Morning Wrap: ASX set to tumble as recession fears trigger more panic selling on Wall St

Another day, another sea of red. This is the 3rd worst start to a year in history for the S&P 500, down -23% in the first 115 trading days, as investors worry that more aggressive interest rate hikes and sticky inflation will drag the economy into a recession.

Let’s dive in.

Markets

A recession is in the rear-view mirror and objects in the mirror may be closer than they appear. Major US indices were obliterated overnight as a recession becomes an increasingly likely outcome.

More than 90% of stocks in the S&P 500 declined overnight, the 5th time in the past 7 days, according to Jason Goepfert from Sundial Capital Research. “Since 1928, there have been exactly zero precedents. This is the most overwhelming display of selling in history,” he said.

• All 11 US sectors declined

• Consumer staples was a relative safe haven, down -0.66% compared to the average -3.25%

• Energy, consumer discretionary and tech sectors declined more than -4%

• 82% of US stocks declined

• 79% of US stocks trade below their 200-day moving average (76% on Thursday, 69% a week ago)

Stocks

• Adobe (-3.1%, after hours: -1.5%) reported second quarter results that beat expectations. The software company provided a soft current quarter guidance and cut its full-year revenue estimates  

• KLA Corporation (-4.1%) is a semiconductor manufacturing company, which reaffirmed its June quarter guidance, hiked its dividend and announced a US$6bn stock buy-back program

• Tesla (-8.5%) hiked the price of its electric vehicles by as much as US$6,000. According to Bloomberg:

  • The Model 3 long range price rose US$2,500 to US$57,990 

  • The Model Y long range rose to US$65,990 from US$62,990

  • Model S dual motor all-wheel long range rose to US$104,990 from US$99,990 

  • Model X dual motor all-wheel drive long range rose US$6,000 to US $120,990

• Marriott Vacations (-11.2%) raised its full-year guidance, citing “very high owner occupancies at our resorts.” 

Economy

• The Swiss National Bank unexpectedly raised interest rates by 50 bps to -0.25%

  • The negative sign is not a typo 

  • “The tighter monetary policy is aimed at preventing inflation from spreading more broadly to goods and services in Switzerland,” it said 

• The Bank of England lifted rates by 25 bps to 1.25%, the highest in 13-years

  • Inflation is expected to reach over 9% over the next few months

• US new home construction fell -14.4% in May to 1.55m

  • Economists polled by The Wall Street Journal expected 1.68m 

  • The US housing market is under significant stress amid the lack of supply of new homes and surging mortgages

  • In 2021, the 30-year mortgage rate was 2.65% and average new home was US$401,700

  • Today, the 30-year mortgage rate is 5.78%  and the average new home is $570,300, a roughly 100% increase in monthly mortgage repayments (assuming a 20% down payment)

• US filings for unemployment benefits fell by 3,000 last week to 229,000

  • Figures remain close to a 5-month high

• Federal Reserve Bank of Philadelphia said its gauge of regional business activity fell to -3.3 in June

  • First contraction in factory activity since May 2020

Commodities

• Iron ore prices futures are on a 7-day losing streak amid negative margins for Chinese steelmakers and self-initiated production cuts, sources told Fastmarkets

• Oil remains steady after a small pullback below US$120

• Gold reclaimed the US$1,850 level as investors rushed back to safe havens. It's surprising to see gold rally in the face of a strong US dollar 

Well ... it was carnage everywhere.

With ASX futures pointing to a dire -2.1% fall, expect a sea of red.

#1 Travel

There was a lot of selling pressure for US travel stocks amid growing signs of a recession. The US Global Jets ETF closed -5.9% lower, back to August 2020 levels.

• Carnival, Royal Caribbean and Norwegian Cruise Lines all plummeted around -11%

• Airlines including American Airlines, United and Delta were all down at least -7.4%

#2 Uranium

The Uranium ETF fell -4.6% overnight, close to August 2021 levels.

From a technical perspective, $19 has been a key support area. Things might get a bit troublesome if $19 cannot hold.

Global X Uranium ETF (Source: TradingView)

#3 Oil

The International Energy Agency (IEA) said it expects record global oil demand next year, alongside struggling supply amid constrained capacity and missing Russia supply.

"A recession may ridiculously be the only hope for balance in the market and lower prices. Although refining capacity won’t even hit pre-Covid levels next year which will continue to boost prices at the pump," said Oanda senior market analyst, Craig Erlam.

#4 Copper

Dr Copper isn't feeling so good, down -4.3% this week and testing the lower bound of its usual trading range.

Copper has an acute sensitive to the ebb and flow of global industrial activity, and often a leading indicator for recessions.

Copper futures, weekly chart (Source: TradingEconomics)

ASX corporate actions occurring today:

• Ex-dividend: SPY, VRT

• Dividends paid: NUF, PGG, TNE, UMG, WAM

• Listing: CVR

• Issued shares: 360, BC8, BIO, BXB, CF1, CHM, CNU, CPH, CVR, ELT, EM2, ESS, FPH, ICI, INV, IRE, JHX, MFF, MLS, NAB, NZM, PCG, PTX, PXS, RMI, TIE, TMZ, TYM

Other things of interest (AEST): 

• Japan Interest Rate Decision at 1:00 pm

• Europe Inflation Rate (May) at 7:00 pm

• Fed Chair Powell Speech at 10:45 pm

• US Industrial Production (May) at 11:15 pm