Morning Wrap: ASX to rise, Wall St extends gains, China eyes $220bn stimulus

Wall Street is in a four-day winning streak, commodity prices bounce across the board, China considers rolling out US$220bn stimulus with unprecedented bond sales and the US releases key unemployment data tonight.

Let’s dive in.

Markets

It’s risk-on as investors react to falling commodity prices, which has eased inflation and interest rate expectations. This shift has brought life back to beaten up tech and growth stocks. 

• First four day rally for the S&P 500 since March

• 10 out of 11 US sectors were positive

• Energy headlined gains as oil prices bounced

• Discretionary and Tech also noticeable outperformers

• Traditional defensives including utilities, real estate and staples underperformed

• 73% of US stocks advanced 

• 73% of US stocks trade below their 200-day moving average (75% on Thursday, 76% a week ago)

Stocks

• Bed Bath & Beyond (+21.7%) shares surged after directors purchased approximately 70,000 shares worth around US$350,000

• GameStop (+15.1%, after hours: -6.5%) rallied on a 4-1 stock split, poised to lure retail investors. The meme stock dipped after hours when the CFO was fired and job cuts were announced 

• Virgin Galactic (+12.1%) announced a partnership with Boeing subsidiary, Aurora Flight Services to build air/spacecraft 

• Samsung (+3.2%) provided relief to chip-makers after reporting a ‘better than feared’ earnings guidance. It expects second quarter revenue to rise 22% year-on-year, in-line with expectations

Economy

• Australian balance of trade rose $2.72bn to $15.97bn in May

  • Well above economists forecasts of $10.7bn

  • Exports rose 9.5% to $58.4bn, driven by rises in exports of coal and other fuel miners

  • Imports rose 5.8% to $42.44m, driven by imports of fuels and transport equipment

• US balance of trade deficit narrowed to -US$85.5bn in May

  • Down from -US$86.7bn in April and record deficit of almost -US$110bn in March

• US weekly jobless claims rose by 4,000 to 235,000, a 6-month high

  • Up from previous week’s reading of 231,000 claims

• US Fed Governor Christopher Waller and St Louis Fed Chair James Bullard both backed a 75 bps rate hike in July

• China’s Ministry of Finance is considering a US$220bn stimulus package

  • Issued via allowing local governments to sell 1.5tn yuan worth of special bonds in the second-half

Commodities

• Iron ore futures rose slightly amid a broad-based rebound in commodity prices

  • Daily consumption of imported iron ore at Chinese steel mills fell to an average of 525,000 tonnes a day for the week ending July 6, a new 3-month low according to Mysteel 

• Oil bounced right on its 200-day moving average but still down -8.7% in the past three sessions. The oil pendulum continues to swing back and forth between recession fears and supply concerns

• Gold remains in trouble, retreating in the face of a strong US dollar and higher yields 

#1 Materials

Commodities experienced their 4th worst day in 16 years on Wednesday, according to Invesco.

The S&P/ASX 200 Materials Index rose 2.5% on Thursday as prices started to bounce from oversold levels.

Commodities extended gains overnight, which supported sub-sectors including:

• Copper Miners ETF +6.1%

• Uranium ETF +6%

• Steel ETF +4.3%

• Rare Earth/Strategic Metals +3.2%

Its also worth noting the US-listed counterparts of BHP (ASX: BHP) and Rio Tinto (ASX: RIO) closed 3.1% and 3.9% higher respectively.

Local miners already experienced a relief rally on Thursday, so it will be interesting to see if the bounce can extend (and hold) for a second day.

#2 Tech

Investors are really buying into the narrative that central banks won't need to be as aggressive with interest rate hikes as commodity prices cool, demand eases and supply chains slowly return to form.

Notable overnight winners include:

• Affirm +17%

• Draftkings +5.9%

• Block +5.6%

• Tesla +5.5%

• Nvidia +4.8%

The S&P/ASX 200 Info Tech Index snapped a four day winning streak on Thursday, weighed by names including Computershare (-2.1%), Wisetech (-0.8%) and Xero (-0.4%).

The ingredients are there for another good day for tech: Nasdaq higher, yields stable and SPI futures positive.

ASX corporate actions occurring today:

• Ex-dividend: CKF

• Dividends paid: GCI, MOT, MXT, ORI 

• Listing: R8R

• Issued shares: 5EA, 8CO, AHK, ANZ, AVH, AX8, BLG, BRK, BRV, CE1, CG1, EDU, EVS, ICG, IPD, JAT, MGF, MNY, MYL, R8R, SRN

Other things of interest (AEST): 

• US Non Farm Payrolls (June) at 10:30 pm

• US Unemployment Rate (June) at 10:30 pm

• US Average Hourly Earnings (June) at 10:30 pm