Morning Wrap: ASX 200 to rise, S&P 500 snaps six-day win streak + Oil prices hit 2-month high

The S&P 500 ended a six-day winning streak amid weaker-than-expected results from Intel, the US personal consumption expenditure index (the Fed's preferred inflation gauge) rose moderately in December, oil prices rose for a second week in a row on strong US economic data and rising Red Sea tensions plus a recap of overseas sectors that have made notable moves in the last two trading sessions.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 fades early strength to close slightly lower (Source: TradingView)

MARKETS

• S&P 500 closed slightly lower, down from session highs of 0.26%

• S&P 500 finished last week up 1.06%, Dow up 0.65% and Nasdaq up 0.94%

• "... This has been one of the most powerful short-cycle rallies we've ever seen ... the 19% rip in S&P 500 over the past three months registers in the 99th percentile of market history ... this type of move usually happens coming out of recessions." – Goldman Sachs

• Yields and US dollar relatively unchanged on the week

• WTI crude settled 1.4% higher, up around 10% since early January

• Bullish drivers – Goldilocks data releases, stronger-than-expected US GDP, stabilised Fed rate repricing, new all-time highs for S&P 500, China stock market stimulus

• Bearish drivers – Lackluster Q4 US earnings season, skepticism around China market bounce/stimulus, concerns on EV demand and uncertainty around 2024 presidential election cycle

• Tech to continue setting the market's course with earnings this week from Microsoft, Apple, Meta, Amazon, and Google (Bloomberg)

• Record-high US equities becoming more expensive versus global peers (Reuters)

• P&G, Kimberly-Clark results could be warning sign on impact of disinflation on earnings (Bloomberg)

• Australian lithium miners begin cost cutting efforts amid falling prices (Bloomberg)

STOCKS

• Apple's iPhone shipments in China drop 2% in Q4 (Reuters)

• Microsoft announced cut of 1,900 Activism Blizzard and Xbox employees (The Verge)

• Business Insider announces 8% cut to workforce following LA Times layoffs (CNN)

• Paramount announces layoffs, company works to close deal to be taken private (CNBC)

• LVMH sales rose at the end of 2023 despite wider luxury slump (Bloomberg)

• PayPal shares fall after investors unimpressed by latest products (Bloomberg)

EARNINGS

Of the 25% of S&P 500 companies that have reported for Q4:

• Aggregate EPS is down -1.4% vs. expectations of 1.6% growth

• 69% have beaten consensus EPS expectations, below the 77% five-year average

• 68% have beaten sales expectations, level with the 68% five-year average

• Earnings are on aggregate coming in 5.3% below expectations

IBM (+9.5% on Thursday) – Double beat, stock is having its best day since 2001, “Client demand for AI is accelerating and our book of business for watsonx and generative AI roughly doubled from the third to the fourth quarter,” said CEO Arvind Krishna.

Visa (-1.7%) – Double beat, payment volumes for the December quarter up 8.7% year-on-year, management notes "strong growth in cross-border volume ... consumer spending remained resilient", trends have continued in January (except cold weather briefly impacted some spending earlier in the month), online spending is outpacing in-person spending, travel was strong but continues to normalise.

Tesla (-12.1% on Thursday) – Double miss, Q4 revenues up 3.5% year-on-year or the slowest since 2Q20, gross margins down to 17.6% from 23.8% a year ago amid deep price cuts, management warned "in 2024, our vehicle volume growth may be notably lower than the growth rate achieved in 2023."

CENTRAL BANKS

• Fed to contend with prospect of disinflation raising real interest rates (WSJ)

• ECB holds rates steady, in-line with expectations (Bloomberg)

• ECB's Lagarde offers some dovish takeaways, ECB Villeroy says they could cut rates at any time this year and all options are open (FT)

• Norges Bank holds rates, sees scope for earlier cut (Reuters)

• RBA seen cutting rates in late 2024 amid lingering inflation (Bloomberg)

GEOPOLITICS

• Israel demolishes buildings to create buffer zone within Gaza (FT)

• Houthi attack on Russian fuel has oil traders recalculating risks (Bloomberg)

• North Korea fires multiple missiles amid ramping rhetoric about a potential conflict with the US (Bloomberg)

CHINA

• China's $6tn stock wipeout reveals gloomy outlook and exposes deeper issues for President Xi (Bloomberg)

• More China provinces set conservative 2024 growth targets (SCMP)

• China's security regulator says it will begin barring the lending of restricted shares in latest attempt to stabilise markets (Reuters)

• Evergrande again at risk of liquidation in a Monday hearing (Bloomberg)

ECONOMY

• US economy brushes aside recession fearmongering with strong Q4 performance, up 3.3% quarter-on-quarter (Reuters)

• US prices rise moderately in December, inflation trending lower (Reuters)

• German Ifo business climate survey weakens (Bloomberg)

Sectors to Watch

The ASX was closed on Friday, so we have a little bit of catching up to do. Here are some of the overseas sectors that have made some notable moves over the last two trading days.

Energy: S&P 500 Energy sector up around 3% in the last two sessions. Oil prices have hit two-month highs after Russian fuel was struck by a missile as it transited the Red Sea. This marks the most significant attack yet by Yemen's Houthi rebels on an oil-carrying vessel. Let's see if this results in some follow-through strength for names like Woodside (ASX: WDS) and Beach Energy (ASX: BPT).

Financials: Nothing too crazy but the SPDR Financials Index hit two consecutive 10-month highs. Interestingly, financial conditions are easier now vs. when the Fed first started hiking, according to the Bloomberg US financial conditions index. We're seeing a lot of strength across the financials sector (notably banks but also insurers, asset managers etc.) Plenty of local names have rallied hard in recent weeks including Commonwealth Bank (ASX: CBA) and ANZ (ASX: ANZ).

Lithium/Battery Metals: The Global X Lithium & Battery Tech ETF fell -1.7% in the last two sessions. The ETF remains deeply oversold but downbeat Tesla earnings added further insult to injury.

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: Region Group (RGN) – $0.067

• Listing: None

Economic calendar (AEDT):

No major economic announcements.