Morning Wrap: ASX 200 to rally, US inflation decelerates and commodity prices soar

Major US benchmarks finished higher but off session highs, US inflation slows to 3.0% in June and marks the lowest level early 2021, commodities post broad-based gains as inflation data calms fear of Fed rate hike, Goldman Sachs reckons the S&P 500 can hit an all-time high by year end and Wedbush says we're in the midst of a new tech bull market.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 gaps up but gives back most of its intraday gains (Source: TradingView)

MARKETS

We are experiencing issues with our data tables. They will be taking a break today :(

• S&P 500 opens 0.6% higher on cooler-than-expected June inflation data

• S&P 500 choppy intraday, finished 0.74% higher below session highs of 1.1%

• S&P 500 now 3% higher than where it was when the Fed started its hiking cycle 

• Dow fades from session highs of almost 1.0% to finish 0.25% higher

• Growth and resource-related sectors lead to the upside, defensives underperform

• 80% of stocks in the S&P 500 are now trading above their 50-day moving averages, according to Bespoke. Its cyclicals surging and defensives lagging

• Market’s path of least resistance continues to be to the upside as disinflation narrative gains traction and momentum for soft-landing expectations

• US Dollar Index tumbles to lowest level since April 2022

• Gold climbs over 1% as cooling US inflation boosts Fed pause bets (Reuters)

• Oil prices settle up as mild US inflation data clams fear of Fed hike (Reuters)

STOCKS

• Domino’s Pizza shares jump more than 10% on Uber partnership (CNBC) 

• Lazard, Jefferies both gained more than 4.0% after Morgan Stanley upgraded the two investment banks and expects growing M&A activity (CNBC)

• Chinese EV maker Lucid sank more than 10% after its second-quarter deliveries came in below analyst estimates – It relivered 1,404 sedans vs. 2,000 expected

• Amazon Prime sales up 6% from last year; still short of estimates (Bloomberg)

• Goldman Sachs downplayed expectations to push bar lower (Bloomberg)

• Nvidia invests US$50m in biotech firm Recursion to speed up training of drug-discovery AI models (Reuters)

CENTRAL BANKS

• Bank of Canada hikes another 25 bps, says prepared to raise them further (Reuters)

• BoJ policy tweak speculation boosting yen (Nikkei)

• RBNZ leaves rates unchanged as expected (Bloomberg)

• RBA Governor Lowe says to be determined whether more rate hikes needed (Bloomberg)

ECONOMY

• US inflation comes in cooler-than-expected at 3.0% in June (Bloomberg)

• ‘Pivotal’ US CPI report shows lowest core inflation since March 2021 (Bloomberg)

• Eurozone to move to restrictive fiscal stance in 2024, cutting energy support measures, budget deficits (Reuters)

• Japan machinery orders unexpectedly weak (Reuters)

• China's export controls on gallium have caused frantic stockpiling (Reuters)

• UN reports global public debt has reached $92 trillion (Reuters)

Deeper Dive

US Inflation: Everything you need to know

US inflation came in cooler-than-expected at both the headline and core level in June.

• Inflation rose 0.2% month-on-month (vs. 0.3% expected)

• Inflation rose 3.0% year-on-year (vs. 3.1% expected)

• Core inflation rose 4.8% year-on-year (vs. 5.0% expected)

Here are the key movements in the inflation report:

• The shelter index (housing inflation) continues to be the largest contributor to both headline and core inflation, accounting for over 70% of the increase at the headline level

• Rent inflation was 7.8% year-on-year in June, down from a 8.04% peak and lowest since December 2022

• Segments that exhibited the largest month-on-month decline include Utilities (-1.7%), Used cars and trucks (-0.5%) and Fuel oil (-0.4%)

Despite easing US inflation, the Fed's rate hike expectations hardly budged.

• Expectations of a 25 bp hike in July sits at 94.2%, according to CME's Fedwatch Tool

• The market has consistently underestimated the Fed's commitment to higher-for-longer interest rates. Perhaps this time is no different

• You've also got headlines like "Brent crude rises above $80 a barrel for the first time since May" alongside expectations of Chinese stimulus. Does this see inflation creep higher in the near-term?

The Wall Street Journal's said that the Fed won't overreact to one appreciably better inflation report based on two key factors:

• Inflation has slowed before only to rebound later

• The auto and shelter disinflation has been anticipated for months

As for what the pros think. Here are a few views from Goldman Sachs:

• "We believe the 0.5% drop in used car prices is the beginning of a larger pullback."

• "Today's report is consistent with our view that Fed tightening is in its final innings. We continue to expect a final 25 bp hike at the July FOMC meeting ..."

• "For the first time in 2023, we are currently being asked by multiple clients if we think the S&P 500 is now on track to clock an all-time high before year end. I am going with a yes on this."

CFRA's still bullish

(The segments below is by Hans Lee) Earlier this week, I wrote a note on why BCA Research believes the rally in stock markets can carry on into the second half. Someone else who shares that view is Sam Stovall, Chief Investment Strategist at CFRA.

Sam has a year-end S&P 500 target of 4,575 - well above the consensus which is hovering between 4000 and 4100. Having said that, he does believe we're due for what he calls a "digestion of gains".

"History tells us that following that completion of the 20% gain, we tend to continue to advance an average of 14.5% over about a four and a half month period, so I would tend to say that that's pretty good. We then fall into a 10% decline on average ... I would tend to say that surprisingly, we could end up with a good third quarter, but an even better fourth quarter."

Sam goes on to say that some of CFRA's favoured sectors from the first half may continue to rally in the second half. Sam's full interview will be live on the Livewire website later this week.

Wedbush's "green light" call

And speaking of US markets, corporate earnings kick off tomorrow with the banking behemoths (JPMorgan, Citi, BlackRock, Wells Fargo, and State Street namely).

After the banks are all done, tech earnings will begin. And one of Wall Street's most bullish tech analysts is doubling down on his call.

"We believe a new tech bull market has begun to take shape being led by the AI Revolution and we expect to see a better than expected 2Q earnings season for the tech space over the next few weeks," writes Dan Ives at Wedbush Securities.

He goes on to add that he sees a "bright green light" for owning tech stocks into the earnings period adding that the semis/chip stocks can send the NASDAQ as much as 15% higher in the second half.

Along with Microsoft (NASDAQ: MSFT) and NVIDIA (NASDAQ: NVDA), Ives says he's most looking forward to hearing from names like Manthey Redmond (NASDAQ: MHYR). Get ready to be sick of the AI buzzword all over again folks!

ASX corporate actions occurring today:

• Trading ex-div: None 

• Dividends paid: None

• Listing: None

Economic calendar (AEST):

• 11:00 am: Australia Consumer Inflation Expectations

• 1:00 pm: China Balance of Trade

• 4:00 pm: UK GDP

• 10:30 pm: US Producer Price Index