Morning Wrap: ASX 200 to cross 8,000 for the first time, Dow tops 40,000, Investors pile into small caps

ASX 200 futures are trading 51 points higher, up 0.64% as of 8:30 am AEST.

Small caps continued to run higher overnight while megacap tech stocks staged a small bounce after steep losses from the previous session, the market is almost certain we'll see a 25 bp Fed rate cut in September, Trump calls for the US to stand united after assassination attempt and UBS says a rotation in to small caps could persist for as long as four weeks.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher but off best levels (Source: TradingView)

OVERNIGHT MARKETS

• Major US benchmarks finished higher but off best levels amid a last-hour selldown

• Dow narrowly missed the all-time high it set on 17 May

• Big tech names were mixed with Tesla  up 3.0% but Meta down 2.7% 

• Market continued to rotate into cyclicals like small-caps, heavily shorted stocks, retailers, yield-sensitive sectors and commodities 

• When the market experiences a significant one-day rotation from large to small caps, this trend tends to persist for the following four weeks, according to UBS 

• Weekly benchmark recap: Russell 2000 (+6.0%), Dow (+1.59%), S&P 500 (+0.87%) and Nasdaq (+0.25%)

• Earnings expected to grow at fastest rate since Q4-21, sets up high bar this earnings season (Bloomberg)

• Analysts see safe havens, groups leveraged to Trump victory as likely gainers following assassination attempt (Bloomberg)

• Broadening market could be painful for passive investors as performance could come at expense of big tech (Bloomberg)

• Bitcoin ETF inflows jump after recent Mt. Gox driven selloff (Bloomberg)

STOCKS

• Wells Fargo shares tumble 6% after Q2 net interest income falls short of estimates, guidance for 2024 to come in at the low end of prior outlook (CNBC)

• Citi shares ease 2% but net interest income, margins and EPS all topped analyst expectations amid surge in investment banking activities (Reuters)

• JPMorgan shares ease 1% despite largely in-line results and unchanged net interest income and expense guidance, investment banking highlighted as a standout (CNBC)

• Pepsi warns consumers becoming more price conscious after years of price hikes (link)

• Delta earnings reflect industry profit headwinds after years of capacity growth (link)

• Tesla launches new Model 3 long-range variant at US$42,490 or US$5,000 lower than the all-wheel drive version (Reuters)

CENTRAL BANKS

• ECB may signal another rate cut in September at this week's meeting (Bloomberg)

• Fed officials increasingly suggesting they are preparing for a rate cut (FT)

• Chicago Fed's Goolsbee says CPI gives him confidence inflation tracking to 2% (Bloomberg)

• Fed's Daly, Musalem see recent inflation data as encouraging (Bloomberg)

POLITICS & GEOPOLITICS

• Former President Trump injured but safe after assassination attempt at Pennsylvania rally, suspect killed (NY Times)

• Trump confirms he will be at RNC next week after assassination attempt (Bloomberg)

• Biden warns European allies ready to cut investment in China over its support for Russia (Bloomberg)

• Gaza truce talks making progress though lingering differences remain (Reuters)

ECONOMY

• US producer prices rise slightly more than forecast, up 2.6% in June vs. 2.3% consensus – this marks the largest advance in March 2023 (Bloomberg)

• China export growth tops forecasts as imports unexpectedly shrink amid weak economy (Bloomberg)

• China GDP growth to slow in Q2 sluggish domestic demand (Bloomberg)

ASX TODAY

• ASX 200 to open at another record high and above 8,000 for the first time on record

• ASX 200 changes effective prior to open on 22-Jul: Zip in, Altium out

• Altium holders vote in favour of proposal acquisition by Renesas (ALU)

• BHP approached by Lundin about JV bid for copper miner Filo Corp (Bloomberg)

• Champion Iron temporarily closes Bloom Lake mine due to forest fires (CIA)

• Genesis Capital to vote its 19.9% stake against Crescent Capital $1.90 per share proposal for Pacific Smiles (AFR)

• Rio Tinto considering offering more than US$30bn for Teck Resources (Sky News)

 WHAT TO WATCH TODAY

• Rotation debate: Small caps and rate-sensitive pockets of the market continued to rally overnight while growth and momentum stocks eased. The UBS comment about how the occurrence of a significant one-day rotation from large to small caps tends to persist for four weeks could set the local market for a very strong month. Last week, the top performing ASX 200 sectors include Discretionary (+3.8%), Real Estate (+3.2%), Telcos (+2.9%) and Financials (+2.7%)

BROKER MOVES

• AGL Energy initiated Neutral with $10.35 target (Goldman Sachs)

• Ebos Group initiated Buy with $33.50 target (Ord Minnett)

• Origin Energy initiated Buy with $11.35 target (Goldman Sachs)

• Paragon Care initiated Accumulate with $0.46 target (Ord Minnett)

• Sigma Healthcare initiated Accumulate with $1.35 target (Ord Minnett)

Companies trading ex-dividend: 

• Mon 15 July: None

• Tue 16 July: Metcash (MTS) – $0.085 

• Wed 17 July: Turners Automotive (TRA) – $0.069

• Thu 18 July: None

• Fri 19 July: None

Other ASX corporate actions today: 

• Dividends paid: None 

• Listing: Piche Resources (PR2) at 12:00 pm 

• Earnings: None

• AGMs: None

Economic calendar (AEST):

• 12:00 pm: China GDP Growth Rate (Q2)

• 12:00 pm: China Industrial Production (Jun)

• 12:00 pm: China Retail Sales (Jun)

• 12:00 pm: China Fixed Asset Investment (Jun)

• 2:30 am: Fed Chair Powell Speech