Morning Wrap: ASX 200 to fall, S&P 500 gives back gains after 50 bp Fed rate cut

ASX 200 futures are trading 38 points lower, down -0.46%, as of 8:30 am AEST.

It was a classic green-to-red day after the Fed cut interest rates for the first time since March 2020, major US benchmarks as well as gold experienced a brief pop on the news but quickly faded into negative territory, Powell stressed that the economy is in good shape, ResMed shares tanked after Wolfe Research downgraded the stock and MinRes is seeking to sell its Perth Basin assets.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 ticks lower after a brief post-rate cut spike (Source: TradingView)

OVERNIGHT MARKETS

• Major US benchmarks finished mostly lower, ending near worst levels after a brief post-Fed rate cut spike

• Defensives (Utilities, Staples) and Tech among the worst performers

• Today’s big story – The Fed opted for a more aggressive 50 bp rate cut but stocks/commodities slightly faded the news (S&P 500 briefly rallied 0.98% but closed 0.29% lower, gold spiked 1.2% to US$2,600 but closed 0.4% lower)

• Gold touches new record highs after Fed makes first rate cut since 2020 (BBG)

STOCKS

• Boeing begins furloughing tens of thousands of workers amid labor strike (CNBC)

• United Auto Workers is eyeing multiple US strikes against Stellantis (RT)

• T-Mobile forecasts higher profits, AI tailwinds over next several years (BBG)

• Blackrock and Microsoft to launch AI partnership, raising US$30bn for investment in data centres and other infrastructure (BBG)

FED RATE CUT

• Fed cuts rates by 50 bps to 4.75% – 5.0%

• Size of the cut does not signal that the economy is weak or weakening at a significant pace, rather a "strong start" to recalibration to the gradual softening in data since July

• "I don't see anything in the economy that suggests that the likelihood of a recession, of a downturn is elevated ... You see growth at a solid rate. You see inflation coming down and see a labour market that is still at very solid levels."

• Fed’s latest summary of economic projections (SEP) shows median 2024 fed funds rate of 4.4% of 100 bp of cuts by year end and 100 bps of cuts in 2025

• The projections reflect a recalibration that the Fed could follow if the economy develops as expected but Powell stresses it shouldn't be taken as guidance

• Fed notes "greater confidence" in trajectory of inflation while job gains have "slowed", changed from prior "moderated"

• Overall – A slightly hawkish press conference as Powell stressed that the economy and labour market remain solid and the dovish SEP is not concrete

POLITICS & GEOPOLITICS

• Biden administration to seek up to 6m barrels of oil for strategic petroleum reserve, matching largest such replenishment since 2022 drawdown (RT)

• Hezbollah vows retaliation against Israel after pager explosions (RT)

• US and Japan close to a deal to curb tech exports to China's chip industry (FT)

• China warns EU tariffs on EVs will seriously interfere with trade relations (RT)

ECONOMY

• UK headline inflation steady at 2.2%, leaves door open for rate cuts, but core readings and services price accelerate (BBG)

• US August housing starts soar 9.2% month-on-month vs. 5.5% consensus (RT)

• Japan trade and machinery orders miss, reflecting softer external demand, manufacturing weakness (BBG)

ASX TODAY

• ASX 200 to open lower after a relatively uneventful market reaction to one of the most highly anticipated and documented rate cuts

• Fed easing, economic soft landing and AI growth theme are the big bullish talking points in the market right now (but price action overnight was weak as most assets faded after a brief post cut spike)

• ASX 200 Index changes effective prior to 26-Sep: Codan in, Virgin Money UK out

• APM Human Services holders vote in favour of acquisition by Madison Dearborn Partners, scheme remains subject to approval of the Supreme Court of NSW (APM)

• MinRes seeking to sell onshore Perth Basin assets, the decision comes after Mitsui put forward a ‘low-ball offer’ for the assets (The Aus)

• ResMed shares tumbled 5.1% overnight after Wolfe Research downgraded the stock to Underperform, citing decelerating revenue growth due to increased competition from Eli Lilly's weight loss drugs (CNBC)

• Stanmore and Yancoal among shortlisted bidders in Anglo American’s Australian Coal auction (AFR)

WHAT TO WATCH TODAY

All things considered – That was a pretty uneventful overnight session, where markets struggled to hold on to any upside as hedges came off for a pop, then sellers took over and pushed the market lower. Most of our overnight ETF watchlist finished +/-1%, with some more notable weakness across tech, lithium, and gold.

BROKER MOVES

• BHP upgraded to Overweight from Equal-weight; $47.50 target, up from $44.65 (JPM)

• Evolution Mining downgraded to Equal-weight; $4.25 target, up from $4.15 (JPM)

• Fortescue upgraded to Equal-weight; $17.45 target, up from $16.65 (JPM)

• Genesis Minerals initiated Buy with $2.55 target (BP)

• Northern Star downgraded to Underweight from Equal-weight; $14.35 target, down from $15.05 (JPM)

• Pilbara Minerals upgraded to Equal-weight; $2.95 target, up from $2.70 (JPM)

• Regis Resources downgraded to Equal-weight; $2.05 target, up from $2 (JPM)

Stocks trading ex-dividend: 

• Thu 19 Sep: Mader (MAD) – $0.04, Auswide Bank (ABA) – $0.11, Embelton (EMB) – $0.20, Tourism Holdings (THL) – $0.046, Midway (MWY) – $0.161, South32 (S32) – $0.046, Motorcycle Holdings (MTO) – $0.07, IPD Group (IPG) – $0.062, Count (CUP) – $).022, Enero Group (EGG) – $0.02, NRW Holdings (NWH) – $0.09, Lycopodium (LYL) – $0.40

• Fri 20 Sep: Inghams (ING) – $0.08, Vita Life Sciences (VLS) – $0.035, Capitol Health (CAJ) – $0.004, Eureka Group (EGH) – $0.007, Blackwall (BWF) – $0.025 

• Mon 23 Sep: Bisalloy Steel (BIS) – $0.115

• Tue 24 Sep: Pacific Smiles (PSQ) – $0.033, WT Financial (WTL) – $0.005, Briscoe (BGP) – $0.115, Southern Cross Electrical (SXE) – $0.05 

• Wed 25 Sep: H&H High Conviction (HCF) – $0.02, Stealth Group (SGI) – $0.008, Genesis Energy (GNE) – $0.064, Nick Scali (NCK) – $0.33, Imdex (IMD) – $0.013, Cedar Woods (CWP) – $0.17, Teaminvest (TIP) – $0.015

Other ASX corporate actions today: 

• Dividends paid: Helloworld (HLO), Maxiparts (MXI), Sonic Healthcare (SHL), Praemium (PPS), ResMed (RMD), Ingenia (INA), Bapcor (BAP), Shaver Shop (SSG), Ashley Services (ASH), Helia (HLI)

• Listing: None  

• AGMs: None

Economic calendar (AEST):

• 11:30 am: Australia Unemployment Rate (Aug)

• 9:00 am: UK Interest Rate Decision