Morning wrap: ASX to plunge after US market fails to rebound

ASX Futures (SPI 200) imply the ASX will open 66 points lower, down -0.92%.

Much like yesterday, major US indices opened sharply higher before fading into close. The bearish reversal flags another challenging session for the local sharemarket.

Key points

• The Dow Jones (large cap), S&P 500 (blue-chip) and Nasdaq (tech) rallied at open, reaching intraday highs between 1.3% and 2.1%

• The indices faded for a second consecutive session, again closing around -1% lower

• The bearish price action suggests investors are selling into strength instead relief buying or 'buying the dip'   

• US unemployment data suggests the surge in omicron cases could be hurting the economy. Jobless claims for the week ended 15 January hit near 3-month highs of 286,000. The figure exceeded Dow Jones estimates of 225,00

The bearish reversal on Wall Street could flag a weak session for most ASX sectors.

▼ Energy

Oil prices have posted a remarkable run since the beginning of December, up almost 30%. Although oil prices have broadly topped out around the US$87 a barrel level. 

“While the fundamentals haven’t changed, it does appear that we’re finally starting to see momentum wane after a more than 30% rally from the omicron lows. That’s coming around US$90 where oil has peaked at a seven-year high, seemingly triggering some profit-taking,” said OANDA market analyst, Craig Erlam. 

“While I don’t think it’s done there, we could see a minor correction to take some of the frothiness out of the market. That said, I can’t imagine it will be too large unless we see a shift, either in OPEC+ production or slowing demand from a major consumer like China as a result of its zero-Covid policy.”

Fading oil prices and broader market weakness could put local energy stocks at risk on Friday.

▼ Technology

Tech weakness was led by chip makers including AMD (-4.3%) and Nvidia (-3.2%).

Mega cap names like Alphabet, Meta Platforms and Apple all fell around -1%. Amazon was the outlier, staging a sharp -2.96% decline.

With the Nasdaq continuing to falter below its 200-day moving average, ASX technology stocks might struggle to swim against the bearish tide.

▼ Materials

Commodity prices held up relatively well overnight. Iron ore continued its march north, up 2.6% to US$133.65 a tonne.

China continues to buoy the outlook for steel demand after its central bank cut one-year Loan Prime Rates by 10 basis points and the five-year by 5 basis points.

FastMarkets reported that market participants expect these rate cuts to act as tailwinds for China's economic development, especially in the infrastructure sector.

Even then, the US-listed counterparts of BHP (ASX: BHP) and Rio Tinto (ASX: RIO) struggled to close in positive territory, down -0.7% and -2.3% respectively.

▼ Consumer discretionary 

There was broad-based weakness across US retailers with household names like Walmart down -1.9%, Home Depot -2.9% lower and Lowe's sliding -4.8%.

#1 Aluminium 

Aluminium prices continue to soar towards October 2020 highs of around US$3,170/t.

Source: TradingEconomics

Alcoa, the world’s sixth largest aluminium producer, topped fourth-quarter earnings expectations. The company’s revenue grew 36% to US$3.34bn. Alcoa expects earnings in the current quarter to be similar to the fourth quarter based on current pricing levels. 

• South 32 (ASX: S32) is trading near all-time record highs 

• Alumina (ASX: AWC) lags but still around 3-month highs

#2 Nickel 

The Nickel Index is up almost 15.9% since 10 January as low inventories skyrocket spot prices to their highest levels since 2011. 

According to Reuters, nickel stockpiles in LME-registered warehouses are at their lowest levels since 2019. 

Local nickel stocks posted some outsized gains on Thursday, including: 

• Blackstone Minerals (ASX: BSX) 14.2%

• IGO (ASX: IGO) 4.1%

• Panoramic Resources (ASX: PAN) 7.4%

• Mincor Resources (ASX: MCR) 4.9% 

Bullish headlines and spot prices could continue to drive positive flow for the sector. 

#3 Uranium 

On Wednesday, the Uranium ETF closed below its 200-day moving average, with shorter moving averages like the 20 and 100 beginning to slope downwards, suggestive of a weakening trend. 

Ideally, the ETF needed to bounce off the 200-day to stay out of trouble. Overnight, the ETF briefly rallied 3.6% higher before closing sharply lower, below the 200 and close to a 5-month low.

Global X Uranium ETF, TradingView

This could continue to weigh on local uranium stocks that have been trading sideways since September last year. 

ASX corporate actions occurring today:

• Ex-dividend: KAT

• Dividends paid: CQE, VEU

• IPOs: OXT

• Issued shares: ABR, APT, ARR, BRN, FZO, GMD, GNM, HCH, HSN, INP, KAI, LIT, LOT, MFF, MRQ, NAB, NAC, NSC, OXT, PE1, PLG, PNC, PNN, PVS, RNT, SXY, VMY, WAM, WKT, WML, XTC, ZNC