Morning Wrap: ASX to open flat, Wall St tumbles at close, oil plummets below US$100

Wall Street sold off in the final hour of trade, a fake inflation report spooked investors, airlines upgraded second-quarter earnings expectations and oil cratered below US$100 a barrel.

Let’s dive in. 

Markets

The US Bureau of Labour Statistics said “we are aware of a fake version of the June 2022 Consumer Price Index news release that is being circulated online.” The report said inflation was 10.2% year-on-year in June, potentially spooking markets.

Stocks might struggle to hold upside ahead of the pivotal US inflation report, which is forecast to mark a fresh 40-year high of 8.8% and cement expectations of another 75 bps rate hike from the Fed.

The US is heading into quarterly earnings season, where corporate profits are forecast to grow 5.7% year-on-year, according to Refinitiv. The figure will mark the slowest growth since the fourth quarter of 2020. Last earnings season, we witnessed stronger or weaker-than-expected earnings from big names like Amazon and Meta move the entire market. 

• All 11 sectors were red

• Energy, Tech and Health Care headlined losses

• Materials, Staples and Industrials were relative outperformers

• 50% of US stocks declined

• 75% of US stocks trade below their 200-day moving average (74% on Tuesday, 75% a week ago)

Stocks

• Canoo (+53.2%) is an automotive startup you’ve probably never heard of. Shares of the emerging EV maker surged after Walmart agreed to purchase at least 4,500 of its upcoming electric delivery vans

• American Airlines (+10%) updated its second-quarter guidance, expecting revenue to rise 12% against the same period in 2019

• Boeing (+7.4%) reported that its deliveries have reached their highest monthly level since March 2019. A total 216 jets were delivered in the first half, with 51 from June alone

• Twitter (+4.3%) is suing Elon Musk to keep the US$44bn buyout alive. The social media company said Musk’s plans to terminate the takeover is “invalid and wrongful”

• Microsoft (-4.1%) shares slumped after Morgan Stanley lowered its price target to $354 from $372. The investment  bank said the stock is not immune to macroeconomic risks

• Gap (-5%) shares fell on news that CEO Sonia Syngal is stepping down from her position

Economy

• Australian consumer confidence fell 3.0 pts to 83.8 in July

  • Seventh consecutive month of decline 

  • A score greater than 100 implies consumers are generally confident about the economy and the outlook on their finances

  • "Without doubt consumers are still very sensitive to the inflation pressures on their budgets, but it appears their anxiety around interest rates is increasing,” said Westpac Chief Economist Bill Evans

• Australian business confidence fell 5 points to 1 in June

  • Third consecutive month of decline

  • "Confidence in the retail sector took a significant hit, falling more than 20 points to be well into negative territory, reflecting concerns about the outlook for household spending," said NAB Chief Economist Alan Oster

• Germany’s ZEW economic sentiment index was -53.8 in July

  • Well below economist expectations of -40.5 and down from -28 June

  • “The current major concerns about the energy supply in Germany, the ECB’s announced interest rate hike, and further pandemic-related restrictions in China have led to a considerable deterioration in the economic outlook,” said ZEW President Achim Wambach

Commodities

• Iron ore prices fell further as concerns over global growth outweighed signs of increasing credit in China

• Oil prices tumbled as new covid waves across China, Europe and the US threaten to cap demand. The WHO advised governments to take further action to curb transmissions and Shanghai is at risk of a second lockdown

• Gold is struggling as the US dollar extends gains, now trading at parity with the Euro

The market is struggling to keep it together ahead of key US inflation data.

The S&P/ASX 200 rallied 0.72% in early trade on Tuesday, only to close just 0.06% higher.

Today is an absolutely stacked day with Korea and New Zealand central banks expected to raise interest rates during market hours. As well as UK GDP, US inflation and Canada's interest rate decision after market hours. The next 48 hours will be wild.

#1 Energy

Oil prices fell -6.8% to US$99 a barrel as headwinds continue to stack: another covid outbreak in China, currency headwinds, recession risks and a collapse in German economic expectations.

Brent crude oil (Source: TradingView)

"​Barring a major supply disruption, oil looks like it is going to trade sub-US$100 for a while until the crude demand outlook improves. ​ Right now, China looks like it might go back into lockdown mode, Europe is rushing its ways to slower crude demand as a recession looms, and the US economy is slowing down fairly quickly," said Oanda ​senior market analyst, Ed Moya.

"Oil ignored an OPEC report that shows demand quickly outgrowing supply. Eventually, when the short-term demand outlook stabilizes, energy traders will pay closer attention to the tight outlook for oil in 2023," added Moya.

#2 Copper

If you know where copper will bottom, please let me know.

Copper fell another -4.2% overnight to US$3.28/lb and down -28% since its early June high.

Copper futures (Source: TradingView)

#3 Lithium

The risk-off sentiment is hitting growth sectors the hardest, including battery metals.

Tuesday was a rough day for ASX-listed lithium names, further exacerbated by a short on Lake Resources (ASX: LKE).

The Rare Earth/Strategic Metals ETF continues to roll over, down another -3.6% overnight to a fresh 14-month low.

VanEck Rare Earth/Strategic Metals ETF (Source: TradingView)

As I said on Tuesday, it's not a good look when the industry ETF starts rolling over and making fresh near-term lows. This comes at a time when most local lithium stocks are clinging onto recent selloff lows.

#4 Travel

The US Jets ETF topped our ETF watchlist, up 3.9%.

The upbeat earnings guidance from American Airlines helped bolster the performance of travel-related stocks.

Easing oil prices could also provide some relief for both airline margins and customers.

In late June, Qantas (ASX: QAN) said it was reducing domestic capacity to "help recover high fuel prices."

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: PCI

• Listing: None

• Issued shares: AJQ, CAI, DCL, DCN, DGL, E79, ECX, FIN, GBZ, GNC, GOR, LIN, NAB, NBI, OPN, PIQ, PRU, PSI, PVS, SDV, SGC, SVY, SZL, TGA, TNP, VTI

Other things of interest (AEST): 

• Korea Interest Rate Decision at 11:00 am

• New Zealand Interest Rate Decision at 12:00 pm

• China Balance of Trade (June) at 1:00 pm

• UK GDP (May) at 4:00 pm

• US Inflation (June) at 10:30 pm

• Canada Interest Rate Decision at 12:00 am