Morning Wrap: ASX 200 to rise, uranium stocks break out + US 10-year yield nears 16-year high

ASX 200 futures are trading 17 points higher, up 0.24% as of 8:20 am AEST.

US markets were mostly higher overnight led by big tech, the US 10-year Treasury yield hits levels not seen since November 2007, Nvidia shares pop 8% after HSBC reiterates a Buy rating and raised its target price, China's growth hopes fade after a modest rate cut, the Global X Uranium ETF rallies to a fresh 7-month high and bond yields are beginning to give stocks a run for their money.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher intraday to close near best levels (Source: TradingView)

MARKETS

• S&P 500 higher and finished near session highs, led by big tech

• Nasdaq rallies intraday from 0.4% open to 1.56% close, reflecting some renewed AI optimism before Nvidia earnings on Thursday

• Dow finished off worst levels but still in the red as real estate, staples and energy led to the downside

• US 10-year yield rose 8.5 bps to 4.34%, the highest since November 2007

• Sentiment remains negative amid the upward pressure on rates, China’s growth concerns, scepticism about peak Fed, depleted excess US savings and optimism 2024 consensus earnings estimates

• Positioning no longer a headwind as Goldman Sachs notes that hedge fund leverage has come down to 64% from 74%, says funds have room to increase equity exposure

• Strong US economy, prospect of inflation staying higher for longer and poor summer liquidity drives surge in bond yields (FT)

STOCKS

• Citi considers overhaul that would hand more power to chief Jane Fraser (FT)

• Amazon relaunches shipping service that competes with FedEx and UPS (ABC)

• Silicon Valley startups revive listing plans as Arm reignites IPO market (FT)

• Goldman Sachs exploring sale of an investment-advisory business (Bloomberg)

• Bloomberg overhauls management team (FT)

• Nvidia shares rally after HSBC reiterates Buy and raises target price (CNBC)

CHINA

• China surprises with modest rate cut amid growing yuan risks (Reuters)

• China vows to coordinate support to resolve local gov't debt risks (Reuters)

• China taps public funds to ease risks from small, midsize banks (Nikkei)

• China's property downturn spreads to trophy office buildings (Nikkei)

• China companies rush to unveil share buybacks on regulators' call (Reuters)

ECONOMY

• US consumers have drawn down more than US$2tn in pandemic-era excess savings, consumers near day of reckoning as cash stash shrinks (Bloomberg)

• German producer prices post first fall since late 2020 (Reuters)

• South Korea's early trade data show export gloom continues (Bloomberg)

• UK home prices suffer sharpest August drop since 2018 (FT)

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Deeper Dive

Sectors to Watch

The S&P 500 and Nasdaq bounced from oversold conditions, reflecting one of those 'it's a start but we need to see more' situations. In terms of sectors to watch:

Oversold bounces: Overnight ETFs including Semiconductors, Silver, Copper Miners, Lithium, Rare Earths and Gold Miners are down around 10-20% since late July. They bounced overnight but reflect that above situation, where more is needed after a sharp pullback.

Uranium: The Global X Uranium ETF added another 3.4% overnight to close at a fresh 7-month high amid growing supply risks (supply halt from Russia, Niger military coup). I'm in two minds when it comes to this breakout because:

• Uranium has been a very choppy trade in the past 12-18 months (lots of breakouts that tend to fizzle quite quickly)

• Monday's price action reiterates its choppy price action with names like Boss Energy (ASX: BOE) up 0.6% from session highs of 4.6% and Paladin Energy (ASX: PDN) finishing 2.6% higher from session highs of 7.1%

Global X Uranium ETF weekly chart (Source: TradingView)

How much are you willing to pay for yield?

With a 10-year bond yield now fetching nearly as much as the ASX 200 dividend yield, I thought it was worth looking at two charts around the impact of bonds on valuations. Yes, I know these are US charts. No, I haven't found an Australian equivalent but if someone finds one, I'd be grateful to receive it.

The first chart shows how changes in US bond prices affect different sectors of the S&P 500. There's been some commentary of late that the US Treasury yield could break out to new highs (higher yields mean lower prices). If that happens, that will affect the price of stocks in every sector except one (energy). Of course, this is a generalisation but in broad terms, the biggest sectors to be impacted could be telcos, consumer staples, technology, and real estate. For the last of these, it's already been a tough year as investors re-evaluated how much all those commercial projects were really worth. A breakout to new highs would be tough to swallow for CRE developers.

Source: LPL Research

The second chart relates to the E in the price-to-earnings ratio. Industry analysts are currently estimating that S&P 500 operating earnings will be $219 this year and $245 next year. In simple terms, the theory is that earnings will remain flat for the rest of the year before soaring in 2024. Yardeni Research (which produced this chart) has its own estimate even higher.

Source: Bloomberg

Speaking of earnings, we've done a wrap of the earnings season so far and the key takeaways from each report. If you'd like to have a read, you can click here.

ASX corporate actions occurring today:

• Trading ex-div: IPH (IPH) – $0.175, GQG Partners (GQG) – $0.02, Deterra Royalties (DRR) – $0.169, Computershare (CPU) – $0.40,Netwealth (NWL) – $0.13

• Dividends paid: None

• Listing: Cleo Diagnostics (COV) at 11:00 am 

Economic calendar (AEST):

No major economic announcements.