Morning Wrap: ASX 200 to rise, S&P 500 climbs to near all-time high ahead of inflation data

ASX 200 futures are trading 13 points higher, up 0.17% as of 8:20 am AEDT.

The S&P 500 finished higher overnight and within 1% of all-time highs ahead of the highly anticipated December inflation report as well as US bank earnings on Friday. Oil prices ease after US stockpiles unexpectedly edge higher, Wells Fargo upgrades its S&P 500 target, TSMC reports flat December quarter revenues but top market expectations and looking back at yesterday's uranium rally.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 trends higher but finishes off best levels (Source: TradingView)

MARKETS

• Major US benchmarks finished higher but off best levels after hawkish comments from New York Fed President Williams

• Williams said that rates are restrictive enough to bring inflation back to target but the Fed may need to maintain a restrictive stance for some time to hit goals

• Markets appear largely in waiting mode for US inflation data on Thursday and bank earnings on Friday

• Almost 75% of S&P 500 market cap to report by week ended 9 February 

• Wells Fargo raises 2024 S&P target from 4,600-4,800 to 4,800-5,000 (Reuters)

• Oil prices fall after surprise US storage build (Reuters)

• Global governments to unleash unprecedented bond flood, challenging market dynamics, sparking yield concerns (Bloomberg)

• IPO market revival hopes reignited after shares of newly listed stocks outperform (FT)

STOCKS

• TSMC reports largely flat Q4 revenue but still beat both the company's and market's expectations (Reuters)

• Amazon axing hundreds of Prime Video and Twitch workers (Bloomberg)

• Salesforce and Slack to pause hiring in tech and product divisions (Fortune)

• Obesity drugs driving M&A optimism at JPMorgan health care conference (Bloomberg)

• Boeing CEO admits 'our mistake' after 737 MAX door blowout (Bloomberg)

• Intel challenges Nvidia, Qualcomm with 'AI PC' chips for automobiles (Reuters)

CENTRAL BANKS

• ECB's Villeroy says central bank to cut rates once inflation outlook hits target (Reuters)

• Japan's slower wage growth gives another reason for BOJ to hold (Bloomberg)

• Australia inflation cools, boosting case for February rate pause (Bloomberg)

GEOPOLITICS

• US and China military hold first talks since 2021 (FT)

• US and allies condemn arms transfers between Russia and North Korea (Reuters)

• China threatens more trade sanctions on Taiwan, ahead of national elections (Reuters)

• President Biden to send high level delegation to Taiwan after Saturday's election (FT)

ECONOMY

• Retailers rush to avoid delays to spring collections by stockpiling due to Red Sea disruption (Reuters)

• Global chip sales rose for first time in more than a year as demand rebounds (Bloomberg)

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What Happens After a 20% Gain?

The S&P 500 rallied 24.2% last year and finished within 2% of all-time highs. But what happens in the year that follows the ~20% gain?

Since 1950, the gain for the S&P 500 after a 20% yearly rise is another 10.0% gain (and higher 80% of the time). Although its pretty normal for the market to experience a slow start to the year as well as weakness during the seasonally weak months of May and September.

Source: Carson Investment Research

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Another High Stakes CPI Print

US inflation data for December is due at 12:30 am tonight. Here's what to expect:

• Core inflation expected to rise 0.3% month-on-month, the same pace as November

• Core inflation expected to ease to 3.8% from 4.0% in November

• Headline inflation forecast to rise 0.2% month-on-month, up from 0.1% in November

• Headline inflation forecast to rise 3.2%, up from 3.1% in November

The forecasts suggest the continued case of sticky inflation from the service sector while areas such as used cars, energy and housing costs continue to ease.

Saxo Bank believes the market could be "more sensitive to an upside surprise in the CPI data this week, rather than a downside surprise" as it looks for more disinflation momentum to justify rate cut expectations.

While rate cut expectations have somewhat ease in recent weeks, the base case is still six 25 bp cuts by year end.

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The Uranium Rally

It was absolute euphoria for uranium stocks on Wednesday. Most ASX-listed names opened around 3-5% higher and rallied intraday to close 5-12% higher.

We noted the catalyst in yesterday's Morning Wrap: The US Department of Energy is seeking bids from contractors to help establish a domestic supply of enriched uranium for use in next generation nuclear power plants.

Here are some interesting observations and highlights from the rally:

• The US imports approximately a third of its enriched uranium from Russia

• There's only one US facility that can enrich uranium

• That facility was offline for more than 20 years and only resumed production in October 2023

• The US is on a tight deadline to free itself from its dependency on Russian supply

It's this kind of urgency (coupled with soaring uranium spot prices – which crossed US$90 a pound earlier this month) that can drive such euphoric moves for uranium stocks.

Tracking the performance of the US-listed Global X Uranium ETF can help with anticipating how local names will perform in the upcoming session. On Tuesday night, the ETF rallied 4.0%.

The ETF's top holdings include a few ASX-listed names, so such rallies can result in fund flows to maintain desired weightings.

ASX corporate actions occurring today:

• Trading ex-div: None 

• Dividends paid: None

• Listing: None

Economic calendar (AEDT):

• 11:30 am: Australia Balance of Trade (Nov)

• 12:30 am: US Inflation (Dec)