Morning Wrap: ASX to open flat, Wall Street fades as recession and rate worries return

Wall Street faded quickly as better-than-expected economic data paved the way for more aggressive interest rate hikes, G7 members proposed a ‘price cap’ on Russian oil and Nike shares fell after beating earnings expectations.   

Let’s dive in.  

Markets

US stocks declined after better-than-expected durable goods data suggests that consumer demand remains strong and that the US economy could probably stomach more interest rate hikes. 

“Stocks can’t win right now, either the economic data softens and the economy is much weaker than we thought or robust readings pave the way for the Fed to be more aggressive with their inflation fight,” said Oanda senior market analyst, Ed Moya. 

• 8 out of 11 US sectors fell

• Energy outperformed but hasn’t come close to reclaiming recent losses

• Defensives including Utilities, Healthcare, Staples, Industrials and Real Estate performed relatively stronger than cyclicals and growth sectors

• Discretionary, Materials and Tech sectors fell the most

• 52% of US stocks advanced

• 73% of US stocks trade below their 200-day moving average (74% on Monday, 77% a week ago)

Stocks

• Robinhood (+14%) after Bloomberg said crypto exchange FTX was considering acquiring the trading platform 

• Nike (-2.1%) earnings beat Wall Street expectations, overcoming China’s covid lockdown and weaker global retail sales. However:

  • Gross margins decreased by 80 bps to 45% due to higher inventory and logistics costs

  • A lower effective tax rate due to a shift in earnings mix and one-time benefits allowed Nike earnings to be higher than expected 

• Coinbase (-10.8%) after Goldman Sachs downgraded the stock to a sell, saying the company needs to “make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading dries up”

Economy

• US durable-goods orders rose 0.7% in May, the seventh gain in the last eight months

  • Economists polled by the Wall Street Journal had forecast a 0.2% advance

  • The stronger-than-expected result showed that manufacturers are still facing plenty of demand amid high inflation and signs the economy is slowing

• The G7 summit is currently underway in Germany. Its an informal grouping of 8 (yes 8) of the world’s advanced economies: Canada, France, Germany, Italy, Japan, the UK, the US and the EU. Highlights include:

  • Plans to impose ‘price caps’ on Russian oil

  • "The goal here is to starve Russia -- starve [Vladimir] Putin of his main source of cash and force down the price of Russian oil to help blunt the impact of Putin's war at the pump," said a senior White House official 

  • A $600bn global infrastructure plan was pledged for emerging market economies to counter China’s ‘Belt and Road’ initiative 

  • The plan is intended to “deliver game-changing projects to close the infrastructure gap in developing countries, strengthen the global economy and supply chains, and advance U.S. national security," according to a White House press release 

Commodities

• Iron ore futures trade higher; outlook remains uncertain. Buying sentiment for August-laycan cargoes remained lukewarm, sources told Fastmarkets

• Oil prices remain volatile as tight supplies could see the G7 reveal price caps on Russian crude

• Gold prices are steadying around US$1,820 as investors question whether or not yields have peaked or ready to make another run

SPI futures point to a flat open after a weak lead from Wall Street. The S&P/ASX 200 has rallied 3.03% in the last 3 sessions, so a pullback wouldn't be surprising. The theme of resilience in defensives and weakness in growthy and cyclicals seems the most logical for today's session.

There were a few overnight ETFs that managed to close higher, including:

• Rare Earth/Strategic Metals +3.1%

  • Not surprising given the ETF is mainly comprised of Australian and Chinese lithium companies that rallied on Monday

• Copper Miners +1.96%

  • On a 2-day winning streak after a -25% selloff since early June

• Uranium +1.6%

  • Uranium spot prices inched higher

  • World's largest uranium producer Kazatomprom (+5.6%) becomes a full member of the United Nations Global Compact, the world's largest corporate sustainability initiative

• Steel +1.1%

ETFs in discretionary and tech sectors underperformed, including:

• FinTech -2.1%

• US Jets -2.1%

• Cloud -1.6%

• eCommerce -1.4%

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: CIA, GPQ 

• Listing: BIM

• Issued shares: AIQ, AKN, BET, BIM, BNR, CAM, CIW, COS, DEM, DRX, EBR, EIQ, GMD, GOR, GT1, KZA, MEC, MGF, MRR, NAB, NAC, NBI, ORG, PBH, PPC, RAN, RF1, RMI, RPM, SGQ, SIX, SW1, VBS, VG1, VG8, WOT, XTC, ZGL

Other things of interest (AEST): 

• US Goods Trade Balance (May) at 10:30 pm

• US CB Consumer Confidence (June) at 12:00 am