Morning Wrap: ASX 200 to rise, Resource stocks to bounce, S&P 500 edges higher

The S&P 500 is bouncing from a Fed induced selloff in the previous two sessions, yields and rate cut expectations begin to stabilise after recent Fed and data-induced volatility, China's stock market surges as Beijing intensifies support efforts, BP tops earnings expectations and plans to return 80% of surplus cash to investors and why the resource sector is set to have a solid day on Wednesday.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 slightly higher in relatively uneventful trade (Source: TradingView)

MARKETS

• ASX 200 set to bounce on Wednesday after falling 1.5% over the last two sessions

• US bond yields eased following a ~30 bp rally for the 10-year yield over the prior two sessions, the largest two-day jump since June 2022

• Easing yields and a weaker US dollar should see sectors such as Materials and Real Estate lead to the upside

• S&P 500 higher overnight, staging a bit of a rally towards close after spending most of the session around breakeven

• Relatively uneventful session, the main focus was on rate/yield stabilisation following the latest bout of Fed pivot repricing, Powell pushback and strong economic data

• Market rate cut expectations have eased to 4-5 cuts from current midpoint, with the first cut fully priced in for May (FT)

• NYCB sells off again but broader regional bank space holding up (Bloomberg)

• Chinese’s CSI 1000 Index rallies 7%, its biggest on record as Beijing intensifies efforts to stem rout (Bloomberg)

STOCKS

• NYCB's chief risk officer departed shortly before it revealed CRE losses (FT)

• Toyota will boost US EV spending by $1.3bn to produce an all-electric SUV (Bloomberg)

• DocuSign announced it would lay off 6% of its workforce (CNBC)

EARNINGS

BP (+6.3%) – Double beat, Q4 underlying profit of US$3bn on the back of strong natural gas trading results, accelerated the pace of buybacks to US$1.75bn for 1Q24 (up from US$1.5bn), management outlined intentions to be more pragmatic in its investment decisions, plans to return 80% of surplus cash generated to investors.  

Spotify (+3.9%, down from session high of 11.4%) – Double miss, Q4 monthly active users rose 23% year-on-year to 602m (1 million above guidance), guidance for next quarter was also light across both revenue and MAUs. 

Eli Lilly (-0.2%, down from session high of 5.1%) – Double beat, Q4 revenue up 28%, earnings included first sales from Zepbound – which some analysts believe could post more than a billion dollars in sales in its first year and eventually become the biggest drug of all time, issued its full-year forecast for 2024 which was in-line with expectations. 

UBS (-5.5%) – Double miss, reported second-straight quarter of losses, raised dividend and announced plans it would resume share buybacks of up to US$1bn in the second half of 2024.

CENTRAL BANKS

• BoJ on track for policy shift by April, helped by wage outlook (Reuters)

• ECB rate-cut timing tricky call, easing pace and end point up for debate (Bloomberg)

• BoE Pill clarifies policy message, as markets evaluate rate cut timing (FT)

• RBA leaves cash rate unchanged, says further rate hikes cannot be ruled out (Bloomberg)

GEOPOLITICS

• US Treasury officials to meet with Chinese counterparts in Beijing (Bloomberg)

• SMIC and Huawei expect to produce next-gen 5nm chips as soon as this year (FT)

• Pentagon says not planning long-term campaign against Iran-backed militias in Iraq and Syria (Politico)

• Blinken in Saudi Arabia as part of US push for enduring Middle East peace deal (FT)

CHINA

• Regulators to brief President Xi on China market as soon as Tuesday as rescue bets build (Reuters)

• China sovereign fund vows to increase ETF holdings, as Beijing stepped up efforts to stem a rout with policy steps (Bloomberg)

ECONOMY

• German factory orders boosted by major orders but underlying trend weak (Bloomberg)

• UK retail sales slowed in January as consumers tightened spending (Bloomberg)

• EIA says US crude output will be flat for most of 2024 and won't reach new record until early 2025 (Bloomberg)

Sectors to Watch

Lithium: Lithium-related ETFs from the above watchlist (VanEck Rare Earth/Strategic Metals and Global X Lithium & Battery Tech) rallied more than 4% overnight. Lithium prices remain depressed, with spodumene concentrate prices unchanged at US$938 a tonne on the Shanghai Metals Market. My hunch is that the overnight strength was driven by a number of factors including:

• Oversold bounce – The ETFs sold off around 6% in the previous two sessions to 25 month lows

• Yield stabilisation and weaker US dollar – Which is generally a positive for commodity prices and the resource sector. Materials was the best performing sector on the S&P 500

• China stock market rescue – Major Chinese benchmarks surged overnight after Chinese President Xi discussed stabilising markets with regulators. Top Chinese lithium names like Ganfeng and Tianqi rallied 7.8% and 7.0% respectively on Tuesday. The strength was a little less pronounced outside of China, with SQM and Albemarle up 2.9% and 3.95% respectively.

Materials: The above points also indicate a solid sessions for the broader resource sector. US-listed BHP and Rio Tinto shares finished 1.4% and 1.2% higher respectively. Gold miners should feel some reprieve from a pullback in yields.

Travel: I like to use the Global Jets ETF as a barometer for the airline industry, and to a lessor extent, the travel sector. The ETF holds mostly US airlines but also has some exposure to various other carriers including Qantas. The ETF rallied 3.4% overnight to a fresh 6-month high, which could see some positive flow for local travel names.

US Global Jets ETF (Source: TradingView)

ASX corporate actions occurring today:

• Trading ex-div: Resmed (RMD) – $0.051

• Dividends paid: None

• Listing: None

Economic calendar (AEDT):

• 9:00 am: Australia Group Industry Index (Jan)

• 12:30 am: Canada Balance of Trade (Dec)