Morning Wrap: ASX 200 to rise, S&P 500 takes a breather as small caps outperform

The S&P 500 faded from best levels ahead of another high-stakes inflation report, small caps begin to outperform as the Russell 2000 rallies for a third-straight session, Macquarie reports a sharp drop in year-to-date net profit as it cycles exceptional growth from a year ago and keep an eye out for results from names including CSL, Breville, Seek and more.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 gives back early gains to close slightly lower (Source: TradingView)

ASX TODAY

• ASX 200 to open higher, looking for strength across resources and small caps

• Companies set to report results today include Breville, Challenger, CSL, Endeavour Group, Seek and Seven West Media 

• Breville consensus numbers for 1H24 include $944m revenue and $85.5m NPAT

• CSL consensus numbers for 1H24 include $8.04bn revenue and $1.98bn NPATA

• Macquarie issues Q3 trading update, says YTD NPAT substantially down as the business cycles exceptional results from 3Q23

• Beach Energy upgraded to Outperform from sector perform at RBC Capital Markets, target price increase to $1.95 from $1.70

• APM Human Services taps UBS to help manage takeover interest (AFR)

• Panoramic administrators continue dual-track strategy to sell or recapitalise business (The Australian)

MARKETS

• S&P 500 finished slightly lower, down from session highs of 0.43%

• Russell 2000 outperforms again, the small cap Index is now up 4.9% in the last three sessions to a near 2-month high

• Markets stalling ahead of tomorrow’s US inflation data – Consensus expects headline inflation to fall to 2.9% in January from 3.4% in the previous month

• No major movements across bond and commodity markets

• Market narrative remains focused on stronger economic growth backdrop, disinflation momentum, Fed uncertainty, tech outperformance, lacklustre breadth and stretched positioning

• Deutsche Bank says its measure of aggregate equity positioning jumped into the top quintile last week but remains slightly below July 2023 highs

• Nvidia overtakes Amazon in market value, takes the spot as fourth most valuable global company (Bloomberg)

• Bitcoin surpasses $50,000 level, highest price in more than two years (CNBC)

STOCKS

• Unilever CEO pursuing strategic shift with Peltz fully behind (Reuters)

• New York Community Bancorp shares rallied after an influx of insider buying (CNBC)

CENTRAL BANKS

• Fed's Bowman says she does not see rate cuts in the immediate future (Bloomberg)

• Fed's Barkin says more progress is needed before declaring victory (Bloomberg)

• Economists most critical of a tight Fed in 13 years (Bloomberg)

GEOPOLITICS

• Trump's NATO remarks sparks political storm across the world (Bloomberg)

• IDF rescues two hostages held in the Gaza city of Rafah (Bloomberg)

ECONOMY

• NY Survey of Consumer Expectations showed median year-ahead inflation expectations unchanged at 3.0% and three-year-ahead inflation expectations falling to 2.4% from 2.6% (NY Fed)

• China's consumers tighten spending even as prices fall (FT)

• German economy likely stalled at start of 2024 (Bloomberg)

• German office property slump accelerates with record drop (Bloomberg)

• UK inflation set to rise, GDP data may confirm a recession (London Times)

Another High Stakes CPI

US inflation data is due tomorrow morning at 12:30 am AEDT. Here's what the market is expecting:

• Core inflation to ease to 3.7% YoY in January, down from 3.7% in December

• Core inflation to rise 0.3% MoM in January, the same pace as December

• Headline inflation to fall to 2.9% YoY in January, down from 3.4% in December

• Headline inflation to rise 0.2% MoM in January, the same pace as December

The 2.9% print is going to be pretty symbolic as it marks:

• The first '2' handle for inflation since March 2021

• Ends a 33-month streak of +3% readings, the longest in 30 years

• Between September 1972 and May 1983, the US economy went 129 straight months without a sub-3% CPI year-on-year reading, according to Bespoke

Here's JPMorgan's take on how markets will perform post-CPI. The below commentary focuses on core month-on-month CPI outcomes and 1-day S&P 500 moves.

• Above 0.4% – This print will reflect a stronger-than-expected gain in housing prices and a lower-than-expected drag from commodity prices. Triggers a large response in Treasuries, with March rate cut expectations going to zero and a significant decline in May cut expectations (currently ~54%). Further, you would see a material amount of investors questioning rate hikes this year rather than rate cuts. S&P 500 loses 1.75% to 2.25%

• Between 0.3% and 0.4% – The worry here would be clear signs of core inflation accelerating, with headline unable to break below 3.0%. If the hawkish surprise was driven by an acceleration in core goods, this may put a greater lens on the supply chain and shipping costs spike induced by the events in the Red Sea, potentially adding more weight to future headline risk. S&P 500 loses 1.0% to 1.5%.

• Between 0.2% and 0.3% – With disinflation firmly entrenched and with virtually all media outlets revealing a 6-month core PCE trend that has already reached the Fed's target, this outcome is aligned with Powell's statement of wanting to see more 'good data' points ... In this scenario, look for more positive momentum for equities. S&P 500 adds 0.5% to 1.0%.

ASX corporate actions occurring today:

• Trading ex-div: QV Equities (QVE) – $0.01

• Dividends paid: Transurban (TCL) – $0.30 

• Listing: None

Economic calendar (AEDT):

• 10:30 am: Australia Consumer Confidence (Jan)

• 11:30 am: Australia Business Confidence (Jan)

• 6:00 pm: UK Unemployment (Dec)

• 9:00 pm: Germany ZEW Economic Sentiment (Feb)

• 12:30 am: US Inflation (Jan)