Morning Wrap: ASX 200 to open at record highs, Russell 2000 jumps 3%, Gold prices surge

ASX 200 futures are trading 55 points higher, up 0.68% as of 8:30 am AEST.

Ooft. What a spicy overnight session. The S&P 500, Dow and Nasdaq all closed at record levels while the small-cap Russell 2000 surged 3.5%. At the same time, gold hit a fresh all-time high and traders are almost certain that the Fed will cut rates in September.

Let's dive in.

S&P 500 SESSION CHART

Another clean trend day for the S&P 500 (Source: TradingView)

OVERNIGHT MARKETS

• Major US benchmarks finished higher and near best levels

• S&P 500, Nasdaq and Dow all closed at fresh all-time highs

• Breadth was very positive, with the equal-weight S&P 500 outperforming the official index by over 100 bps

• Russell 2000 rallied for a fifth straight session, now up 11.5% since 9-Jul – Bespoke says this is the 14th four-day positive streak for the Russell since 1979

• Russell 2000 now trading more than three standard deviations above its 50-day moving average and near record overbought levels

• BofA’s July Global Fund Manager Survey says overall investor bullish still underpinned by expectation for Fed rate cuts and soft-landing hopes, portfolio cash levels ticked higher but remained near long-term lows

• Traders now betting on 100% chance Fed will cut interest rates by September (CNBC)

• Gold hits record highs amid bullish bets on Fed rate cuts (Bloomberg)

• Demand for safe returns has supported Treasuries despite a huge supply increase (WSJ)

• Incoming Fed rate cuts on the horizon may now wake up the true bull market (Yahoo Finance)

• China becoming a slow-burn trade for global investors with money in the country's stock market (Reuters)

STOCKS

• Charles Schwab shares dive 10% on net interest margin miss, warns it may have to shrink itself in order to maintain profitability (Bloomberg)

• Bank of America shares surge 5% on better-than-expected earnings amid robust investment banking and trading activity (Reuters)

• Morgan Stanley shares tick 1% higher on better-than-expected Q2 performance (FT)

• Adidas boosts outlook amid solid demand for Sambas and Yeezys (Bloomberg)

• Luxury brands offering up to 50% discounts in China as middle-class shoppers rein in spending (FT)

• KKR weighs potential US$3bn sale of machinery maker Kito Crosby (Bloomberg)

• Storage firm Lineage seeking to raise as much as US$3.85bn in its IPO (Bloomberg)

CENTRAL BANKS

• Fed Chair Powell says Q2 data has given Fed more confidence on inflation (Bloomberg)

• RBNZ rate cut could hinge on Wednesday's New Zealand Q2 CPI print (Bloomberg)

POLITICS & GEOPOLITICS

• Trump makes RNC entrance, picks JD Vance as his VP (Bloomberg)

• Silicon Valley backers welcome JD Vance as Trump's VP pick (Bloomberg)

• Democrat revolt against Biden quiets down but re-election bid looks tougher after Trump assassination attempt (WSJ)

• Biden set to announce plan that would cap annual rent raises by 5% (Bloomberg)

• Trump's VP pick, senator JD Vance, says China is biggest threat to US (Bloomberg)

• UBS says prospects of Trump tariffs of 60% on China exports would more than halve China's annual growth rate (Bloomberg)

• France readies appointment of caretaker government until new PM found (Bloomberg)

ECONOMY

• US June retail sales was flat month-on-month vs. consensus for a 0.2% decline (Reuters)

• German ZEW declines for the first time in a year on political uncertainty (Bloomberg)

ASX TODAY

• ASX 200 set to open in record territory after a strong lead from Wall Street, growing Fed rate cut expectations and a continued rotation into small caps and cyclicals

• Alcoa shareholders voted in favour of issuing shares for Alumina acquisition (AWC)

• BHP reports Q4 production iron ore of 69.2Mt vs. 67.8Mt consensus (BHP)

• DroneShield responds to ASX price query, says there’s no new material information despite 22% selloff on Tuesday (DRO)

• Genex Power's shareholders vote in favour of J-Power's proposed acquisition (GNX)

 WHAT TO WATCH TODAY

Lots of themes at play today amid an epic rotation into small caps. Defensives and cyclicals like Industrials, Materials and Healthcare also outperformed overnight. Here are a few specific sub-sectors of interest:

• Gold: Gold prices rallied almost 2% overnight to a fresh all-time high of US$2,468. The VanEck Gold Miners ETF pared similar gains, up 3.5% to its highest level since April 2022. Most ASX-listed gold names should gap up as the market opens on Wednesday. It will be interesting to see if they just gap up 2-5% and do nothing for the rest of the session – or pick up some intraday bids.

• Homebuilders: US homebuilder stocks surged on growing Fed rate cut expectations. The SPDR Homebuilders ETF rallied 5.7% (up 16.6% in the last five sessions). The NYSE-listed James Hardie rose 2.5% (up 10.8% in the last five sessions). Like I said a few days ago, we don't have many building and construction stocks left after ABC, CSR and BLD were taken out.

BROKER MOVES

• REA Group downgraded to Hold from Outperform but target up to $208 from $204 (CLSA)

• Seek downgraded to Neutral from Outperform; target cut to $23 from $29 (Macquarie)

Companies trading ex-dividend: 

• Wed 17 July: Turners Automotive (TRA) – $0.069

• Thu 18 July: None

• Fri 19 July: None

• Mon 22 July: None

• Tue 23 July: None

Other ASX corporate actions today: 

• Dividends paid: None

• Listing: None

• Earnings: Mitchell Services (MSV)

• AGMs: None

Economic calendar (AEST):

• 4:00 pm: UK Inflation Rate (Jun)

• 10:30 pm: US Building Permits (Jun)