Morning Wrap: ASX 200 futures flat, oil tumbles 4% to 3-month low + Oversold bounce or bottom?

ASX 200 futures are trading 1 point lower, down -0.01% as of 8:30 am AEST.

The S&P 500 posted its seventh-straight gain or the longest since November 2021, oil prices tumbled below US$80 a barrel, WeWork files for bankruptcy, US software stocks rally on a solid result from Datadog, Uber misses earnings expectations but expects strong Q4 earnings, China's exports shrink and weigh on commodity prices and the state of play for the current bounce.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 still running, finished near best levels (Source: TradingView)

MARKETS

• Major US benchmarks higher, tech and growth stocks outperformed

• S&P 500 up for a seventh straight session, up ~6.5%

• Oil prices down more than 4% to lowest since 24 July amid mixed Chinese economic data, rising OPEC exports and a strong US dollar

• Copper prices finished lower but off a session low of -1.96%

• Bounce sustainability debate – Bulls are focused on the tendency for stocks to rally after the final rate hike of the tightening cycle, Goldilocks macro data, contrarian signalling from positioning indicators, seasonality tailwinds and stable forward earnings estimates

• Technicals, seasonal indicators turn bullish for S&P 500 (Bloomberg)

• Short-and long-dated Treasuries attracting large inflows on dovish Fed (Bloomberg)

• Fed report flags tighter loan standards, weaker demand at US banks (Bloomberg)

• Moody’s says global default rates on riskier debt reached 4.5% in year to September, up from a 4.1% historical average (FT)

STOCKS

• US corporate sales beats are softest in four year (Bloomberg)

• WeWork files for bankruptcy protections in the US (Bloomberg)

• Apple to delay development of upcoming software updates (Bloomberg)

KEY EARNINGS

Datadog (+28.6%): Double beat, stronger-than-expected full-year guidance, quarterly revenue rose 25% year-on-year to $547.5 million, management said that "AI-native customers' contributed to 2.5% of the company's annualised revenue for the quarter. Is this the return of SaaS? Could it see some positive flow for local names?

Tripadvisor (+10.8%): Double beat, quarterly revenue up 16% year-on-year to $533 million, management said the business experienced better-than-expected performance across experiences and in their core Tripadvisor hotel meta offering.

Uber (+3.7%): Double miss, monthly active platform consumers below analyst expectations, management blamed weaker-than-expected earnings on 'business model changes', Q4 guidance was strong with $1.18-1.24bn EBITDA vs. the $1.15bn expected.

• "Certain business model changes negatively impacted revenue by $521 million and combined Mobility and Delivery year-on-year revenue growth by approximately 8 percentage points."

CENTRAL BANKS

• Fed's Kashkari says more data needed to assess economy (Bloomberg)

• Fed's Goolsbee says inflation could see fastest drop in the last century (Reuters)

• Fed's Waller says Q3 US GDP growth was a "blowout" number (Reuters)

• RBA raises cash rate by 25 bps as expected but softens tightening bias (FT)

GEOPOLITICS

• Biden urges 'tactical pause' from Israel's Netanyahu (Politico)

• Netanyahu proposes Israeli role in Gaza Security after conflict (ABC News)

• Hamas claims over 10,000 killed in Gaza (Bloomberg)

• Chinese businesses retreat from the US amid worsening relations (FT)

ECONOMY

• China exports shrink, unexpected import growth due to base effects (Bloomberg)

• IMF boosts China's 2023-24 GDP growth forecast on strong recovery (Reuters)

• German industrial production declines for the fifth consecutive month (Bloomberg)

• UK consumer spending slows, drops ahead of Christmas (Reuters)

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Hello, Kerry here. I'm back from the Melb Cup holiday. Lots to cover today so expect a few punchy sections.

The Oversold Bounce

Last week was about oversold/contrarian sentiment and positioning indicators. Now it's all about the sustainability of the current bounce. Here are some tidbits from the experts:

• Cannacord: "While the momentum could carry risk assets a bit further ... on the hopes of even lower rates ... a further drop ... likely comes with the realisation we are in or very near a recession ... Until there is an improved outlook for money, beware of false signals."

• Barclays: "This dovish turn may have backfired, with financial conditions easing significantly this week amid some softer data. We retain our view that data momentum will force another hike, though we push back the timing to January."

• BofA: "The Sell Side Indicator has been a reliable contrarian indicator – in other words, it has been a bullish signal when Wall Street was extremely bearish and vice versa ... Historically, when the indicator has been here or lower, 12 month forward S&P 500 returns were positive 95% of the time with a median return of 21%."

• JPMorgan: "The bearish narrative is overstated. Our client conversations with bears reveal a macro view of a constrained consumer, imminent risk of defaults ... the "excess savings' metric is an ineffective proxy for consumer health ... we see cash levels are 33.7% higher than at 2019."

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Oil Prices Smashed

Oil prices tumbled overnight after China's overall exports fell more than expected (down 6.4% year-on-year in October).

From a technical perspective, things are looking pretty ugly.

• Decisive break down from the July to late September uptrend

• Undercut the key 200-day moving average. The last time this happened was back in July 2022, where oil prices would fall ~30% in the coming months

• Trading at levels not seen since July 2023

WTI crude daily chart (Source: TradingView)

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China's Choppy Imports

China's trade data from Tuesday came in much weaker-than-expected. To put the above 6.4% export drop into perspective: China's trade surplus came in at US$56.5bn vs. the US$82bn expected by analysts.

Why does this matter: China's exports have now dropped for six consecutive months, flagging slowing global demand from higher interest rates.

Surprisingly, import data was much stronger than expected, up 3.0% year-on-year in October vs. the 4.8% drop expected by analysts. But this was largely due to base effects (e.g. import data was extremely weak in October 2022 so it doesn't take much to post a big face value jump in October 2023).

Still, the numbers look very upbeat (at face value):

• Iron ore imports up 4.6% year-on-year in October to 999.4 million tonnes

• Copper ore up 23% to 2.31 million tonnes

• Coal up 23% to 35.99 million tonnes

• Crude oil up 13.5% to 49 million tonnes

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Sectors to Watch: Tech Gains, Resource Pains

Our ETF list and US sector performance sets the local market up for a very mixed session.

• Resources: ETFs like Copper Miners, Steel and Gold all down around 2%. The SPDR Energy and Materials sector was also down by the same amount.

• Tech: Software and big tech performed strongly. Datadog's strong earnings inspired a broad-based rally for US-listed peers. So let's see if this strength can carry over for local names.

ASX corporate actions occurring today:

• Trading ex-div: Resmed (RMD) – $0.05 

• Dividends paid: Elanor Commercial Property (ECF) – $0.02 

• Listing: None 

Economic calendar (AEDT):

• 9:00 pm: Eurozone Retail Sales

• 1:15 am: Fed Chair Powell Speech