Morning Wrap: ASX 200 to rise, S&P 500 rallies + Iron ore nears 8-month high

Major US benchmarks reversed Thursday's losses to finish the week on a positive note, Powell warns that the Fed is not confident in its path to bringing inflation back to target, Moody's cuts outlook on US government to negative due to 'continued political polarisation', UK GDP fails to grow in Q3 but dodges recession, a major global hydrogen company says it has substantial doubt to 'continue as a going concern' and iron ore nears an 8-month high (and what's next).

Let's dive in.

S&P 500 SESSION CHART

S&P 500 rallies intraday to close at best levels (Source: TradingView)

MARKETS

• S&P 500 higher, finished near best levels, reversing Thursday’s declines

• S&P 500 finishes the week up 1.31%, Nasdaq up 2.37%

• Russell 2000 down 3.2% last week, marked its 12th drop in the past 15 weeks

• US 2-and-10 year yields nudge higher after recent drop to 1-2 month lows

• Bullish focus points for the week – Peak Fed and historical tendency for stocks to rally after last cycle hike, recent ‘goldilocks economic data’, better-than-expected Q3 earnings, outsized short positioning, reopening buyback windows and positive seasonality

• Bearish focus points for the week – Powell says the Fed will not hesitate to hike if necessary, lagged impacts of tightening, yield overhang, Q3 results noting some deterioration in macro backdrop, outsized Q4 earnings expectations

• Retail traders pulled ~$16bn from stocks in October, most in two years (Bloomberg)

• Corporate bond ETFs flag record outflows in October, with investors pivoting into government bond funds (FT)

• FOMO returns as VIX tumbles, investors position for year-end rally (Yahoo)

• Banks relative performance vs S&P 500 has fallen to lowest since 1989 (FT)

• Traders buying sterling on expectation sticky inflation (Bloomberg)

• Odds of of 18-Nov shutdown fall as House Speaker Johnson proposes temporary funding plan without spending cuts (Bloomberg)

STOCKS

• Airlines slash fares in effort to fill record 260m seats this quarter (CNBC)

• Shipping boom turns to bust as carriers flag losses for Q4 (Bloomberg)

• Novo Nordisk's Wegovy significantly reduces risk of death from cardiovascular disease, which could win over health systems and insurers (FT)

• Exxon Mobil to unveil lithium strategy this week (Reuters)

KEY EARNINGS

No major results today – Of the 92% of S&P 500 companies that have reported Q3 earnings:

• 81% have beaten consensus EPS expectations, above the 74% one-year average and the 77% five-year average

• 61% topped consensus sales expectations, below the 69% one-year average and 68% five-year average

• Earnings are coming in 7.1% above expectations, above the 44% one-year average but below the 8.5% five-year average

CENTRAL BANKS

• Powell warns Fed not confident it is on path to bringing inflation back to target (FT)

• Fed repo facility back below $1tn for first time since August 2021 (Bloomberg)

• ECB makes case for keeping balance sheet big (FT)

• BoE's Pill says interest rates already high enough to tackle inflation (Telegraph)

• RBA upgrades economic forecasts but risk of inflation is higher (Bloomberg)

• Bank of Mexico holds, though hints it could start cuts soon (Bloomberg)

GEOPOLITICS

• Israel agrees to daily 4-hour pause to allow civilians to evacuate (Bloomberg)

• Israeli PM Netanyahu says does not seek to occupy Gaza (Reuters)

• Netanyahu says a peace deal with Saudi Arabia was still possible (Bloomberg)

• Iran warns about broader conflict (Reuters)

• Yellen begins talks with Chinese counterpart, which will include discussions on use of economic tools for national security purposes (Bloomberg)

CHINA

• China new loans to have shrunk in October due to seasonal factors (Reuters)

• Chinese banks ramp up short-term debt amid liquidity concerns (Bloomberg)

• China's slow economy takes 9% off global manufacturers' profits (Nikkei)

ECONOMY

• Moody's lowers US outlook to negative due to wider fiscal deficits and political polarization (Bloomberg)

• US consumer sentiment drops again in November, inflation expectations climb to the highest level since March 2011 (Reuters)

• UK GDP stagnated in Q3, justifying increased focus on growth over inflation (FT)

Hydrogen to Hydro-gone

The above Global X Hydrogen ETF tumbled 7.6% last Friday after one of its major constituents – Plug Power (-40.5%) – reported worse than expected Q3 earnings.

A lot of these renewable-related ETFs like Hydrogen, Solar and Cleantech have all been smashed this year. I'll highlight a few key takeaways from Plug Power's earnings, which may or may not resonate with the rest of the industry:

• Plug Power warned that the lack of funding creates a "substantial doubt about the company's ability to continue as a going concern."

• At its peak in 2021, the company had a market cap of US$35bn. Now it's at just US$2bn

• Even then, the company says it expects $1.2bn in FY23 revenue (down from prior guidance of $1.2bn to $1.4bn) and expects revenue to grow to $6bn by FY27 and $20bn by FY30

Plug Power chart (Source: TradingView)

Iron Ore Nears 8-Month High

Iron ore prices are up almost 30% from mid-August lows as the bad-news-is-good-news dynamic continues to fuel more stimulus hopes.

Singapore iron ore futures (Source: TradingView)

Here are some key data points from the Shanghai Metals Market (SMM):

• "China’s import volume of iron ore and concentrate in October was 99.385 million mt, down 1.8% MoM but up 4.6% YoY."

• The drop in October reflects a) falling port efficiency amid falling out of national holidays such as the Mid-Autumn Festival and the National Day holiday; b) shirking pig iron output amid maintenance of more blast furnaces

• SMM forecasts that iron ore imports will continue to decline in November due to a) more scheduled maintenance of blast furnaces; b) high iron ore prices will blunt buying appetites of steel mills and c) overseas mines' year-end shipment rush which will keep the supply side topped up

At least from a seasonal perspective, we're heading into a period that's expected to be very strong for iron ore.

Source: Market Index

A 90% Likelihood of a Year-end Rally?

I came across an interesting data set from Wayne Whaley about historical tendencies for the S&P 500. In summary:

• The S&P 500 is up around 15% year-to-date (as of November 12)

• In the last 22 years where the S&P 500 was up at least 5% for the calendar year to November 15, the rest of the year (November 15 to December 31) was positive

• Going back 50 years, this set up was 27-3

• The average % change between this period was 3.49%

• The average red year was down 0.57%

• There were 22 moves of more than 1%, all of which were positive

Source: Wayne Whaley

ASX corporate actions occurring today:

• Trading ex-div: Macquarie Group (MQG) – $2.55

• Dividends paid: Harvey Norman (HVN) – $0.12

• Listing: None

Economic calendar (AEDT):

No major economic announcements.