Morning Wrap: ASX 200 to fall, S&P 500 flat ahead of Fed meeting + Oil stokes global inflation fears

Major US benchmarks were relatively flat overnight amid a relatively session for both markets and economic data, oil prices tick higher while the Australian Institute of Petroleum reports a jump in unleaded prices to 204.4 cents per litre, markets are pricing in a near-100% chance that the Fed keeps rates unchanged on Thursday and did the US 2-Year Treasury yield really spike 424 bps last night?

Let's dive in.

S&P 500 SESSION CHART

A relatively uneventful session for the S&P 500 (Source: TradingView)

MARKETS

• S&P 500 ticks higher but off session highs of 0.36%

• Fairly quiet session for both markets and newsflow

• WTI crude settles 1.1% higher, near the highest levels since November 2022

• Oil upside continues to be driven by tight OPEC+ production, depleting inventories and geopolitical risks – Positioning is beginning to become extended with fund managers net purchasers in 8 of the past 11 weeks while short positions lowest since June 2022

• Markets pricing in near-100% chance for the Fed to hold on Thursday

• Chair Powell expected to stress that the Fed will remain data dependent and maintain the optionality for further rate hikes

• Analyst previews see median dot reflecting one more rate hike this year while markets pricing in a 40% chance of one more 25 bp hike by year-end 

• Morgan Stanley's Wilson says clients have a more negative outlook for risk assets in 2024, majority expect recession next year (Bloomberg)

• Hedge funds turn bullish on US dollar for first time since March (Bloomberg)

• House Republicans propose a short-term deal to temporarily avert a US government shutdown, demands include an 8% spending cut for domestic agencies and resumption of border wall construction (Bloomberg)

STOCKS

• Newmont clears regulatory hurdle for Newcrest, awaits shareholder vote (Reuters)

• Arm shares slide, Needham initiates coverage with a holding rating, says the valuation looks "full" (CNBC)

• SoftBank looking to invest tens of billions in AI (FT)

• UAW negotiations begin fourth day on Tuesday with no deal, rejected offer of 21% pay rise from Stellantis (Bloomberg)

• Morgan Stanley says iPhone preorder data is better than feared (CNBC)

• Microsoft's Chief Product Officer is exiting after 20 year tenure (Bloomberg)

• Macy's to hire more than 38,000 employees for holiday season (Reuters)

• Klaviyo raised IPO range, valuing company up to US$9bn (CNBC)

CENTRAL BANKS

• Economists expect Fed to defy markets with more rate hikes (FT)

• ECB's Holzmann says latest rate hike may not be the last (Bloomberg)

• BoE readies what may be its final rate hike (Reuters) 

• Goldman Sachs lowered its terminal rate view at 5.5% for BoE (Reuters)

CHINA

• China's top developers down around $3bn due to weakened yuan (Nikkei)

• IMF to urge China to shift growth model towards consumption (Reuters)

• Chinese shadow bank exposed to trouble property developers (FT)

• Evergrande shares slide 25% after wealth unit staff detained (Reuters)

• China's cash-squeezed Country Garden faces another deadline (Reuters)

ECONOMY

• US homebuilder confidence falls to lowest since April (Yahoo)

A "slick" rally makes for "oily" earnings

Oil prices have made an almost vertical move from July lows of US$67 to a now 10-month high of US$92. A combination of production cuts, increasing demand, and a steady slide in inventories in the US have all created the perfect storm for traders. The impact is already being felt with a range of companies handing down re-jigged earnings guidances. Let's start with the airlines:

• Jet fuel has risen by more than 50% since early May. Delta Air Lines

  on Thursday warned of higher third-quarter fuel costs, following similar comments from American Airlines and Spirit Airlines a day earlier.

• Shipping companies have also had its share prices impacted with companies like Maersk and UPS down over the past month.

• In contrast, fuel retailers are loving the spike in crude oil prices. Shares of US names Marathon Petroleum and Phillips 66 are near record highs. (Ampol is higher month-on-month while Viva Energy is down 8% month-on-month).

And while you might be reading this and thinking "Hans, these are global companies, who cares?" – You might not want to say that so fast. A falling Australian dollar is not good news for motorists because it costs more to import the petrol from overseas.

The Australian Institute of Petroleum reports that the national price of unleaded rose by 2.7 cents per litre to 204.4 cents last week, up 26% year-on-year which is the largest increase in 14 months. We've suddenly gone from price deflation at the beginning of the year to rapid inflation.

Source: Commsec

Central bank whip-around

I also hope you like central banks because we have a boat load of them to get through this week. The Fed, the Swiss National Bank, and the Bank of England are all due to hand down rate decisions on Thursday (yes, we're not joking. All on one day). Here's the fast guide to what you need to know:

• The expectation is for the Fed to stand pat this week but it's still not clear if they will need to hike again later on in the year. Core inflation did tick up last month.

• The Swiss National Bank is expected to hike rates by 25bps but its rate path is also unclear.

• The Bank of England is also widely expected to hike interest rates to 5.5%, but it's more clear in economists' eyes, that this hike will be the last of the cycle.

If you count the Bank of Japan on Friday, that's technically four central banks this week. I'll refrain from putting the consensus prediction into print given what happened six weeks ago when they adjusted yield curve control in a massive market shock (and this writer dismissed the meeting as a non-event).

And if you thought that wasn't enough, we should also get the Chinese interest rate decision on Wednesday. Remember, the cut from a month ago was less than expected and markets were very unimpressed.

Finally, the RBA meeting minutes are out today at 11:30 am. The good news is that the RBA is likely to believe its hikes are working and that there won't be a need for further ones. In even better news, some of the forward-looking job market indicators suggest the RBA may actually get inflation down to below 3% without getting the unemployment rate sustainably above 4%. Aussie! Aussie! Aussie! (Oi! Oi! Oi!)

I thought the world was going to end

Hi, Kerry here. I almost died at 11:09 pm last night after witnessing the US 2-Year Treasury yield spike to 424 bps to 5.49%.

Multiple sources including TradingView, CNBC and Investing.com reported the spike. However, this turned out to be a glitch and not the correct print.

Such a move would have likely caused US futures to nosedive at least 5% and push the 10-year yield to at least 4.5%.

US 2-year Treasury yield daily chart (Source: TradingView)

ASX corporate actions occurring today:

• Trading ex-div: Briscoe Group (BGP) – $0.115, Mader Group (MAD) – $0.03, IPD Group (IPD) – $0.04, Bisalloy Steel (BIS) – $0.095, MacMahon Holdings (MAH) – $0.005, Enero Group (EGG) – $0.045, Service Stream (SSM) – $0.01  

• Dividends paid: TPC Consolidated (TPC) – $0.30, Summerset Group (SNZ) – $0.08, Bapcor (BAP) – $0.115, Sensera (SE1) – $0.01, Coronado Global (CRN) – $0.005, Deterra Royalties (DRR) – $0.168 

• Listing: None

Economic calendar (AEST):

• 11:30 am: RBA Meeting Minutes

• 10:30 pm: Canada Inflation

• 10:30 pm: US Building Permits