Morning Wrap: ASX 200 to fall, S&P 500 tumbles, blowout US jobs data pushes back rate cuts

ASX 200 futures are down 71pts (-0.86%) as of 8:30 am AEDT.

In a nutshell:

• The quick jump in yields is trouble for stocks

• US 10-year yield almost never rallies with such strength and any further surges are bad news for fragile markets

• This is driving a big risk-off episode, with three US sectors tumbling more than 2pc on Friday (real estate, financials and tech)

Let's dive in.

S&P 500 SESSION CHART

S&P 500 lower, finished a little off worst levels (Source: TradingView)

OVERNIGHT MARKETS

• Major US benchmarks finished lower and trading around the lowest level since late November 

• US weekly recap – Russell 2000 (-3.49%), Nasdaq (-2.34%), S&P 500 (-1.94%) and Dow Jones (-1.86%)

• Today’s big story – US unemployment and nonfarm payrolls well-ahead of consensus, raising concerns about stalling inflation progress

• Bond yields soared on this data, the market is now expecting no rate cut at the Fed’s Jan-29 meeting and less than 30 bps of cuts for the year, according to CME’s FedWatch tool

• US 10-year Treasury yield trading at the highest level since October 2023, recent move (up ~55  bps in one month) is more than two standard deviations on a one-month basis 

• High bar for Q4 earnings season with focus on broadening earnings momentum, slowdown in big tech growth, Trump tariffs, elevated margins, dollar strength (BBG)

• 10-year yields above 5% on deficit, policy uncertainty and sticky inflation concerns could signal more trouble for stocks (BBG)

• New US sanctions on Russian energy industry will force Chinese and Indian refiners to source more oil elsewhere, boosting prices and freight costs (RT)

STOCKS

• Apple's 2025 plans involve overhauled iPhone line, new AI features, smart home focus and updates to products it has not refreshed for some time (BBG)

• Bank earnings kick off this week with annual outlooks and expectations for dealmaking and capital markets revival likely to overshadow Q4 results (BBG)

• Delta shares soar on 4Q24 revenue and EPS beat, company survey showed 90% of companies expect to lift travel spend this year (CNBC)

• Jefferies shares dip 10pc despite 4Q24 profit more than tripling year-on-year amid investment banking recovery (RT)

• US insurance stocks like Allstate and Chubb dip 3-6% amid the devastation caused by the Los Angeles wildfires (CNBC)

ECONOMY

• US December nonfarm payrolls up ~256,000 vs. 150-160,000 consensus, unemployment rate ticked lower month-on-month to 4.2% (RT)

• US January consumer sentiment at 73.2, in-line with consensus and down from 74.0 in December, year-ahead inflation expectations soared from 2.8% last month to 3.3% and now the highest since May-24 (RT)

ASX TODAY

• ASX 200 futures pointing at a steep fall at the open, dragging the index to a one-week low

• Markets path of least resistance has flipped to lower as recent data continues to flag rising inflation risks (US ISM services price paid index hit a 22-month high, Trump reaffirms tariff plan, oil prices hit four-month high etc)

• Risk-off episode looks largely like a bond market tantrum, which makes upcoming data points like next week's US CPI and PPI a possible reversal catalyst

• Bain Capital to match CC Capital’s $4.30 a share bid for Insignia Financial (AFR)

• Vulcan Energy produces first battery quality lithium at its downstream optimisation plant (VUL)

WHAT TO WATCH TODAY

• Relative resource strength: Commodity prices ticked higher overnight, led by oil (+3.1%), nickel (+1.5%) and gold (+0.7%). But related equities struggled to capture more upside amid broader market weakness (e.g. Gold Miners ETF up just 0.19%, down from session high of 2.79%).

• Rate-sensitive sectors: The three worst performing US sectors were real estate (inverse relationship with yields), financials (weaker-than-expected earnings, also recently trading with strong correlation to yields) and tech.

BROKER MOVES

• Flight Centre initiated Overweight with $22 target (MS)

• Waypoint REIT initiated Overweight with $2.70 target (JARD)

Stocks trading ex-dividend: 

• Mon 13 – Tue 14 Jan: None

• Wed 15 Jan: Tower (TWR) – 4.07%

• Thu 16 – Fri 17 Jan: None

Other ASX corporate actions today: 

• Dividends paid: Eumindi Group (EBG)

• Listing: None

• Earnings: None

• AGMs: None

Economic calendar (AEDT):

• 10:30 am: Australia ANZ-Indeed Jobs Ads (Dec)

• 11:00 am: Australia TD-MI Inflation Gauge (Dec)

• 1:00 pm: China Balance of Trade (Dec)