Morning Wrap: ASX 200 to fall, S&P 500 wraps up miserable September + Why it's not risk-on

The S&P 500 finished lower last Friday as Energy and Financial stocks sold off, US congress averts a shutdown and remains funded through to 17 November, the Fed's preferred inflation gauge cools to 3.9%, uranium stocks pull back sharply overnight and why it's not a risk on environment in two charts.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 gives back early gains to finish near session lows (Source: TradingView)

MARKETS

• S&P 500 finished lower last Friday, down from session highs of 0.78%

• S&P 500 suffered its biggest pullback since last December last month, down 4.87%

• Gold down for a fifth consecutive session to lowest since March  

• Bullish focus points for the week: S&P 500 falls to extreme oversold conditions – More than 2.5 standard deviations below its 50-day moving averages, AAII bull-bear spread down over 40 percentage points in the last two months which coincides with major bounces, yield stabilisation, seasonality tailwinds as Oct-Nov-Dec have historically been the three best months of the year for markets and some better China headlines

• Bearish focus points for the week: Yield curves continues to steepen, oil prices have continued to surge, inflation re-acceleration risks, no real progress on UAW strike and US government shutdown and more China real estate headwinds after negative Evergrande headlines and liquidation risk

• Once unthinkable bond yields now the new normal for markets, Larry Fink sees 'embedded inflation' pushing US 10-year yield to 5.0% (Bloomberg)

• Japan's 30-year bond yield reaches highest level since 2013 (Bloomberg)

• VCs tell start-ups to delay IPO plans as Arm and Instacart underwhelm (FT)

• Unexpected China demand, output cuts behind surge in oil prices (Nikkei)

• US Congress averts shutdown, funded until 17-November (Bloomberg)

STOCKS

• Nike beats profit estimates, pledges to boost focus on running shoes (Reuters)

• BlackRock CEO Fink sees large opportunities for deals (Bloomberg)

• Boeing CEO Calhoun says travel demand recovery is 'more resilient' than he imaged, optimistic about the recovery (CNBC)

• Apple says a fix for overheating iPhones is coming (Bloomberg)

• Tesla expected to report first vehicle sales slowdown since early 2022 (Bloomberg)

• SmileDirectClub files for Chapter 11 bankruptcy (Bloomberg)

CENTRAL BANKS

• BoJ loosens grip, triggers biggest selloff in 25 years for Japan bonds (Bloomberg)

• RBA to hold rates at 4.10% but deliver one final hike by end-2023 (Reuters)

• RBNZ to hold rates but stay in "watch, worry and wait" mode (Reuters)

CHINA

• China's manufacturing activity marks first expansion since March (Bloomberg)

• China home sales saw mild recovery in September amid policy push (Bloomberg)

ECONOMY

• US core PCE eases, consumer spending rises (Reuters)

• Eurozone inflation hits 2-year lows as US price pressures ease (FT)

• Tokyo core inflation eases further as cost-push pressures peak (Reuters)

• French and Italian borrowing costs hit highest levels in a decade (Telegraph)

• New Zealand consumer confidence lifts slightly, remains low (Reuters)

• US homebuyer market starting to show signs of hope as inventory is growing at a time of the year that usually sees declines (Insider)

• US student loan repayments to resume after a 3-year pause (Axios)

Sectors to Watch: No Man's Land

There's not a whole lot going on at the moment for markets – They're oversold but macro conditions may not permit for the bounce we're all looking for. You've got a lot of stocks and sectors that have sold off rather aggressively in the past couple of weeks, now trading far from any key price points or moving averages (and that's why we call it no man's land).

As for sectors to watch on Monday:

• A weak bounce: Several ETFs like Cloud, Copper, Fintech, Semis, Lithium and Steel experienced similar price action as major benchmarks. That is, they finished higher but faded from session highs.

• Uranium: The Global X Uranium ETF fell 3.57%, which could take some heat out of local names on Monday. The ETF is still up almost 20% since the beginning of August. In the event of a pullback, let's see if it can hold up, consolidate and keep on trending.

• Gold: Gold miners have somewhat held up a little bit better than spot prices. But they're looking awfully bearish as the VanEck Gold Miners ETF begins to test March lows. Can the miners mark a double bottom or will things break down?

VanEck Gold Miners ETF (Source: TradingView)

US Government Shutdown: What it Mean for Markets?

A US government shutdown seems almost inevitable. But what does this mean for market returns?

There have been five shutdowns since 1995 and surprisingly, the S&P 500 managed to climb higher through all of them. The average shutdown period was 11.4 days with an average return of 3.19% for the S&P 500.

Why It's Not a Risk-on Environment In 2 Charts

The US dollar, oil and bond yields have continued to trend higher in the past month.

WTI crude (blue), US 10-year yield (red) and US Dollar Index (green) (Source: TradingView)

Global net liquidity has hit levels not seen since August 2020. The fair value for the S&P 500 sits at 3,361 or about 20% below current levels.

S&P 500 vs. global net liquidity fair value indicator by dharmatech (Source: TradingView)

Global net liquidity for the below indicator has been defined as central bank assets (Fed , Japan, China, UK and ECB less RRP and TGA). The data has a slight lag as US and ECB assets are updated weekly while Japan and China are monthly.

ASX corporate actions occurring today:

• Trading ex-div: 61 ETFs trading ex-div today. See a full list here

• Dividends paid: Silk Logistics (SLH) – $0.03, Freightways Group (FRW) – $0.19

• Listing: None 

Economic calendar (AEST):

• 9:50 am: Japan Manufacturing Index

• 12:00 am: US Manufacturing PMI

• 1:00 am: Fed Powell Speech