Morning Wrap: ASX 200 to bounce, oil prices sink more than 5% + Are stocks oversold or set to fail?

Major US benchmarks bounced as Treasury yields eased from 16-year highs, oil prices fall more than 5% after US data flagged weak demand for gasoline, Apple CEO Tim Cook makes his biggest stock stale in two years, US mortgage demand hits 28 year lows as rates climb towards 8.0% and is the market oversold or set to fail?

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher overnight and finished near best levels (Source: TradingView)

MARKETS

• Major US benchmarks bounced and closed near best levels

• Big tech lifted the Nasdaq, with the Magnificent Seven all higher

• US 10-year yield pulled back from a session high of 4.88% to 4.74%

• US 2-year yield also fell 10 bps toward 5.05%

• Oil settles down more than 5% after US data flagged weak demand for gasoline

• Oil tumbles on demand fears, Saudi confirms cuts to year-end (Reuters) 

• Strategists say McCarthy ouster raises odds of shutdown (Bloomberg)

• Japan keeps market guessing on yen intervention, warns against sharp falls (Reuters)

• Japan bond slump puts more pressure on BoJ to tweak policy (FT)

STOCKS

• Ford boosts wage increase in a new contract proposal to the UAW (Bloomberg)

• Intel to spin out programmable chip unit in next 2-3 years (Reuters)

• Travel stocks including Carnival, Norwegian Cruise Line and Royal Caribbean shares rally after the steep decline in oil prices (CNBC)

• Apple CEO Tim Cook makes US$41m from biggest stock sale in two years (Reuters)

• Google introduces new Pixel phones and watch (Bloomberg)

• GM secures US$6bn credit line to hedge against rising UAW strikes (Reuters)

• Barclays begins culling 3% of global investment banking workforce (Reuters)

CENTRAL BANKS

• BoJ buys US$12.7bn of bonds as yields hit highest in a decade (FT)

• RBNZ holds rates at 5.5%, says rates may need to stay higher for longer (Bloomberg)

• ECB's Lagarde stocks with ECB's 'sufficiently restrictive' rate stance (Bloomberg)

ECONOMY

• US service sector growth slows modestly (Reuters)

• US companies added 89,000 jobs in September, fewest since 2021 (Bloomberg)

• US mortgage demand hits 28 year low as rates climb toward 8.0% (CNBC)

• Unions representing 53,000 Las Vegas workers in talks, could strike (Reuters)

• Eurozone PMI services show economy likely contracted in Q3 (Reuters)

• Eurozone retail sales fall by much more than expected in August (Reuters)

• UK PMI services show downturn eased after inflation data, BoE pause (Reuters)

• Japan service PMI slows down in September, remains in expansion (Reuters)

• South Korea industrial production shrank at mildest pace in 15 months (Reuters)

Oversold or Set to Fail?

Only 7% of stocks in the S&P 500 are trading above their 50-day moving averages, the lowest since the October 2022 bottom.

Breadth is extremely low and bearish but historically, when this reading falls below 10%, it results in a rather strong bounce for markets.

A technical piece by Piper Sandler studied how the S&P 500 performs when more than 25% of its stocks have an RSI of 14 or less for 4 or more days.

What the data tells us: Historically, if things don't break (aka the Global Financial Crisis), forward returns over 1-week, 4-week, 13-week and 26-week timeframes are positive at least 85% of the time.

Source: Piper Sandler

On a separate note, there's been a few Bloomberg charts going around about how the current price action for yields and the Dow look a lot like 1987.

Source: Bloomberg

Source: Bloomberg

The Oil Market Selloff

Oil markets sold off sharply overnight after an Energy Information Administration (EIA) report flagged that "the implied 4 week average of the gasoline demand is at a 25 year seasonal low," which resulted in a higher-than-expected level of gasoline inventories.

WTI crude chart (Source: TradingView)

Sectors to Watch: Oil Winners & Losers

Yields down, oil down, US dollar down, VIX down and stocks up. Can the first three continue to trend lower or was the overnight price action just a small pullback?

Energy: Energy was the worst performing sector on the S&P 500, down 3.36%. Let's see how names like Woodside (ASX: WDS), Beach Energy (ASX: BPT) and Karoon Energy (ASX: KAR) perform after the sharp pullback in oil prices.

Travel: Travel stocks have been rather heavy in the face of surging oil prices. Qantas' trading update (25 Sept) said that the company will wear the increased ~$200 million in costs associated with higher fuel prices. The overnight dip in oil prices coincided with a broad-based bounce for travel stocks. The US Global Jets ETF also finished the session 2.0% higher.

Copper: Copper prices dipped another 0.9% overnight and not far from falling below May 2023 and November 2022 lows. The Global X Copper ETF was down 1.05% and closed at a fresh 10-month low.

Copper futures (Source: TradingView)

ASX corporate actions occurring today:

• Trading ex-div: ARB Corp (ARB) – $0.30, Clime Capital (CAM) – $0.01, Future Generation (FGG) – $0.03 

• Dividends paid: Fletcher Building (FBU) – $0.014, Service Stream (SSM) – $0.01, Breville Group (BRG) – $0.155, Gold Road (GOR) – $0.012, Wesfarmers (WES) – $1.03, Generations Development Group (GDG) – $0.01, Atlas Arteria (ALX) – $0.20, Medibank Private (MPL) – $0.08, Kina Securities (KSL) – $0.03, Servcorp (SRV) – $0.12, Corporate Travel (CTD) – $0.22, Inghams (ING) – $0.10 

• Listing: None 

Economic calendar (AEST):

• 10:30 am: Australia Balance of Trade

• 4:00 pm: Germany Balance of Trade