Morning Wrap: ASX 200 to fall, oil and safe-haven gold rally as Middle East conflict intensifies

The S&P 500 and Nasdaq sold off amid weakness in growth sectors like tech and discretionary, energy stocks rally amid a spike in gas and oil prices, major US banks kick off reporting season and results have come in much better than feared, gold has its best day all year and Bank of America says it hasn't seen cash levels this high since Covid.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 lower and finished near worst levels (Source: TradingView)

MARKETS

• Major US benchmarks finished lower last Friday and reversed early strength to finish near session lows

• S&P 500 and Dow Jones logged weekly gains while Nasdaq was slightly lower

• Gold marked its best session of the year, up 3.4% to a near one-month high

• WTI crude surged 5.0% amid worries about an escalation between Israel-Gaza

• Bond yields softened against the backdrop of dovish Fedspeak which noted that tighter financial conditions from higher Treasury yields may make it less urgent for further hikes

• Bullish focus points for the week: Peak Fed narrative supported by recent dovish shift in Fedspeak, optimistic Q3 earnings expectations, big bank earnings coming in better than feared so far, bullish sentiment upswing and positive seasonal factors

• Bearish focus points for the week: Fears of weakening treasury demand, higher-for-longer Fed, concerns about the hotter-than-expected US CPI driven by shelter and energy prices, Israeli assault on Gaza could spark further escalation

• Weak Treasury auction flags waning demand, halts bond market bounce (Bloomberg)

• BofA says US stocks can evade dire scenario if yields remain below 5% (Bloomberg)

• Bond market increasingly relies on price-sensitive buyers demanding hefty premium to finance ballooning deficits (Bloomberg)

• Retail investors retreat from market risk, seek refuge in to bonds and cash (MSN)

STOCKS

• Ford says 23% pay rise to UAW is best it can do (Reuters)

• Microsoft's US$69bn deal for Activision cleared by UK regulators (Reuters)

• Qualcomm cuts 1,200 job in California to reduce costs (Bloomberg)

EARNINGS

Wells Fargo (+3.1%): Double beat, net interest income ahead of expectations, raised Q4 and full-year net interest income outlook.

• Credit quality: "While the economy has continued to be resilient, we are seeing the impact of the slowing economy with loan balances declining and charge-offs continuing to deteriorate modestly." – CEO Charles Scharf

JPMorgan (+1.5%): Double beat, net interest income and investment bank revenues both ahead of expectations, credit losses were lower than expected and raised full-year outlook.

• NII outlook: "We now expect 2023 NII and NII ex-markets to be approximately $88.5 billion and $89 billion, respectively, with the increase driven by slower reprice than previously assumed ... we do not consider this level of NII to be sustainable." – CFO Jeremy Barnum

• State of the consumer: "Consumer spending growth has now reverted to pre-pandemic trends with nominal spend per customer stable and relatively flat YoY. Cash buffers continued to normalize to pre-pandemic levels with lower income groups normalizing faster."

Citi (-0.2%): Surprise double beat, stock closed breakeven from a session high of 4.3%, Q3 was the best quarter in the past decade for rates and currencies revenue.

• Economic outlook: "In the US, recent data implies a soft-landing, but history would suggest otherwise and we are seeing some cracks in the lower [credit score] consumer. In the euro area and the UK, the picture turned distinctly more negative." – CEO Jane Fraser

• Banking activity: "Banking activity played to our mix and grew 17%, bolstered by a rebound in debt issuance and some signs of life in the equity capital markets ... a continued deceleration in spending indicates an increasingly cautious consumer."

GEOPOLITICS

• Israeli military preparing to invade Gaza strip and destroy Hamas's leadership (NY Times)

• Gaza on the brink as air strikes and shortages leave no safe place (FT)

• Israel refuses aid to enter Gaza until roughly 100 hostages are released (Reuters)

• US says it can deny Iran access to $6bn in funds held in Qatar (FT)

• US warns Iran not to get involved in crisis in Israel (Reuters)

• US report says it must prepare for simultaneous wars with China and Russia (Reuters)

CHINA

• China exports and imports continue to decline but better than expected (Reuters)

• China considers establishing new fund to prop up stock market (FT)

• China's deflation threat sparks concern about economic health, raises calls for further stimulus (Bloomberg)

ECONOMY

• Soaring oil prices could trigger global economic downturn (Bloomberg)

• Eurozone industrial production bounces in August, down sharply year-on-year (Reuters)

• US consumer sentiment weakens in October, lowest since May (Reuters)

Sectors to Watch

Gold: The risks surrounding the Israel-Hamas war, dovish Fedspeak and short covering helped spot prices rally 3.4% overnight. This marked the best session this year and 2nd largest in three-and-a-half years. The sets the scene for a large gap up for local names. But will the stocks be able to hold session highs?

Gold daily chart (Source: TradingView)

Energy: Energy was the best performing S&P 500 sector overnight, up 2.25%. The spike in oil prices should see some positive flows for local names like Woodside, Beach Energy, Karoon Energy and Santos.

The Cash Complex

Bank of America says cash and treasury bills now account for 15% of its Global Wealth assets under management, the highest level since the onset of the pandemic and one of the highest levels since the Global Financial Crisis.

Source: Bank of America

As Blackrock CEO Larry Fink notes "for the first time in nearly two decades, clients are earning a real return in cash and can wait for more policy and market certainty before re-risking."

But the surge in cash and safe havens could potentially limit the downside, should it begin to rotate back into stocks.

ASX corporate actions occurring today:

• Trading ex-div: Cadence Capital (CDM) – $0.03

• Dividends paid: CTI Logistics (CLX) – $0.05, Carsales (CAR) – $0.325, Peet (PPC) – $0.04, Saunders International (SND) – $0.01

• Listing: Nido Education (NDO)

Economic calendar (AEDT):

No major economic announcements.