Morning Wrap: ASX 200 to fall, US 10-year Treasury yield crosses 5% + Liontown's $376m raise

Major US benchmarks continued to crumple under the stress of soaring Treasury yields, the US 10-year yield briefly crosses 5.0% at 8:02 am AEDT, gold continues to soar as the Middle East conflict continues to escalate, mixed earnings overnight from Netflix, TSMC and Tesla as well as Friday's charts of the week.

Let's dive in

S&P 500 SESSION CHART

S&P 500 finished near worst levels on Wednesday (Source: TradingView)

MARKETS

• S&P 500 finished lower and near worst levels, now down 1.15% for the week

• Lots of attention on the US 10-year yield which is closing in on the psychologically key 5.0% level or the highest level since August 2007

• Gold is up 8.5% since its Oct 5 low and not far from the key US$2,000 level

• Yield-sensitive real estate sector was the worst performing sector

• Goldman Sachs latest Marquee client poll suggested most investors thought that yields had peaked, only 8% expected 10-year yields above 5.0% at year-end

• BofA Global Fund Manager survey showed 56% expect lower yields, the highest on record going back to 2003

• Investors increasing exposure to longer term US Treasuries despite higher-for-longer rate fears (Reuters)

STOCKS

• Tesla margins suffer from price cuts, Musk cautious on macro (Bloomberg)

• Nokia to cut 14,000 jobs due to declining demand and growth woes (Reuters)

• Major banks engage in stealth layoffs, anticipate wider job cuts (CNBC)

• L'Oreal Q3 sales surge 11%, driven by strong EU and US performance (Reuters)

• Netflix raises prices following best quarterly sub growth in years (FT)

• TSMC flags better times ahead as Q3 profit beats expectations (FT)

• US banks continue to grapple with CRE loan woes (Reuters)

• US airline investors concerned travel boom may be coming to an end (Reuters)

EARNINGS

Netflix (+16.1%): Largest single-day gain in nearly three years, EPS beat and revenue in-line, raised buy-back authorisation by US$10 billion, boosting some prices in the US, UK and France.

TSMC (+3.7%): Double beat, revenue fell 10.8% year-on-year while net income down 24.8%, gross margin of 54.3% vs. the 52.9% expected by analysts. 

• “Our business was supported by the strong ramp of our industry-leading 3-nanometer technology and higher demand for 5-nanometer technologies, partially offset by customers’ ongoing inventory adjustment.”

• “Due to the persistent weaker overall macroeconomic conditions and slow demand recovery in China, customers remain cautious in their inventory control.”

• “Having said that, we are observing some early sign of demand stabilisation in the PC and smartphone end market. Together with such level of inventory control, we forecast fabless semiconductor inventory to further reduce & exit 4Q '23 at last year's level.” 

Tesla (-9.3%): Double miss, revenues up 9% year-on-year – slowest growth rate since Q2 2020, net income down 44% to US$1.85bn, operating margin down almost 1,000 bps to 7.6% as a result of deep price cuts. Here are the key comments from the earnings call:

• Results: “Our Q3 operational and financial performance was impacted by planned downturns for our factory upgrades. This was necessary to allow for further factory improvements and production rate increases … our cost per vehicle decreased approximately $37,500 …”

• Rates: "I am worried about the high interest rate environment that we're in … if interest rates remain high or it even higher, it's that much harder to … for people to buy the car. They simply can't afford it.”

• AI: “We will continue to invest significantly in AI development as this is really the massive game changer … in the long term, I think, has the potential to make Tesla the most valuable company in the world by far.” 

CENTRAL BANKS

• Powell says the US economy’s strength and continued tight labour markets could require tougher borrowing conditions to control inflation but bond markets are helping (Reuters)

• Powell suggests the Fed is inclined to hold rates steady again at its next meeting but leaves the door open to hike (Bloomberg)

• Bank of Korea keeps base rate unchanged at 3.5% as widely expected (Yonhap)

• Fed's Barr says banks in need of better stress tests to gauge shock resistance (Bloomberg)

GEOPOLITICS

• Biden gives Israel 'private backing' for ground invasion of Gaza (London Time)

• Xi hails "deep friendship" with Putin as two leaders meet in Beijing (FT)

ECONOMY

• Japan exports rise for the first time in three months to aid recovery (Bloomberg)

• Australian unemployment rate unexpectedly falls, adding pressure on RBA (AFR)

Charts of the Week

This segment of the morning wrap brings you weekly technical commentary on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations and for illustrative purposes only. Past performance is not a reliable indicator of future return. Always do your own research.

ASX 200 – Back to the grind

ASX 200 daily chart (Source: Commsec)

After some activity off the 6900 region and a modest defence of the 7,000 level, the bulls gave up the ghost yesterday with the index breaking down through 7,000 again and closing beneath that key level as well. More notable is the downtrend resistance which has formed and which is highlighted on the chart above. Any time over the past four months that the bulls have attempted a rally, it has been snuffed out and the index has been dragged lower. The price action is looking more bearish than bullish overall, and a retest of the 6,900 support region now looks likely at some point.

Bellevue Gold (BGL) – Nice ‘Vue

Bellevue Gold daily chart (Source: Commsec)

Long-term uptrend support is what immediately stands out on the BGL chart. Dips have been met by buyers, who have bid the stock up and helped to create an almost textbook uptrend – series of higher lows and higher highs. More recently the stock has been grinding, bound by support in the $1.40 region and resistance at $1.60 overhead. Whilst range traders might consider playing the range (buying at support, selling at resistance) until the range is broken, those playing a longer-term game might simply wait for the breakout above $1.60 and resumption of the longer-term trend.

Emerald Resources (EMR) – Late to the party

Emerald Resources daily chart (Source: Commsec)

Forgive me for being late to the party on this one. What a great looking chart for EMR. Long-term uptrend support. The trend is also clean and consistent, with the stock price rallying from $1.10 to around $2.80 in the last 12 months. We’ve just seen another breakout, above the $2.70 region, and into clean air once more. As momentum stocks go, based purely on the technicals, I haven’t seen any better lately.

Here Comes Liontown

Liontown (ASX: LTR) has revealed the details of its highly anticipated capital raise (the raise discount was not mentioned on the first page so you already know its going to be a rough one).

• Equity raise of $376 million at $1.80 per share (35.5% discount to last close)

• Credit approved term sheet with a syndicate of international and commercial banks and government credit agencies for $760 million

When the stock resumes trading, it's going to be a wild session as Liontown must account for:

• The raise was conducted at a sizeable discount to last close

• The takeover bids from Albemarle have effectively shielded Liontown from broader (bearish) lithium market conditions

• Lithium stocks sold off sharply on Thursday after Bank of America downgraded its outlook for Albemarle and rated the stock as a Sell

• Most brokers are now Sell or Neutral rated on Liontown, Citi had a $1.90 target price on the stock as of this morning

• Liontown has approximately 10.0% short interest (could we see a massive gap down at the open followed by a short covering rally)

ASX corporate actions occurring today:

• Trading ex-div: Kelly Partners (KPG) – $0.004, Sandon Capital (SNC) – $0.02

• Dividends paid: ARB Corp (ARB) – $0.30, Austal (ASB) – $0.03, Capitol Health (CAJ) – $0.005, COG Financial Services (COG) – $0.04, Charter Hall Social Infrastructure (CQE) – $0.04, KMD Brands (KMD) – $0.02, Kelsian Group (KLS) – $0.09

• Listing: None

Economic calendar (AEDT):

• 10:30 am: Japan Inflation

• 5:00 pm: UK Retail Sales