Morning Wrap: ASX 200 to fall, uranium stocks rally + Australian CPI set to ease

ASX 200 futures are trading 12 points lower, down 0.16% as of 8:30 am AEDT.

The S&P 500 lost ground and finished lower overnight, Fed policymakers continue to push back on rate cut expectations, uranium stocks rallied after the US announced plans to jump-start production of higher-energy uranium, the mines most at risk of closure amid a slump in battery metal prices and why earnings need to walk to walk.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 lower but finished well above worst levels (Source: TradingView)

MARKETS

• S&P 500 lower but finished off worst levels of -0.70%

• Small caps have come under renewed pressure, with the Russell 2000 underperforming major benchmarks

• WTI crude settled ~2% higher after the 4% selloff on Tuesday

• Economic worries and new supplies temper outlook for crude oil price (FT)

STOCKS

• United Airlines shares rally after a double upgrade to Buy from Underperform from Bank of America, citing a “valuation disconnect” (CNBC)

• Samsung expects profit to fall 35% on weak chip demand (Reuters)

• Hewlett Packard Enterprise in talks to acquire Juniper Networks for $13bn (Reuters)

• X to launch peer-to-peer payment platform this year (CNBC)

• GM sold fewer cars in China than in the US for first time since 2009 as locals opt for domestic vehicles (Bloomberg)

• US banks expected to report lower profits in Q4 amid defaulting loans (Reuters)

• More than US$6.4bn in deals announced at JPMorgan Healthcare Conference (Bloomberg)

CENTRAL BANKS

• Atlanta Fed Bostic says it is too soon to declare victory over inflation (Bloomberg)

• Fed Governor Bowman says “we are not yet at that point” to begin rate cuts and remains willing to hike based on incoming data (Reuters)

• BOJ was a likely net seller of stocks in 2023 (Nikkei)

GEOPOLITICS

• Blinken to discuss way forward in Gaza as he meets Israeli leaders (Reuters)

• Senior Hezbollah and Hamas figures killed, stoking fears of wider war (FT)

• Taiwan presidential candidate accuses China of election interference (FT)

• Germany's Scholz pushes EU countries to boost military aid for Ukraine (Politico)

CHINA

• China's central bank indicates it may lower reserve ratio (Bloomberg)

• China's share in key emerging-market index drops to record low, highlighting bearish sentiment on country (Bloomberg)

ECONOMY

• World Bank expects global growth to slow in 2024 (CNBC)

• US trade deficit narrowed in November, both imports and exports declined (Reuters)

• German industrial output posts sixth consecutive monthly decline (Reuters)

• Tokyo core inflation slows to lowest in more than a year but consumer spending falls for ninth consecutive month (Bloomberg)

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Another Kicker for Uranium Equities 

The Global X Uranium ETF rallied 4.0% overnight after the US Department of Energy announced the next steps to build domestic uranium supply for advanced nuclear reactors.

• The DoE issued request for proposals for uranium enrichment services to help establish a reliable domestic supply of fuels called high-assay low-enriched uranium (HALEU)

• HALEU is uranium fuel that is enriched up to 20% compared to traditional uranium fuel used in today's reactors of about 5%

• Biden's Inflation Reduction Act will provide up to US$500 million for HALEU enrichment contractors

• DoE's Nuclear Energy plans to award one or more contracts to produce HALEU from domestic uranium enrichment capabilities

• The HALEU enrichment contract has a maximum duration of 10 years and the government assures each contractor will have a minimum order value of US$2 million to be fulfilled over the term of the contract

Cameco – one of the world's largest uranium companies – rallied 4.7% overnight.

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Mines at Risk of Closure

The AFR has short-listed eight mines that are most at risk of closure amid the recent slump in battery metal prices. The candidates include:

• First Quantum Minerals and POSCO's Ravensthorpe nickel and cobalt mine

• Arcadium Lithium's Mt Cattlin lithium mine

• Consolidated Minerals' Woodie Woodie manganese mine

• Mineral Resources' Bald Hill lithium mine

• Andrew Forrests' Wyloo Metals

• Glencore's Mt Isa zinc, lead, silver and copper project

I only listed six because the article mentions Albemarle, Tianqi and IGO's Greenbushes and MinRes' Mt Marion – They definitely don't belong in that list – Even if the article acknowledges them being low cost.

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Where Are We Now?

Markets experienced a sizeable bounce on Tuesday and continue to linger around recent highs. While most positioning and sentiment indicators remain stretched – We're going to look at some bigger picture stuff today.

A recent thread from Jurrien Timmer, the Director of Global Macro at Fidelity talks about a potential early-cycle bull market. Here are the key takeaways:

• The early cycle bull market narrative is on track, as per the below chart, which examines historic returns from the start of the cycle

Source: Fidelity

• Most of the gains since October 2022 have been driven by multiple expansion

• Multiple expansion is when the 'Price' in Price-to-Earnings increases while 'Earnings' remains relatively muted

• On average, the first year of a bull market produces a 40-50% P/E expansion. This is because the market tends to bottom a few quarters before earnings do

• Timmer suggests that the market is nearing a point of maximum P/E expansion. This means earnings will need to start to do the heavy lifting

• Consensus currently expects S&P 500 earnings to rise ~12% in 2024. The expectations are there but can the companies deliver?

ASX corporate actions occurring today:

• Trading ex-div: None 

• Dividends paid: None

• Listing: None

Economic calendar (AEDT):

• 11:30 am: Australia Monthly CPI Indicator (Nov)