Morning Wrap: ASX 200 to fall, S&P 500 pullback, US dollar rally resumes

Major US benchmarks pulled back amid a relatively quiet session, the US dollar is up 10 of the 13 sessions, Exxon Mobil is in talks with Tesla and other EV makers for lithium supply, AMD says AI engagements have increased by more than seven times in the quarter, Uber missed earnings expectations but posted its first ever operating profit, US job openings hit a two-year low and Energy was the best performing sector in July (despite fund managers being the most underweight since May 2020).

Let's dive in.

S&P 500 SESSION CHART

S&P 500 falls in a relatively uneventful session (Source: TradingView)

RUSSELL 2000 WEEKLY CHART

Russell 2000 stalls at the key 2000 area (Source: TradingView)

MARKETS

• S&P 500 -0.27%, Nasdaq -0.25%, Dow +0.20%, Russell 2000 -0.45%

• S&P 500 lower in what was a relatively uneventful session

• No specific driver behind the overnight pullback

• Main focus points include: Overbought conditions, higher yields (the US 10-year pushed through 4.0%) and Dollar strength 

• US Dollar Index up 0.3% to a near 1-month high, the Australian dollar weakness was the biggest story after the RBA hold – the Dollar is up 10 of the last 13 sessions

• Oil posts biggest monthly gain since early 2022 (Telegraph)

• Equity hedge funds get crushed by bearish bets in July (Reuters)

• Top stock pickers hit by 'tremendous' amount of uninvested cash (FT)

CENTRAL BANKS

• RBA pauses for second consecutive month as markets dial back odds of further tightening (Bloomberg)

• BOJ tweak allows rates to rise more freely (Reuters)

• BOJ watchers see no further policy shift in 2023 (Bloomberg)

STOCKS

• Exxon Mobil in talks with Tesla, Ford to supply lithium (Bloomberg)

• Meta prepares chatbots with personas to try to retain users (FT)

• Apple supplier Foxconn plans US$500m component plants in India (Bloomberg)

• Tupperware Brands joins "meme-stock" club with big rally (Reuters)

EARNINGS

Advanced Micro Devices (+2.8%, after hours +4.7%): Double beat, quarterly revenue was flat year-on-year at US$5.35bn, gross margins improved 2 percentage points to 44%, net loss jumped to US$139m.

• "We delivered strong results in the second quarter as 4th Gen EPYC and Ryzen 7000 processors  ramped significantly. Our AI engagements increased by more than seven times in the quarter ..." – CEO Lisa Su

• "Looking to Q3 23, we expect our Data Center and Client segment revenues to each grow by  a double-digit percentage sequentially driven by increasing demand for our EPYC and Ryzen  processors, partially offset by Gaming and Embedded segment declines.” – CFO Jean Hu 

Starbucks (-0.3%): Revenue miss but earnings beat, global comparable store sales rose 10% driven by a 5% increase in transactions and 4% increase in average ticket, net revenues rose 12% to US$9.2bn while GAAP earnings per share grew 25%.

Uber (-5.7%): Double miss, quarterly revenue rose 14% year-on-year to US$9.2bn, adjusted EBITDA up 152% to US$916m, operating activities generated US$1.2bn in free cash flow.

• “Robust demand, new growth initiatives and continued cost discipline resulted in an excellent quarter, with trips up 22% and a GAAP operating profit, for the first time in Uber’s history.” – CEO Dara Khosrowshahi 

ECONOMY

• US job openings hit more than two-year low (Reuters)

• US Manufacturing PMI shows signs of stabilising at lower levels in July (Reuters)

• US banks reported tighter credit standards and weaker loan demand from businesses and consumers in Q2 (Reuters)

• China manufacturing sector slips back into contraction (Bloomberg)

• China home sales from large developers fall 33.1% year-on-year (Bloomberg)

• South Korean exports post sharpest drop since May 2020 (Reuters)

• Japan PMI confirms manufacturing contracted in July (Reuters)

• Survey shows OPEC output fell 900,000 bpd in July, the most since height of the pandemic (Bloomberg)

Deeper Dive

Not the most exciting overnight session. A few short tidbits today.

Energy outperformance: The S&P/ASX 200 Energy Index was the best performing sector last month, up 8.8% to levels not seen since November 2022. In the same month, Bank of America's Fund Manager Survey showed that investors were most underweight commodities since May 2020 (and in that month, oil briefly hit -US$38 a barrel).

Source: Bank of America

Choppy copper: Copper experienced a brief breakout on Monday, rallying above the key US$4.0/lb level. Is this Dr Copper sniffing out a soft landing and a better economy heading into the second half of 2023? At the same time, prices sold off last night, down 2.5% to US$3.92.

Copper price chart (Source: TradingView)

Lithium headwinds: The VanEck Rare Earths/Strategic Metals ETF fell 2.1% overnight to a near one-month low. The price action is not the most positive despite a number of positive headlines in the past 24 hours:

• US Department of Defence signed an expenditure-based contract with Lynas to fund its Rare Earths Processing Facility in Texas

• Albemarle invests $124m in Patriot Battery Metals

• Exxon Mobil in talks with Tesla, Ford and Volkswagen to supply lithium

VanEck Rare Earths/Strategic Metals ETF daily chart (Source: TradingView)

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: None 

• Listing: None

Economic calendar (AEST):

• 9:00 am: Australia AI Group Industry Index