Morning Wrap: ASX 200 to rally, S&P 500 marks best day since April + Charts of the Week

ASX 200 futures are trading 85 points higher, up 1.23% as of 8:20 am AEST.

The Dow and S&P 500 is set to mark its best week of 2023 as markets celebrate the potential peak in US interest rates, oil prices snap a three-day losing streak, Starbucks tops earnings, the Bank of England keeps interest rates on hold, the state of play of the market's current bounce and charts of the week!

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher, finished a bit off best levels (Source: TradingView)

MARKETS

• S&P 500 higher, closed at best levels, marks best day since April

• S&P 500 up 4.9% in the last four sessions, reclaimed key 200-day moving average

• US 10-year yield down 27 bps since Fed decision on Thursday

• Oil prices bounce 2%, breaking a three-day losing streak

• Risk sentiment has ramped up in recent days thanks to factors including peak Fed, dampened volatility in both stocks and bonds, favourable seasonality (November and December are two strong periods for stocks) and oversold conditions

• Markets hone in on Powell's view that hikes may be done (Bloomberg)

• Powell downplays concerns over scarce bank reserves, signals more QT (Bloomberg)

STOCKS

• Qualcomm revenue tops forecasts, indicates end of inventory glut (Bloomberg)

• PayPal raises guidance, volume growth supported by strong consumer (Bloomberg)

• Disney confirms plan to acquire remaining Hulu share from Comcast (Reuters)

• Amazon to launch new BNPL checkout for small businesses (CNBC)

• Ford's October US vehicles sales fall, including highly popular F-series truck (Renters)

KEY EARNINGS

Latest batch of earnings have been a little more positive, offsetting some recent concerns about underwhelming numbers and guidance. 

Shopify (+22.4%): Double beat, GMV grew by fastest rate since the pandemic, gross margins helped by the removal of lower-margin logistic business and partnered with Amazon for its fulfillment work, revenue up 25% year-on-year.

Starbucks (+9.5%): Double beat, global comparable sales up 8% and ahead of expectations, China growth was better-than-feared as transaction growth offset a decline in average ticket, management expect FY24 global store growth of 7% with 10-12% revenue growth.  

• "Customer demand for us remains strong. We're not really seeing any change in the sentiment in our customer base at this time.” – Starbucks CEO Laxman Narasimhan

Eli Lilly (+4.7%): Double beat, Mounjaro (weight loss drug) sales ahead of consensus but the rest of its portfolio was a little soft, full-year revenue guidance unchanged.

Airbnb (-3.3%): Double beat, total nights and experiences bookings came in at 113.2m vs. 112.9m expected, management flagged greater volatility in Q4 due to macro trends and geopolitical conflicts, Q4 revenue outlook was weaker-than-expected. Airbnb holds US$11bn in cash and $6bn in funds held on behalf of guests. That’s almost 25% of its market cap. 

CENTRAL BANKS

• Fed on hold, Powell says policymakers mixed on end of rate hikes (Bloomberg)

• Bank of England keeps rates at 15-year high (Reuters)

• BOJ likely timing of an exit around spring next year (Reuters)

• Norway's central bank holds rates at 4.25%, signals possible year-end hike (Reuters)

ECONOMY

• US weekly jobless claims rise marginally, productivity accelerates (Reuters)

• Japan PM Kishida announces US$87bn extra budget to boost growth (Bloomberg)

• China's property sector loans fall for first time on record (Bloomberg)

• Eurozone manufacturing slump intensifies in October, new orders fall (Reuters)

• German unemployment rose more than forecast in October (Reuters)

• South Korean inflation unexpectedly accelerates (Bloomberg)

• US 2023 holiday sales expected to rise at slowest pace in five years (Reuters)

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The State of Play

It took a while but we finally got there – The oversold bounce. Things got pretty dark for a moment with the S&P 500 and Nasdaq entering correction territory (down more than 10% from recent peaks) and the ASX 200 falling to a 12-month low (with around 50% of its constituents marking a 52-week low).

Most of the ASX 200's rallies this year have come from oversold conditions. In recent months, the rallies have fizzled rather fast and despite reclaiming key price points or moving averages (e.g. green 50-day moving average).

ASX 200 daily chart (Source: TradingView)

That said, risk sentiment has picked up considerably over the past couple of days. There's a myriad of excuses to drive a strong bounce including:

• Downward pressure on yields: 10-year at 4.66% from 5.0%

• Dampened volatility: S&P 500 VIX down to 15 from ~20 a week ago

• Contrarian positioning: NAAIM Exposure Index was at the lowest level in a year last week, BofA Bull & Bear Indicator was the lowest since last November, UBS flagged CTAs increased shorts in equities by 50% since last update

• Seasonality: The ASX 200 has rallied an average of 3.3% in November in the past five years, 1.6% in the past 10 years and 0.8% in the past 30 years. You can read more about seasonality here.

If the above factors can be sustained, then that's more ammo for a rally. But the question is, is this a V-shaped rally that'll soon fizzle out or can it find a calm pullback and kick on?

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Charts of the Week

This segment of the Morning Wrap brings you weekly technical commentary by Chris Conway on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations and illustrative purposes only. Any discussion of past performance is for educational purposes only. Always do your own research.

ASX 200 – Retest at 6900

ASX 200 daily chart (Source: Commsec)

The index has rallied over the past couple of session, setting up a retest of the 6900 level. It’s an important time for market. If the bulls can punch back above this level with some conviction, the threat of a collapse into 6400 dissipated – somewhat. If the bulls fail at this level and the index rolls over, the probability of a steeper decline increases significantly. Failure at key levels often represent the last attempt to halt a broader course of action (in this case, declines). It’s the last stand. The last whimper. Let’s hope the bulls have a bit of fight left in them.

Wildcat Resources (WC8) – So wild, you don’t know what it’s going to do!

Wildcat Resources daily chart (Source: Commsec)

Not much on offer today, with only 11 stocks coming up on my bullish scans. That’s normal when the market has been broadly weaker for an extended period of time. I did happen across the chestnut above, however. I didn’t know anything about what the company does prior to seeing the chart this morning but it wasn’t hard to guess – a quick scan of their website and they have some lithium projects. As well as some gold projects. In any event, the chart looks fantastic from a momentum perspective, with a sharp rally on big volumes. The price has just seen a pullback and subsequent rally in the past three session, highlights that the bulls are still keen to bid this one up on any sign of weakness. As momentum stocks go, they don’t get much better – or riskier.

ASX corporate actions occurring today:

• Trading ex-div: AVA Risk Group (AVA) – $0.002, Qualitas Real Estate Income Fund (QRI) – $0.01 

• Dividends paid: The Reject Shop (TRS) – $0.06, K&S Corp (KSC) – $0.08, GenusPlus Group (GNP_ – $0.02

• Listing: None 

Economic calendar (AEDT):

• 6:00 pm: Germany Balance of Trade

• 11:30 pm: Canada Unemployment Rate

• 11:30 pm: US Non Farm Payrolls & Unemployment Rate

• 1:00 am: US ISM Services PMI