Morning Wrap: ASX 200 to rise, S&P 500 bags another record close + Pilbara Minerals in focus

The S&P 500 climbed to another record close overnight as investors digested a mixed bag of quarterly earnings, India's stock market overtakes Hong Kong for the first time in history, Chinese stocks rally on stimulus speculation, homebuilder stocks sell off as earnings fail to live up to high expectations and Pilbara Minerals is set to release its closely watched December quarter report this morning.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 finishes at another all-time high (Source: TradingView)

MARKETS

Note: The data tables were incorrect on Tuesday. This is an automated process that's outside of my control. The data is correct today. The dev team is working on it. Sorry to let you guys down.

• S&P 500 finished higher and near best levels

• Market continues to wait for a ramp up in earnings activity and high-profile economic data later this week (US Q4 GDP, central bank decisions etc.)

• Notable developments influencing markets overnight include mixed earnings, slight bounce in yields, soft regional US manufacturing data and China stimulus speculation

• More signs of IPO market recovery (Axios)

• Hedge funds bought more stocks than sold last week, first time in ten weeks (Reuters)

• January to break record as busiest month for new US corporate bond sales (Reuters)

• Indian market cap eclipses Hong Kong, now fourth largest in the world (Bloomberg)

STOCKS

• Apple to introduce car in 2028, scales back self-driving features (Bloomberg)

• Netflix agrees to US$5bn deal to air WWE's Raw for next 10 years (FT)

• Logitech warned higher transport costs due to Red Sea will hit its margins (Reuters)

• Novo Nordisk and Eli Lilly set to face new Danish challenger in weight-loss race (FT)

• Alibaba shares surge after co-founders purchase ~$200m worth of shares (CNBC)

EARNINGS

United Airlines (5.3%) – Double beat, guided to wider-than-expected losses in Q1 due to Boeing groundings but retained a better-than-expected full-year view. "Despite unpredictable headwinds, we delivered on our ambitious EPS target that few thought possible … and set new operational records for our customers. Looking ahead, we expect these trends to continue,” said Scott Kirby  

Procter & Gamble (4.1%) – Double beat, eight out of ten product lines held or grew during the quarter, only personal health care and skin care saw declines, revenue growth was drive by pricing while volumes were down.

Dr Horton (9.2%) – Single worst earnings reaction since 2014, revenue beat but profit miss. It’s worth noting that the stock was up almost 65% in the past twelve months. "Although inflation and mortgage interest rates remain elevated, our net sales orders increased 35% QoQ, as supply of both new and existing homes at affordable price points remains limited and demographics supporting housing demand remain favourable,” said Chairman Donald R. Horton. 

CENTRAL BANKS

• BOJ leaves policy settings unchanged as expected (Bloomberg)

• Poll shows BoE may start cutting rates in Q2 (Reuters)

• ECB bank lending survey shows drop in loan demand as standards tighten (ECB)

• ECB staff survey reveals discontent with performance of President Lagarde (FT)

GEOPOLITICS

• Israel proposes Hamas up to two month pause in fighting as part of phased deal for release of remaining hostages (Axios)

• US and UK conduct joint strikes against Houthi targets in Yemen ((Bloomberg)

• Iran directly involved in Houthi Red Sea attacks, says US Navy chief (AP)

• China says will respond to US efforts to restrict chip exports (Bloomberg)

• Turkey's parliament approves Sweden's NATO membership, Hungarian approval still required (AP)

CHINA

• China mulls rescue package to stem market rout (Bloomberg)

• China's stock market selloff widens record gap with US (Bloomberg)

ECONOMY

• Australian business confidence edges higher, concerns remain (NAB)

• Europe's €800B recovery fund held back by red tape (FT)

• South Korea producer prices accelerate in December (Yonhap)

Sectors to Watch

Homebuilders: US homebuilders were clobbered overnight after rallying to record highs on Tuesday. Major homebuilders and construction names like Dr Horton and 3M missed Q4 earnings expectations. James Hardie was also downgraded to Underperform from Neutral by Bank of America. However, the target price was raised to $53.80 from $52.0.

Uranium, Gold and Copper: Resource-related ETFs (above) experienced a broad-based bounce. VanEck Gold Miners and Global X Uranium ETFs finished ~2% higher, marking the first green day from recent pullbacks/selloffs.

Pilbara Minerals: Market Expectations

Pilbara Minerals (ASX: PLS) is set to release its December quarter production (Q2 FY24) report this morning – Which will provide a massive read through for the rest of the industry.

Here's what the market is expecting:

• Q2 Spodumene production of 162.0 dmt

• Q2 Unit operating cost FOB of A$631/dmt

• FY spodumene guidance between 660-690,000 dmt

• FY operating cost between A$600-670/dmt

• FY growth capex between $490-540 million

The stock is in a very awkward position given:

• Spodumene prices are down more than 80% in the past twelve months

• Pilbara reported $3.0bn cash in the September quarter (down 9% QoQ)

• Citi upgraded Pilbara to Neutral from Sell on Tuesday, however cut its target price to $3.60 from $3.90

• Pilbara is the most shorted stock on the ASX, with 21.47% short interest as at Wednesday, 17 January

Nanosonics: The After Market Update

Nanosonics (ASX: NAN) reported a first-half FY24 trading update as well as some commentary about full-year expectations. The only problem is that the company dropped this announcement at 4:53 pm AEDT.

Why is this a problem? Announcing an unscheduled trading update after market close tends to say 'I hope you're no longer watching markets and forget about this announcement.'

Unsurprisingly, the company said that "during the first half of FY24, the pipeline for new installed base and upgrades continued to grow however timeframes to conclude sales increased resulting in lower capital sales than expected."

JPMorgan downgraded the stock this morning to Underweight from Neutral and cut its target price to $3.40 from $3.65.

Wilsons also downgraded Nanosonics to Market-weight from Overweight and cut its target price to $3.95 from $5.46.

A Massive Rally for BHP's Xplor Candidates

Yesterday's Morning Wrap noted the two ASX-listed juniors that made it to BHP's Xplor Program, designed to support early-stage exploration companies.

They both soared like crazy, without going into trading halt (not that it was needed).

• Hamelin Gold (ASX: HMG) opened 1.3% lower at 7.4 cents. The stock was up 32% to by 10:30 am but closed 6.67% higher.

• Cobre (ASX: CBE) opened 43.9% higher at 5.9 cents. By 10:30 am, it was up 122% and closed 78.1% higher.

Why did the stock rally so much? Cash, connections and expertise (as well as making the cut from a pool of over 500 applicants).

As BHP states "each company will receive up to US$500,000 cash payment from BHP, together with access to a network of internal and external experts to help guide development across technical, business and operational aspects of the company." Both companies had market caps of around $15 million, making the cash injection rather significant (and reducing cap raise risks).

ASX corporate actions occurring today:

• Trading ex-div: 5G Networks (5GN) – $0.02, Mirrabooka Investments (MIR) – $0.04, Alternative Investment Trust (AIQ) – $0.04 

• Dividends paid: Premier Investments (PMV) – $0.60

• Listing: None

Economic calendar (AEDT):

• 9:00 am: Australia Manufacturing and Services PMI (Jan)

• 10:50 am: Japan Balance of Trade (Dec)

• 8:00 pm: Eurozone Manufacturing and Services PMI (Jan)

• 2:00 am: Canada Interest Rate Decision