Morning Wrap: ASX 200 to rise, S&P 500 gives back early strength + ResMed's earnings beat

The S&P 500 eked out another record high thanks to strength from chipmakers and Netflix, copper prices rally amid supply concerns, the Bank of Canada kept interest rates unchanged and signaled its done with hikes, China unexpectedly cut reserve ratio requirements for banks and ResMed shares are set to rally on solid earnings.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 fades from session highs to close just above breakeven (Source: TradingView)

MARKETS

Note: The ASX is closed tomorrow for Australia Day.

• S&P 500 finished just above breakeven, down from session highs of 0.80%

• Russell 2000 failed to hold onto some earlier strength, finished at worst levels

• Bond yields moved higher, with the US 10-year reaching a 5-week high

• Traders riding long Treasury positions start to feel the squeeze (Bloomberg)

• Investors flock into peripheral Eurozone bonds in hunt for yield (FT)

• Private-equity firms finding it difficult to exit some positions amid valuation disagreements (Bloomberg)

• Microsoft become second company to hit US$3 trillion market cap after Apple (Bloomberg)

STOCKS

• Apple increasing its AI capabilities with series of acquisitions and hires (FT)

• Puma warns on earnings, tougher macro backdrop and softer demand (Reuters)

• Boeing set to deliver first 737 Max aircraft to China since 2019 (Bloomberg)

• Ebay to cut 1,000 jobs and reduce work for outside contractors (Bloomberg)

EARNINGS

Netflix (+10.7%) – Double beat, second-most quarterly subscriber additions on record at 13.1 million, well ahead of 8.88 million consensus, ad-supported plans now make up 40% of new signups, analysts noted longer-term tailwind of WWE deal.

ASML (+8.85%) – Double beat, new orders soar to record highs, management continue to invest in growth for 2025 and beyond, 2024 outlook unchanged to reflect demand weakness in the EV sector.

• "Our strong order intake in the fourth quarter clearly supports future demand ... In spite of the positive signs... we maintain our conservative view for the total year and expect 2024 revenue to be similar to 2023."

• "The semiconductor industry continues to work through the bottom of the cycle. Although our customers are still not certain about the shape of the semiconductor market recovery this year, there are some positive signs."

SAP (+6.9%) – Double beat, announced plans to lay off 8,000 employees, cloud backlog expanded by 27% to all-time high, generative AI viewed as the greatest opportunity since cloud.

Texas Instruments (-2.5%) – Q4 earnings beat but revenue miss, company guided to below consensus Q1 revenue drop of ~12% QoQ as customers continue to reduce inventories, noted increased softness in industrial and first decline in Auto segments in three years. 

CENTRAL BANKS

• Bank of Canada holds rates, no timing on cuts (Reuters)

• BOJ rate hike debate shifts to March or April (Nikkei)

• Markets continue to pull back on Fed rate cut path, see first cut in May instead of March (Reuters)

GEOPOLITICS

• Trump declared winner in New Hampshire primary (Bloomberg)

• One-month Gaza truce the focus on intensive talks (Reuters)

• North Korea fires cruise missiles off its west coast (Reuters)

• US ramps up strikes on Iranian proxies in Iraq and Yemen (Bloomberg)

• China says working to de-escalate tensions in the Red Sea (FT)

• US lawmakers arrive in Taiwan after elections in show of support (Reuters)

• EU draws up economic security plans, with mind on China (Reuters)

CHINA

• China surprises with 50 bp RRR cut (Bloomberg)

• China attempts to lift confidence, met with skepticism (Reuters)

• China tightens access to offshore investment funds (FT)

ECONOMY

• US business activity picks up in January, inflation cooling (Reuters)

• Eurozone PMIs show downturn moderates but price pressures intensify (Bloomberg)

• UK flash PMI surprises to upside, fuelling soft land hopes though Red Sea attacks seen as overhang (Reuters)

• Japan flash manufacturing PMI edges higher, services stronger (Reuters)

Sectors to Watch

Copper – Copper prices settled 2.1% higher overnight to US$3.87/lb, drawing a strong response for the Global X Copper Miners ETF, up 3.1%. This could see some positive flow for names like Sandfire (ASX: SFR)

Oil – Energy was the best performing sector on the S&P 500. Crude oil prices rose 1.3% overnight to US$75.4 a barrel and close to a two-month high.

Homebuilders – The strong-trending sector is now experiencing a bit of a pullback, with the SPDR Homebuilders ETF down 4.6% in the last two sessions. US-listed James Hardie shares fell 3.9% overnight. Boral (ASX: BLD) was downgraded to Sell from Neutral by Goldman Sachs (but target price was raised to $4.90 from $4.70).

Gold – Gold prices near a 5-week low amid a resurgence in bond yields and easing of rate cut expectations. The VanEck Gold Miners ETF opened 2.2% higher overnight but closed 1.88% lower.

Rate Cuts Priced Out

The likelihood of a Fed rate cut in March has dropped to 40.5%, down from 53.8% a week ago and 75.6% a month ago.

The market is currently pricing in the first rate cut to take place in May, with a total of 5 rate cuts by year end. This compares to expectations of 6 rate cuts a week ago and 7 rate cuts a month ago.

ResMed Q2 Results

Resmed (ASX: RMD) reported its Q2 FY24 results this morning and its US-listed CDIs are up around 5.4%. Here are the key numbers for Q2:

• Revenue of $1.16bn vs. $1.15bn consensus

• Operating income of $365.5m vs. $332m consensus

• EPS of $1.88 vs. $1.77 consensus

"We continue to expand the production and delivery of our market-leading flow generator platforms, and we are successfully launching our latest generation platform, AirSense 11, into new markets and geographies around the world. The strong growth in patient flow we've seen over the past several quarters has supported ongoing device growth, as well as augmented and accelerated our replenishment programs for sustained mask and accessories growth," said CEO Mick Farrell.

Nanosonics: Sold to Oblivion

Nanosonics (ASX: NAN) shares fell 33.4% on Wednesday after an abysmal first-half FY24 trading update, which was announced after hours on Tuesday, which we noted as a rather bearish sign in yesterday's Morning Wrap. Here are some of the key numbers:

• Total revenue for the half is expected to be approximately $79.6 million, down 2.4% year-on-year

• Gross margin to be 79.7%

• Operating expenses to be approximately $60.8 million, up 12% year-on-year

To add some perspective, consensus was expecting revenue growth of 17%.

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: 350 Capital Group (TGP) – $0.02, 360 Capital REIT (TOT) – $0.015, Ricegrowers (SGLLV) – $0.15, RAM Essential Services (REP) – $0.01 

• Listing: None

Economic calendar (AEDT):

• 8:00 pm: Germany IFO Business Climate (Jan)

• 12:15 am: Eurozone Interest Rate Decision 

• 12:30 am: US GDP (Q4)