Morning Wrap: ASX 200 to rise, S&P 500 snaps 5-day losing streak as strong earnings lift stocks

The S&P 500 ends a five-day losing streak as bond yields stabilise stoked investor risk appetite, plenty of upbeat earnings overnight from names including Spotify, Verizon and Coca Cola, Eurozone PMIs spiral lower as the service sector begins to stagnate, US manufacturing PMI bounce to a six month high and why US companies are outperforming.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher on Tuesday (Source: TradingView)

MARKETS

• S&P 500 higher, closed a bit off session highs, breaks a five-day losing streak

• Plenty of upbeat earnings from names including Coca Cola, GE and Verizon

• Long-end yields eased but short-end (e.g. 2-year) bounced. Overall stabilisation in rates seems to be  supportive for risk sentiment

• Oil prices fell due to weak economic data from Germany, the UK and Eurozone 

• Bond volatility spreading into other assets beyond equities (Bloomberg)

• Magnificent seven have driven all of the gains in global stocks this year (FT)

• Hedge funds lower exposure to megacap tech names in recent days (Reuters)

• Bitcoin soars to 18 month high on ETF bets (Reuters)

STOCKS

• Apple announces new product event scheduled for Oct 30 (CNBC)

• Meta faces multi-state US lawsuit over harming youth mental health (CNBC)

• Gucci sales sink amid luxury demand slowdown (Bloomberg)

• GM self-driving vehicle permit suspended by California DMV (Bloomberg)

• GE expects offshore wind business to post US$1bn annual losses (Bloomberg)

EARNINGS

Alphabet and Microsoft reported earnings after hours. We'll break down these tomorrow. But in summary: Alphabet missed cloud earnings (down around 5% after hours) while Microsoft reported another strong result (up around 5% after hours).

Spotify (+10.4%): Double beat, MAUs grew 26% year-on-year to 574 million which was 2 million above guidance, posted a surprise profit thanks to cost-cutting measures including lower market spend and layoffs. 

Verizon (+9.3): Earnings beat with revenue largely in-line, free cash flow well ahead of consensus, retail postpaid phone adds and wireless upgrade rate was better-than-expected, reaffirmed full-year guidance but raised free cash flow outlook

General Electric (+6.5%): Double beat, free cash flow well ahead of consensus, strong Aerospace results driven by order growth in Engines, raised full-year guidance and announced 2Q24 timing for spinout of GE Vernova.

Coca Cola (+2.9%): Double beat, raised full-year volume on strong demand and higher prices. For the quarter, unit case volumes rose 2% while prices rose 9%. Gross margins 90 bps ahead of consensus on pricing and lower freight costs. 

General Motors (-2.3%): Double beat but withdrew FY23 guidance, ongoing UAW strikes costs running at US$200 million per week.

• Moderating EV production: "We are also moderating the acceleration of EV production in North America to protect our pricing, adjust to slower near-term growth in demand, and implement engineering efficiency and other improvements that will make our vehicles less expensive to produce, and more profitable.”

• UAW strikes: "The current offer is the most significant that GM has ever proposed to the UAW … Accepting unsustainably high costs would put our future and GM team member jobs at risk, and jeopardising our future is something I will not do.”

CENTRAL BANKS

• ECB set to pause rate rises as focus shifts to shrinking balance sheet (FT)

• Bank of England rate has peaked (Reuters)

• Bank of Japan conducts unscheduled bond-buying operation (Reuters)

• RBA's Bullock says further rate hikes possible (Bloomberg)

GEOPOLITICS

• Israel willing to delay Gaza invasion to discuss large release of hostages (Axios)

• US and China discuss macroeconomic developments in meeting (Reuters)

• China's Foreign Minister Wang to visit Washington this week (Bloomberg)

ECONOMY

• Eurozone PMI lowest in three years as services sector stagnates (Reuters)

• US manufacturing PMI highest in six months, services PMI highest in three months inflation indicators easing (Reuters)

• UK PMIs remain in contraction for a third month running (Reuters)

Sectors to Watch

Markets (minus Energy) experienced a broad-based bounce overnight. Could we be in for a bit of a relief rally amid a flurry of upbeat US earnings and yield stabilisation?

Steel: Nucor, the largest steel producer in the US, rallied 4.8% overnight after topping third quarter revenue and earnings expectations. Despite the beat, its quarterly revenues fell 16% year-on-year reflecting lower pricing and a small drop in volumes. The company's outlook was also relatively weak, with expectations of further price and volume weakness in the fourth quarter. Nevertheless, the earnings beat could see some positive flow for local names like Bluescope Steel (ASX: BSL) and Sims (ASX: SGM).

Tech: Will be an interesting dynamic after the mixed Microsoft and Alphabet earnings. Both companies beat earnings expectations but Alphabet missed cloud revenue (US$8.41bn vs. US$8.6bn expected).

Uranium: The Global X Uranium ETF rose 2.38% overnight to a near 1-month high. The Uranium ETF is bouncing after a shallow ~10% pullback. Could we see the sector kick on after the recent rally?

Global X Uranium ETF daily chart (Source: TradingView)

A Strong US Economy Equals Strong Earnings

An interesting takeaway from Trahan Macro Research: If you get more than 50% of your revenues in the US, then your earnings are up an average 3.3% on average. If you get more than 50% of your revenues abroad, your earnings are down 7.1%. This is a testament to the lackluster state of the global economy and the strength in the US.

Source: Trahan Macro Research

ASX corporate actions occurring today:

• Trading ex-div: GQG Partners (GQG) – $0.02, Lion Selection Group (LSX) – $0.01 

• Dividends paid: Horizon Oil (HZN) – $0.02, Reece (REH) – $0.17

• Listing: None

Economic calendar (AEDT):

• 11:30 am: Australia Inflation Rate

• 7:00 pm: Germany IFO Business Climate

• 1:00 am: Canada Interest Rate Decision

• 7:35 am: Fed Chair Powell Speech