Morning Wrap: ASX 200 to rise, S&P 500 claws back early losses, Markets brace for US CPI data

The S&P 500 and Nasdaq inched higher overnight ahead of another high stakes CPI print, gold and copper prices continued to trend higher overnight, lithium and rare earth stocks are trying to bottom as prices for the underlying commodity improve, brokers upgrade Ansell after its recent $400 million capital raise and everything you need to know about tonight's US inflation report.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 claws back early losses to finish slightly higher (Source: TradingView)

MARKETS

• S&P 500 higher, finished at best levels from session lows of -0.80%

• US bond yields down across the board after a sharp rise this month, the US 10-year yield settled 5.6 bps lower and below the 4.40% level

• Yield-sensitive sectors such as Real Estate, Utilities and base metal prices outperformed

• Market remains largely in waiting mode, notably March CPI (tonight), PPI and ECB decision (Thurs) and bank earnings (Fri) 

• Markets now see only 60 bp of Fed rate cuts in 2024, lowest since October (FT)

• Surge in material prices reflects improving economy but poses inflation risks (link)

• Hedge funds are dumping equities at fastest rate in three months (CNBC)

• Copper nears 15-month highs on tight supply and growing demand (Bloomberg)

• Strategist survey shows expectation for 10Y yield to wipe out YTD increase, fall to 4.0% in six months (Reuters)

• EIA raises 2024 oil output and price forecasts, crude expected to average US$83.78 per barrel (Reuters)

ASX TODAY

• ASX 200 set to open higher for a third straight session

• Lower bond yields overnight and higher commodity prices should see a strong open for sectors like real estate and materials

BROKER NOTES

• Ansell upgraded to Overweight from Neutral; target up to $29.20 from $26.00 (JPMorgan)

• Elders upgraded to Buy from Neutral; target up to $8.50 from $7.30 (Citi)

• Fisher & Paykel upgraded to Buy from Neutral; target up to NZ$29.10 from NZ$28.50 (UBS)

• Tabcorp downgraded to Underweight from Neutral; target cut to $0.67 from $0.70 (JPMorgan)

INTERNATIONAL STOCKS

• Global airline industry faces summer squeeze with lack of planes and surge in travel demand (Reuters)

• Google announces custom Arm-based chips to be used for data centres (CNBC)

• Intel unveils its latest AI chip called Gaudi 3, will be available in Q3 (CNBC)

• Luxury sales set to slowdown on subdued China demand and tough year-on-year comparisons (Reuters)

• US grants billions in subsidies to TSMC and Samsung (Bloomberg)

CENTRAL BANKS

• 2024 Fed rate cut expectations falls to lowest level since October (Reuters)

• BOJ's Ueda signals keeping door open for further paring back of easy policy (Bloomberg)

• Former St. Louis Fed President Bullard says 'base case' is three rate cuts this year (Bloomberg)

• State Street says Fed will cut rates by 50 basis points as soon as June (BNN Bloomberg)

GEOPOLITICS

• Senior Israeli officials say progress made in negotiations for a cease-fire in Gaza (Bloomberg)

• Western allies face around a $10tn reckoning in the global race to rearm (Bloomberg)

• Biden and Japan PM Kishida seek to strengthen defense alliance amid China concerns (Bloomberg)

ECONOMY

• New Zealand business confidence gloomier on economic outlook as high interest rates depress demand (Bloomberg)

• Australian consumer confidence remains deeply pessimistic (Bloomberg)

• Australian business confidence steady in March, price pressures ease (Reuters)

Sectors to Watch: Commodities

Overnight markets may have been a little quiet at the index level – but several commodities continued to rip higher. (And that's why I always look at the above ETF watchlist)

Lithium and rare earths: Neodymium prices popped 8.6% on Monday, which is driving some upside for local names like Lynas (ASX: LYC), Meteoric Resources (ASX: MEI) and Arafura Rare Earths (ASX: ARU). Chinese lithium carbonate futures have also been trending strongly over the past week, up around 6.6% to 114,150 yuan a tonne. The Global X Rare Earth/Strategic Metals ETF rallied 2.94% overnight to close at the highest level since 10 January.

VanEck Rare Earth/Strategic Metals ETF daily chart (Source: TradingView)

Copper: Copper prices settled 0.22% higher overnight, down from session highs of 1.34% but off lows of -0.55%. Despite the volatility in the underlying commodity, the Global X Copper Miners ETF rallied 2.7%. As far as local stocks are concerned, Sandfire (ASX: SFR) finished 0.5% higher on Tuesday, down from session highs of 3.7%. On the same day, UBS downgraded the stock to Neutral (from Buy) due to valuation concerns. Whereas troubled names like Aeris Resources (ASX: AIS) and 29Metals (ASX: 29M) were up 14.3% and 3.0% respectively.

Real Estate: The real estate rally hit a wall this month. The weakness coincides with the surge in bond yields, where the US 10-year yield rallied as much as 25 bps between 1-8 April. A pullback in bond yields overnight resulted in yield-sensitive sectors like real estate and utilities leading to the upside. Let's see if this trend kicks on for local names. According to Morgan Stanley, Charter Hall (ASX: CHC) and Dexus (ASX: DXS) are amongst the ASX 100 REITs with the strongest and most consistent negative correlation to bond yields.

Charter Hall price chart (Source: TradingView)

It's CPI Time

It's that time of the month again – another high stakes CPI print that'll either act as rocket fuel for markets or dampen Fed rate cut expectations (and send stocks sharply lower). Here's a preview of what the market expects for March inflation data:

• Headline inflation to rise 0.3% month-on-month (0.4% in Feb)

• Headline inflation up 3.4% year-on-year (3.2% in Feb)

• Core inflation to rise 0.3% month-on-month (0.4% in Feb)

• Core inflation up 3.7% year-on-year (3.8% in Feb)

Headline inflation is expected to tick higher, largely due to rising energy prices. It's worth noting that the Fed has referred to food and energy as volatile categories and they prefer to focus on core inflation.

Core inflation is expected to edge lower as the spike in used cars is set to reverse. However, factors such as shelter (accounts for more than a third of CPI and two-thirds of last month's inflation reading) and insurance could remain sticky.

It's no doubt a tricky one. With that in mind, let us know what you think the market will do tonight.

Companies trading ex-dividend: 

• Wed 10 April: Cardno (CDD) – $0.276 

• Thu 11 April:  Cosol (COS) – $0.01, Duxton Water (D20) – $0.036

• Fri 12 April: Kogan (KGN) – $0.075

• Mon 15 April: WAM Active (WAA) – $0.03, Cadence Capital (CDM) – $0.03, SDI (SDI) – $0.015, New Hope (NHC) – $0.17

• Tue 16 April: WAM Global (WGB) – $0.06

Other ASX corporate actions today: 

• Dividends paid: Southern Cross Electrical (SXE) – $0.01, NIB Holdings (NHF) – $0.15, News Corp (NWS) – $0.10, Genesis Energy (GNE) – $0.06, Reece (REH) – $0.08, PSC Insurance (PSI) – $0.05, New Zealand Oil & Gas (NZO) – $0.025, Silk Logistics (SLH) – $0.02, IPD Group (IPG) – $0.04 

• Listing: None

Economic calendar (AEST):

• 11:30 pm: US Inflation Rate (Mar)

• 12:45 am: Bank of Canada Interest Rate Decision 

• 5:00 am: Fed Minutes