misses a recession and breaking down Megaport and Nickel Industries' massive rallies.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 relatively unchanged amid choppy trade (Source: TradingView)

MARKETS

• S&P 500 closed around breakeven amid a tight, rangebound session

• Dow outperforms as Financials, Energy and Staples lead while Nasdaq eased ahead of major tech results

• S&P 500 up almost 20% in the last three months – Strength that falls into the 99th percentile in market history, according to Goldman Sachs

• Markets in waiting mode ahead of a flurry of high-profile macro and corporate catalysts this week, including Fed rate decision and megacap tech earnings

• Investors pare bets on March rate cut after strong JOLTS and consumer confidence data (Bloomberg)

• US corporate bond sales hit record $176bn in January (Bloomberg)

• Fed may be biggest risk to markets, economic growth (Reuters)

• Investors see rally on long end as Fed starts easing cycle (Reuters)

• China 10-year yield falls to level not seen since 2002 (Bloomberg)

• Global crypto funds see US$500m in outflows last week, most since spot Bitcoin ETF approval (Bloomberg)

STOCKS

• Big tech earnings expected to grow a combined 53.7% in Q4 vs 10.5% decline for other 494 S&P 500 companies (Yahoo Finance)

• Generative AI expected to have muted impact on Alphabet and Meta earnings (Reuters)

• Wells Fargo's FX trading unit generating US$1bn annual revenue amid pivot toward trading and dealmaking (Bloomberg)

• Whirlpool says Red Sea attacks will soon begin to impact its European business (Reuters)

• PayPal will lay off 9% of global workforce (The Information)

• UPS to cut 12,000 management jobs and explore sale of Coyote truck brokerage business (Bloomberg)

• Wall Street Journal planning some layoffs, restructuring of its Washington Bureau (Axios)

• Block lays off around 1,000 or around 10% of the company (Business Insider)

EARNINGS

A number of high-profile companies including Microsoft and Alphabet will report earnings on Wednesday morning.

UPS (-8.2%): Earnings beat but revenue miss, plans to cut 12,000 jobs after what its CEO called a "difficult and disappointing" year, company seeks to cut US$1bn of annual costs, full-year guidance was light and below analyst expectations. UPS earnings, often a good barometer of economic activity, showed a 7.4% year-on-year drop in average daily volumes in the US, and international volumes down 8.3% year-on-year.

CENTRAL BANKS

• RBNZ chief economist strikes somewhat hawkish tone, says more time needed to return inflation target (Bloomberg)

GEOPOLITICS

• Israel military sees it taking all of this year to eliminate Hamas threat (Bloomberg)

• Iran distances itself from attack that killed three US soldiers in Jordan (FT)

• Hungary vows to defy EU pressure to approve €50B Ukraine aid package (FT)

• Biden weighs response that will deter Iran and its proxies without triggering direct conflict (Bloomberg)

CHINA

• Evergrande liquidation highlights investor despair at China debts (FT)

• China's stock and bond market giving clear signal to policymakers they need to take more steps to revive investor confidence (Bloomberg)

ECONOMY

• US job openings unexpectedly rise, resignations decreasing (Reuters)

• Spanish inflation surprises to the upside (Reuters)

• Eurozone GDP unexpectedly but narrowly skirts recession, stagnates in Q4 (CNBC)

• Italy and Spain GDP readings top estimates (Bloomberg)

• German GDP fell in-line with expectations, recession on cards for Q1 (Reuters)

Layoffs Galore

Major companies in the media, retail and technology sectors have conducted mass layoffs in recent months, trimming costs to invest in AI, and after hiring too ambitiously during the pandemic. Here's a list of some of the more high-profile layoffs.

1. Hasbro – 20% of workforce

2. Spotify – 17% of workforce

3. Levi's – 15% of workforce

4. Wayfair – 13% of workforce

5. Washington Post – 10% of workforce

6. Salesforce – 10% of workforce

7. eBay – 9% of workforce

8. Paypal – 9% of workforce

9. Business Insider – 8% of workforce

10. Charles Schwab – 6% of workforce

11. Blackrock – 3% of workforce

12. Citi – 20,000 employees

13. UPS – 12,000 employees

14. Microsoft – 1,900 employees

15. Pixar – 1,300 employees

Positive take vs. negative take: Rebalancing of a still-strong labour market and a heightened push to protect corporate margins vs. Current resilient labour market data is a lagging indicator.

Jefferies noted that "~20% of the S&P 1,500 has reported earnings, with 35 companies discussing layoffs in some capacity ... the ~13% figure represents both a strong reversal from past two quarters and is ahead of the ~7% seen during bull market times."

Conversely, Bank of America says that the size and frequency of layoff announcements has been falling. Added that historically, layoffs and earnings cycles have shown a strong inverse correlation. The widely expected earnings up-cycle suggests peak corporate layoffs is likely behind the market.

Megaport and Nickel Industries: Massive Rallies

Nickel Industries (ASX: NIC) and Megaport (ASX: MP1) were two stocks that rallied more than 20% on Tuesday. Both stocks offered intraday opportunities as well, as they opened around 9-10% higher and rallied in early trade.

Here's a breakdown as to why their announcements resulted in such a powerful move.

Nickel Industries reported its December quarter results.

• Quarterly revenue of US$135.4 million (which might come as a surprise given recent nickel developments like BHP's WA nickel asset write downs and Panoramic Resources sinking into administration)

• Full-year EBITDA of US$425.2 million (these are unofficial, I just added up all the numbers) vs. Citi estimates of US$418 million or a 1.7% beat

• Increased dividend to 2.5 cps from 2.0 cps

• Launched on-market buyback program of up to $100 million

The last two points are significant given:

• A few months ago, Citi said "we continue to see announcing a larger dividend as a key catalyst for the stock giving investors conviction that there are no more ‘big deals’ to come."

• Validating no more big deals = No more risks of further capital raising and dilution

• The company is announcing an on-market buyback program at a time when the stock is at 3.5 year lows

Nickel industries opened 11% higher and rallied 8% intraday to close 20.8% higher. It will be interesting to see if it continues to rally on Wednesday as brokers upgrade the stock on dividend/buyback news.

Megaport also announced its December quarter result. It was a pretty bread-and-butter quarterly, where most key metrics were up low single digit percentages quarter-on-quarter and the company reaffirmed its FY24 guidance. The most important thing will be the third point below.

• FY24 revenue guidance $190-195m vs. analyst expectations of $195m

• FY24 EBITDA guidance $51-57m vs. $54.5m expected

• FY24 capex $20-22m vs. prior $28-30m

I find it hard to believe that an ~$8m capex revision triggered such a sharp share price reaction (9.9% gap up, 16.0% intraday rally and 27.6% close) but the update contained no other major surprises/updates.

ASX corporate actions occurring today:

• Trading ex-div: Mayfield Group (MYG) – $0.01, Incitec Pivot (IPL) – $0.102

• Dividends paid: PRL Global (PRG) – $0.05, Centuria Industrial REIT (CIP) – $0.04, Rural Funds (RRF) – $0.02, Australian Unity Office Fund (AOF) – $0.015, Centuria Office REIT (COF) – $0.03 

• Listing: None

Economic calendar (AEDT):

• 11:30 am: Australian Inflation (Dec)

• 12:30 pm: China NBS Manufacturing and Services PMI (Jan)

• 4:00 pm: Japan Consumer Confidence (Jan)

• 6:45 pm: France Inflation (Jan)

• 12:00 am: Germany Inflation (Jan)

• 6:00 am: US Interest Rate Decision