Morning Wrap: ASX to rise, Bubs strikes US deal, Wall St snaps losing streak

Wall Street delivered its first weekly gain in 8 weeks, US inflation data starts to ease, Chinese tech giants top earnings expectations and Bubs plans to send 1.25m tins of infant formula to the US. 

Let’s dive in.

Stocks

• Major US indices snapped an 8-week losing streak after economic data revealed a potential slowdown in inflation. In terms of weekly gains: 

  • Dow Jones +6.24%

  • S&P 500 +6.58%

  • Nasdaq +6.84%

• Has pessimism gotten so deep that the most ordinary news is inspiring buying activity?

  • Think back to Thursday, 5 May when US stocks rallied after Powell said a 75 bp rate hike wasn’t being actively considered

  • A 75 bps rate hike was never priced-in to rate hike expectations, yet markets ripped higher on the news

• All 11 US sectors rallied

• Discretionary, tech and real estate outperformed

• Staples, utilities and energy sectors underperformed benchmarks 

• 81% of US stocks were green

• 67% of US stocks trade below their 200-day moving average (70% last Friday, 74% a week ago)

• Baidu (+14.3%) delivered better-than-expected result given the weakening sentiment surrounding Chinese tech companies, the ad market and lockdowns

  • The search engine giant reported a net loss of 885m yuan compared to a 25.65bn yuan profit a year ago 

• Alibaba (+12.2%) was another Chinese tech name beating earnings expectations, with revenue up 9% to 204bn yuan

• Big Lots (-12.1%) is a US discount retailer that reported a larger-than-expected slump in earnings. Inflationary pressure, declining same store sales growth and rising costs swung the business into loss-making territory

• Canopy Growth (-13.6%) reported a wider-than-expected quarterly loss and a -25% dip in earnings. The weed stock is down -79.7% in the last 12 months, trading back at pre-legalisation levels

Economy

• US personal consumption expenditures (PCE) index rose 0.2% in April

  • Smallest monthly increase in the past 18 months

• US core PCE inflation rose 4.9% in April

  • This is the Fed’s preferred measure of inflation

  • Second straight monthly decline

• US consumer spending rose 0.9% in April

  • Consumer spending accounts for more than two-thirds of US economic activity

  • Came in above forecasts of 0.8%

  • Shows that demand for goods remains strong even as spending on services (e.g. travel) begins to pick up

• US consumer sentiment fell to a reading of 58.4 in April

  • Down from 59.1 in March

  • Lowest level in more than 10 years 

Commodities

• Iron ore futures remain stable around US$133/t

• Oil is steadily moving higher as Shanghai eased restrictions and the EU continues to work towards a ban on Russian oil

  • OPEC+ will meet on Thursday to discuss oil output

• Gold finished a turbulent week around US$1,850 as investors shift their attention from rising interest rates to economic gloom

Investors are in an awkward spot after a massive rebound on Wall St last week. Should investors sell the rip or respect the strength and load up?

Most ETFs under our radar rallied, notably:

• Hydrogen +6.5%

• Sports Betting & iGaming +3.2%

• eCommerce +2.9%

• Rare Earth/Strategic Metals +2.8%

• Jets +2.7%

• Uranium +1.9%

Though, most of these ETFs are bouncing off massive corrections and more is needed to show that they have truly stabilised.

#1 Baby formula

Bubs (ASX: BUB) will likely attract a lot of hype today after receiving US Food and Drug Administration (FDA) approval on Saturday, for its baby formula products.

Shortly after, US President Joe Biden said "I’ve got more good news: 27.5 million bottles of safe infant formula manufactured by Bubs Australia are coming to the United States."

The US is dealing with a massive baby formula shortage after a major production facility was closed due to potential product contamination.

Bubs is the only ASX-listed name that's received FDA approval and shipping its product over. However, the news could drive some attention into other beaten up names including:

• A2 Milk (ASX: A2M)

• Nuchev (ASX: NUC)

#2 Tech

The tech stocks that were smashed earlier this year continue to headline the rebound. Notable US winners from last Friday include:

• Block +8.5%

• Affirm +8.3%

• Tesla +7.3%

• PayPal +6%

• Nvidia +5%

The S&P/ASX 200 Info Tech Index still declined -3.4% last week, even though the Nasdaq locked in a weekly gain of 6.8%.

A number of ASX-listed heavyweights like Xero (ASX: XRO) and NextDC (ASX: NXT) are struggling to rally.

Will another positive US session and surging SPI futures be enough to drive some buying activity on Monday?

#3 Nickel

Nickel topped our ETF leaderboards, rallying 6.5%.

Note: this is an index that tracks nickel futures, not nickel stocks

Bloomberg Nickel Subindex (Source: TradingView)

ASX corporate actions occurring today:

• Ex-dividend: CRN, DBI, ELD, GCI, KKC, PCI, QRI, TCF

• Dividends paid: SLF

• Listing: None

• Issued shares: AGE, AVL, BOQ, C79, CAI, CHK, CHN, CRR, DAL, ERD, FPH, GSR, IOD, IVZ, KKO, MAY, MCT, MFG, NPM, NWF, NZO, OPT, OZZ, PIC, R3D, RLT, SFC, SIH, SIS, SRN, SYA, TBN, UBI, WSI, WSR