Morning Wrap: ASX 200 to tumble, S&P 500 sharply lower as yields spike + Bank of England hits pause

Wall Street tumbled overnight as risk appetite disappeared after long-term Treasury yields hit the highest level in 16 years, Goldman Sachs expects oil to hit US$100 as the rally gathers momentum, Rupert Murdoch has told staff he will step down after 70 years, the Bank of England unexpectedly paused rates and Chris' Charts of the Week.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 gaps down and sells off intraday to finish at worst levels (Source: TradingView)

MARKETS

Brace yourself for a bearish Wrap. If there's one thing that can save markets right now its CNBC's "Markets in Turmoil".

• S&P 500 finished lower, marked its worst session since March and trading close to a three-month low

• S&P 500 hits most oversold level of the year at more than two standard deviations below its 50-day moving average, according to Bespoke

• All sectors are oversold, with Industrials, Materials and Consumer Discretionary most extended to the downside

• Heavy selling and broad risk-off session after Fed's median projection only sees 50 bps of cuts in 2024 (down from 100 bps in June) as well as the ongoing spike in yields and oil prices, tech stocks losing momentum, US dollar strength and global worker strikes

• US 2-year yield briefly hits 5.20% – Highest since July 2006 – Two years ago this yield was at 0.23% 

• US 10-year yield rallies 8 bps to 4.49% – Highest since September 2007 

• US Dollar Index forms a golden cross – Where the 50-day crosses the 200-day 

• Bond traders see yields marching higher after Sep Fed meeting (Bloomberg)

• Goldman raises Brent oil forecast to $100 as rally builds (Bloomberg)

STOCKS

• Cisco to buy Splunk in US$28bn AI-powered data bet (Bloomberg)

• Microsoft unveils new Surface computers and Copilot (CNBC)

• Rupert Murdoch stepping down from Fox and News Corp boards (Bloomberg)

• Klaviyo IPO closes 2.9% higher, well above $30 offer price (CNBC)

• FedEx shares pop on hefty profit beat, UPS customer wins (Reuters)

CENTRAL BANKS

• Fed's hawkish stance spooks investors (Reuters)

• BoE hits stop on rate hike as economy slows (Reuters)

• BoE's Bailey says it's premature to talk about rate cuts (Bloomberg)

• Sweden hikes rates by 25 bp, flags another hike in November (Bloomberg)

• Norway hikes rates again and signals another move this year (Bloomberg)

• Switzerland surprises with rate pause move as tightening tames inflation (Bloomberg)

CHINA

• China's economic woes embolden calls for deeper reforms (Reuters)

• Chinese regulators start to probe quant strategies as market weakness stokes public anger (Reuters)

• Foreign investors still shunning China despite signs of upturn (FT)

ECONOMY

• Fed's soft-landing dream faces triple threat of auto strikes, government shutdowns and student loans (Bloomberg)

• Japan PM Kishida to outline economic support steps next week (Bloomberg)

• South Korean exports moderate in hopeful sign for economy (Bloomberg)

• New Zealand economy grew more than expected in Q2 (Bloomberg)

Bank of England Deliver a Shock Hold

Hi folks. Hans here, making a rare Friday appearance. I wouldn't normally be jumping in but the Bank of England delivered an absolute shocker last night.

By a margin of just one vote (5-4), the British central bank voted to keep interest rates on hold.That's despite inflation being 6.7% on a year-over-year basis, well above the bank's own target. They expect inflation will only come down to its 2% target by Q2 of 2025.

And yet, they decided to issue a hawkish hold (i.e. hold rates now but give themselves room to increase rates again if they need to). Why? The skim read of the bank's meeting minutes suggest that it wants to see how 500+ basis points worth of rate hikes is affecting the real economy - An economy that is teetering on recession and has suffered more in this cycle than many of its developed counterparts (including Australia). In addition, some of the volatile components of inflation are trending downward. Finally, it knows that overhiking rates will cause more strikes and risk deeper financial concerns (e.g. a wage-price spiral).

In addition, they have paused rate hikes this meeting but they did choose to increase the amount of QT (quantitative tightening, aka the winding down of free money) it will execute over the next 12 months to £100 billion (from £80 billion). QT is the process that involves reducing the amount of bonds held by a central bank, which in turn, reduces the amount of liquidity in financial markets.

But if a 5-4 split is anything to go by, it suggests that everyone had some disagreement with each other.

Here Comes More Pain

Ugly. Very ugly.

• ASX futures are pointing towards a 1.38% fall or a dip just below the key 7,000 level

• Every US sector was red and so were all of our overnight ETFs (except Silver)

• Safe havens like gold and bonds fell along with stocks as the Fed is holding rates higher for longer, the US dollar is strong and US deficit spending is set to flood bond markets with supply

• Copper prices fell 2.1% overnight

• US-listed BHP (-3.1%) and Rio Tinto (-2.7%)

Yields are breaking out and that's going to take the market some time to recalibrate. In the midst of such heightened volatility, anything can happen. Could the Index reverse a little off lows on Friday? Does it continue to puke towards 6,900?

Charts of the Week

This segment of the morning wrap brings you weekly technical commentary on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations and for illustrative and educational purposes only. Past performance is not a reliable indicator of future return. Always do your own research.

ASX 200 – Grind on

Source: Commsec

Still range bound and little going on. A test of 7000 might provide an opportunity for range traders, looking to be buyers if support at the big round number holds.

Paladin Energy (PDN) – Strong Core

Source: Commsec

There has been plenty of interest in uranium miners of late, given the structural undersupply of uranium globally which will only be exacerbated in coming years as more and more nuclear reactors come online. Uranium prices have been spiking, as have the share prices of ASX-listed uranium producers. Boss Energy (BOE) is the one that has really taken off, whilst PDN has been in a steady climb. All the bullish elements are on the chart – solid uptrend, rising average volume, not overcooked on the RSI. With the price action hovering around the $1, a strong break through this round number would be a good sign that the rally can keep on keeping on.

Seven Group Holdings (SVW) - Slow and steady

Source: Commsec

I have featured SVW before and I do so again for a couple of reasons. This is the type of stock that trend traders love. It is displaying a stable, consistent uptrend over a lengthy period. It’s not explosive, there are no wild moves, but over the course of 12 months, it has travelled from around $17 to almost $30. Volumes remains strong and increasing. So I feature it again to highlight that you don’t always need drama and wild moves to make money. Slow and steady is just fine. I also feature it because it’s near the $30 round number – potentially a big hurdle. But if the bulls can overcome, it opens up pathway into more clear air (the stock is already trading at all time highs).

ASX corporate actions occurring today:

• Trading ex-div: Vita Life Sciences (VLS) – $0.03, BSP Financial (BFL) – $0.13

• Dividends paid: Helloworld (HLO) – $0.06, McPherson’s (MCP) – $0.01, Jumbo Interactive (JIN) – $0.20, SkyCity Entertainment (SKC) – $0.055, Auswide Bank (ABA) – $0.21, SDI (SDI) – $0.01, McMillan Shakespeare (MMS) – $0.66 

• Listing: None

Economic calendar (AEST):

• 9:30 am: Australia Manufacturing and Services PMI

• 9:30 am: Japan Inflation Rate

• 1:00 pm: Japan Interest Rate Decision

• 4:00 pm: UK Retail Sales