Morning Wrap: ASX 200 to rise, China weighs new stimulus + What pricing power looks like

Major US benchmarks continued to rise but closed below session highs, China mulls new stimulus to meet its GDP target, Pepsi flexes another quarter of sales growth despite falling volumes, US third-quarter earnings is set to ramp up on Friday with major bank results and a closer look at ResMed.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher but well-off best levels (Source: TradingView)

MARKETS

• S&P 500 finished higher but well-off session highs of 1.15%

• US 2-year yield now below 5% for the first time since mid-September

• US 10-year yield up 2 bps to 4.66% but off session highs of 4.80%

• Gold and oil prices slightly eased after geopolitics-induced strength

• Recent strength tied to factors including a bounce from oversold levels, seasonality tailwinds as well as reports of a fresh round of China stimulus, oil stabilisation and some strength in Treasuries amid a flight-to-safety shift

• Emerging-market stocks fall to lowest level since 1987 vs. US equities (Bloomberg)

• Yellen says surge in borrowing costs does not create market dysfunction (FT)

• More Fed officials eye another pause after yield surge (Bloomberg)

STOCKS

• Hyatt Hotels rallies 6% as it's set to join the S&P MidCap 400

• GM reaches tentative agreement with Canada's Unifor union (statement)

• LVMH revenue growth slows amid inflation and economic concerns (Reuters)

• Up 1,000 UK Amazon staff to strike over wage dispute (BBC)

• AMD to acquire AI startup Nod.ai to gain AI advantage over Nvidia (Reuters)

• Microsoft introduces new AI tools for the healthcare industry (CNBC)

EARNINGS

• Large cap banks including JPMorgan and Citi to report on Friday (Reuters)

• Goldman Sachs expects “significant increase” in unrealised banking industry losses of US$112bn to $670bn due to held-to-maturity securities and loans 

GEOPOLITICS

• Israel says Gaza border secured after another night of air strikes (FT)

• EU backing down on its threat to freeze Palestinian aid (Reuters)

• Iran's top leader Khamenei says Tehran was not involved in attack (Reuters)

• Israel conflict disrupts Biden's policy priorities (FT)

• Fears Israel-Hamas conflict could disrupt fertiliser exports (Bloomberg)

CHINA

• China mulls new stimulus and higher deficit including US$137bn in additional debt to meet GDP target of 5.0% (Bloomberg)

• China's Golden Week offers economic bump but property remains troubled (FT)

• Country Garden may not be able to meet all of its offshore debt obligations (Reuters)

ECONOMY

• IMF flags stubborn inflation, weaker global growth in 2024 (Bloomberg)

• Australian consumer confidence edges higher, business conditions slip (Bloomberg)

• Global PC shipments fall 9% in Q2 seen as bottom for market (Bloomberg)

• US NY Fed survey says median inflation expectations rose by 0.1% to 3.7% for the one-year time horizon and up 0.2% to 3.0% for the three-year horizon, adding inflation uncertainty for the short-to-medium term

Pricing Power with Pepsi

Pepsi is one of the first major US company to report its third quarter earnings. The results note a rather interesting dynamic between falling volumes and higher prices.

• Q3 revenue of US$23.45bn vs. US$23.38bn expected

• Q3 EPS of $2.25 vs. $2.15 expected

• Q3 volumes down 2.5%, North American beverage volumes down 6%

• Expects full-year revenue and EPS growth to be at the top end of targets

Pepsi has now marked 5 straight quarters of weak or negative volume growth. All of its organic sales growth (which have been growing for 10 consecutive quarters) has been due to its strong pricing power.

Sectors to Watch: The Bounce Continues

The ASX is set for another positive open after a strong lead from Wall Street. A few sectors to watch include:

• Iron ore and miners: "China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy meet the official growth target, according to people familiar with the matter," Bloomberg reports. BHP and Rio Tinto ADRs rose 1.5% and 2.0% respectively overnight while the Global X Copper Miners ETF finished 1.87% higher.

• Solar: Not so much to do with our market (or rather there aren't really any ASX-listed solar plays) but still interesting to note that the Invesco Solar ETF rallied 5.67% overnight on the highest volume since September 2022. The ETF is down around 30% year-to-date.

ResMed: Obesity Drugs

ResMed (ASX: RMD) shares are around down around 30% since August amid growing concerns about how obesity drugs may disrupt the sleep apnea market.

The latest note from Jarden notes that "following our discussions with key US sleep stakeholders, there is currently no sign of the impact of GLP-1 drugs on sleep lab referrals, diagnosis rates, CPAP setups and mask replacement." But there is an expectation that "there will be an impact due to the staggering increase in awareness and demand for these drugs and the role of weight loss in reducing OSA severity."

The broker cut its share price target by 16% to $30.33 but retained an Overweight rating.

Resmed 12-month price chart (Source: Market Index)

There's an expectation that weight loss drugs like Ozempic will pose a threat to several industries spanning from fast food restaurants to cigarette makers. Walmart's CEO John Furner said its already seeing an impact of the drugs on food demand, stating "we definitely do see a slight change compared to the total population, we do see a slight pullback in overall basket."

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: Southern Cross Electrical (SXE) – $0.04, NRW Holdings (NWH) – $0.08, Count (CUP) – $0.02, News Corp (NWS) – $0.10, Monash IVF (MVF) – $0.02, Briscoe (BGP) – $0.125, Cochlear (COH) – $1.75, Macmahon Holdings (MAH) – $0.004, PSC Insurance (PSI) – $0.08, TPG Telecom (TPG) – $0.09 

• Listing: None 

Economic calendar (AEST):

• 10:30 pm: US PPI

• 4:00 am: FOMC Minutes