Morning Wrap: ASX 200 to fall + S&P 500 lower as US debt ceiling clears first hurdle

ASX 200 futures are trading 13 points lower, down -0.18% as of 8:20 am AEDT.

Major US benchmarks declined amid a risk-off session driven by hawkish Fedspeak and a pullback in tech stocks, oil extends its selloff to a near two-month low, the US debt ceiling heads to the House of Representatives, China's very weak economic data weighs on global growth prospects and why macro matters for semiconductor stocks.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 lower but off worst levels (Source: TradingView)

MARKETS

• S&P 500 lower but off worst levels of -0.94%

• Risk-off session weighed by higher-for-longer Fedspeak, pickup in grown concerns and a pullback for tech stocks 

• WTI crude marked its largest monthly decline since November 2021, down 11.8%

• FOMO sees surge in tech stocks with Nasdaq up 31% since December (Bloomberg)

• Fed Governor John says a pause doesn’t mean rates are at the peak (Fed)

• Cleveland Fed President Mester sees no compelling case to wait before next rate hike (FT)

STOCKS

• Nvidia market cap pushes through US$1tn (Bloomberg)

• Foxconn forecasts its AI server business to double in 2H23 (FT)

• Goldman Sachs pursuing fresh round of job cuts (FT)

• Intel sees second-quarter revenue at upper end of outlook (Reuters)

• Salesforce forecasts current-quarter revenue above estimates (Reuters)

• AI stocks tumble after short-seller attack on C3.ai (Reuters)

• HP Enterprises shares fall as dull forecast fuels fear of slowing demand (Reuters)

ECONOMY

• House Rules Committee votes 7-6 to advance debt ceiling bill (Bloomberg)

• Economists see GOP big spending cuts to have little impact on economy (Bloomberg)

• US labour market remains resilient as job openings climb, layoffs drop (Reuters)

• China factory activity falls faster than expected as demand slumps (FT, Reuters)

• French inflation eases more than expected, hits one-year low (Bloomberg)

• German import prices lowest since 2020 (DW)

• Deutsche Bank warns of wave of corporate debt defaults in US and Europe (Reuters)

• UK business confidence flags first drop in 3 months as inflation persists (Reuters)

• Australian inflation accelerates, pressures RBA to continue tightening (Reuters)

Deeper Dive

China's disappointing post-Covid recovery

China's manufacturing PMI unexpectedly fell to 48.8 in May from 49.2 in the previous month, which was well-below consensus expectations of a rise to 49.4.

More importantly, China's steel industry contracted at a faster pace in May, with PMI falling 9.8 points to 35.2. This marks a third consecutive month of contraction. The sub-index for new orders tumbled 12.5 points to 27.4 amid sluggish activity from the real estate sector and slower-than-expected local government bond issuances.

“The Chinese economy could be at the risk of a double dip. Insufficient demand is the major concern now .. Goods deflation is weighing on profitability .. the Chinese economy could be on the verge of a self-fulfilling confidence trap .. decisive policy actions are needed," Citi said in a note on Wednesday.

Semiconductor stocks are very cyclical

An interesting perspective about semiconductors and the AI hype train from Trahan Macro Research:

• Nvidia accounts for over a third of the semiconductor market cap

• Nvidia's revenues are cyclical

• Semi stocks are driven by macro forces

• Monetary tightening points to much lower global PMIs ahead

Source: Trahan Macro Research

ASX corporate actions occurring today:

• Trading ex-div: Several ETFs are trading ex-dividend. See the full list here

• Dividends paid: Bank of Queensland (BOQ) – $0.20, Gale Pacific (GAP) – $0.01, Dicker Data (DDR) – $0.10 

• Listing: None

Economic calendar (AEST):

• 11:45 am: China Caixin Manufacturing PMI

• 7:00 pm: Eurozone Inflation

• 7:00 pm: Eurozone Unemployment

• 12:00 am: US ISM Manufacturing PMI