Morning Wrap: ASX to rise as Wall St extends gains, oil tumbles below US$100

Wall Street is on a three-day winning streak, the Federal Reserve signals another big interest rate hike later this month, Amazon teams up with food delivery service company Grubhub and oil prices continue to roll over.

Let’s dive in.

Markets

US stocks inched higher in the face of deteriorating economic data and mixed comments from the Fed. Fed officials want to continue tightening to slow economic growth, which seems to lag behind the recent decline in commodity prices and evidence that growth has already slowed.

• 8 out of 11 US sectors advanced

• Energy was hard hit again as oil prices fall below US$100

• Utilities rebounded after a sharp selloff on Wednesday 

• Tech continues to gain, with the Nasdaq on a 3-day win streak

• 58% of US stocks declined

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

Stocks

• Rivian (+10.4%) said it expects to deliver 25,000 electric vehicles this year. In its most recent quarter, the EV manufacturer produced 4,401 vehicles, in-line with expectations

• Tesla (-0.6%) said it sold 78,000 vehicles produced in China in June, up 142% from May

• GameStop's (-2.3%, after hours: +7.6%) board approved a four-for-one stock split

• Uber (-4.5%) and DoorDash (-7.4%) shares slumped after Amazon agreed to take a stake in Grubhub and provide its Prime subscribers with one-year membership to the food delivery service

Economy

• US services PMI was 52.7 in June, down from 53.4 in May

  • Slightly ahead of expectations of 51.6

  • The 50-point level separates expansion from contraction

  • The number of commodities in short supply in the services PMI report was the lowest since February 2020

• US June PMI surveys indicate ongoing growth of business activity at the end of the second quarter, but the sharp deterioration in the rate of growth raises the risk of the region slipping into economic decline in the third quarter, said S&P Global 

• US non-manufacturing employment was 47.4 points in June, down from 50.2 points in May

  • Lowest reading since August 2020

• US Federal Reserve meeting minutes (highlights)

  • “A few participants noted that, in other sectors of the economy, their contacts reported that they were postponing investment or construction projects because of rising input and financing costs.”

  • “Participants noted that, with the federal funds rate expected to be near or above estimates of its longer-run later this year, the Committee would then be well positioned to determine … the extent to which developments warranted policy adjustments.” (Hinting at a potential pause in hikes)

  • “Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognised the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.” (Hike until recession)

Commodities

• Iron ore futures continue to tank on recession and Chinese lockdown fears

• Oil is trading below US$100 for the first time since late April. US crude stockpiles unexpectedly rose last week, up 3.82m barrels compared to expectations of a -1.1m decline

• Gold has slumped to a 9-month low as it doesn’t stand a chance against the surging US dollar

#1 Tech

The Nasdaq is on a three-day winning streak and the S&P/ASX 200 Info Tech Index is on four - signalling sustained buying interest for beaten up tech stocks.

That said, most of these tech stocks are in massive downtrends. It's possible that this resurgence is met with plenty of sellers that entered at higher prices.

#2 Energy

Brent crude oil has slumped -12.3% in the last two sessions to a 3-month low of US$99.7 a barrel. Prices have managed to stabilise around the 200-day moving average (blue line).

"The price action overnight, with both contracts trading in near fifteen dollar ranges, hints more at panic and forced liquidation than a structural change in the tight supply/demand situation globally," said Oanda senior market analyst, Jeffrey Halley.

Brent crude oil (Source: TradingView)

It seems like recession risks and constrained supply are screaming at each other right now, and the one with the loudest voice wins.

#3 Uranium

The Uranium ETF fell -0.9% overnight to a fresh 11-month low.

Perhaps more importantly, uranium spot prices fell sharply, down -4% to US$48.27/lb according to fuel brokers Numerco.

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: TCF

• Listing: None

• Issued shares: AMC, AVR, BCB, BEX, BPP, BTN, CAI, CAU, CNJ, COB, CPO, CU6, DEG, EML, FBR, GCY, GMA, GNG, GOR, HLS, IHR, K2F, KP2, LLO, MEA, MGF, MTM, NAB, NES, OFX, PSC, RUL

Other things of interest (AEST): 

• Australia Balance of Trade (May) at 11:30 am

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

• US Initial Jobless Claims at 10:30 pm