Market Wrap

Morning Wrap: ASX to rise, Wall Street fades as Powell says rate hikes could cause a recession

Thu 23 Jun 22, 8:32am (AEST)

Share article

ASX Futures (SPI 200) imply the ASX 200 will open 23 points higher, up 0.36%.  

Wall Street whipsawed back and forth after comments from Fed Chair Jerome Powell, inflation in the UK and Canada hit 40-year highs, Chinese stimulus fails to inspire iron ore prices and Leo Lithium will make its ASX debut at 11:00 am AEST.

Let’s dive in.

Overnight summary

Thu 23 Jun 22, 8:32am (AEST)

Name Value Chg %
Major Indices
S&P 500 3,760 -0.13%
Dow Jones 30,483 -0.15%
NASDAQ Comp 11,053 -0.15%
Russell 2000 1,690 -0.22%
Country Indices
Canada 19,004 -1.32%
China 3,267 -1.20%
Germany 13,144 -1.11%
Hong Kong 21,008 -2.56%
India 51,823 -1.35%
Japan 26,150 -0.37%
United Kingdom 7,089 -0.88%
Name Value Chg %
Commodities (USD)
Gold 1,839.60 +0.07%
Iron Ore 127.92 -
Copper 3.936 -0.20%
WTI Oil 104.53 -1.56%
Currency
AUD/USD 0.6925 0.00%
Cryptocurrency
Bitcoin (AUD) 28,898 -4.76%
Ethereum (AUD) 1,530 -6.68%
Miscellaneous
US 10 Yr T-bond 3.156 -4.57%
VIX 29 -4.11%

Markets

US stocks initially rallied after Powell said the Fed will be nimble in responding to incoming data and the evolving economic landscape. Wall Street eventually faded as Powell acknowledged the need for more aggressive interest rate hikes, which could tip the economy into a recession.

“Fading stock market bounces will still remain the go-to trade on Wall Street until the economic data dramatically weakens and the Fed pivots so that they may ease up their tightening of policy strategy,” said Oanda senior market analyst, Ed Moya.  

  • 4 out of 11 US sectors were green

  • Real Estate, Health Care, Utilities and Communication Services outperformed

  • Energy fell an outsized -4.2%

  • Materials, Industrials and Tech also underperformed 

  • 49% of US stocks declined

  • 78% of US stocks trade below their 200-day moving average (77% on Wednesday, 76% a week ago) 

Stocks

  • Revlon (+34%) shares surged after filing for Chapter 11 bankruptcy protection last week. The stock is up almost 320% in the last 3 sessions

  • Airbnb (-2.7%) after JMP Securities downgraded the stock to neutral, saying that the post-pandemic jump in travel demand is already priced into its valuation

  • Coinbase (-9.7%) after rival crypto exchange Binance said it’s dropping bitcoin trading fees for customers. Coinbase relies heavily on trading volumes for revenue

  • Altria Pharma (-66.3%) after its exploratory Phase 2 study assessing experimental treatment for Alzheimer’s did not meet its primary endpoint

Economy

  • UK inflation rose 9.1% in May, the highest rate in 40 years

    • In-line with economist forecasts and slightly ahead of the 9.0% reading in April

    • Energy, food and non-alcoholic drinks were the main contributors to rising consumer prices

  • Canada’s inflation rate accelerated to 7.7% in May, close to a 40-year high

    • Exceeded economist expectations of 7.4% and well above the 6.8% reading in April

  • Fed Chair Jerome Powell gave his testimony to the Senate banking committee. Some interesting comments include:

    • Fed hikes won’t bring down gas or food prices

    • Market pricing for additional hikes is appropriate. The Fed is using its tools ‘pretty vigorously now’. We must restore price stability, and we will 

    • We don’t think we’ve seen the full effect of lockdowns in China yet 

    • Rate rises should impact housing prices fairly quickly, we are seeing a slowing in housing

    • Will be ‘very challenging’ to achieve a soft landing

    • It is a possibility our rate rises could cause a recession

    • 100 bps is not off the table, but didn’t give much reason to consider it 

Commodities

  • Iron ore extended losses in response to continued weakness in downstream demand despite Chinese policymakers announcing accelerated fiscal expenditure and the sale of infrastructure-related government bonds, sources told Fastmarkets

  • Oil was crushed on recession fears, falling to a 6-week low of US$104

  • Gold crept higher as the doom and gloom is driving demand for safe havens 

 

US Sectors

Thursday, 23 June 2022

Sector Chg %
Communication Services +0.21%
Consumer Discretionary -0.14%
Consumer Staples -0.07%
Energy -4.19%
Financials -0.26%
Health Care +1.42%
Sector Chg %
Industrials -0.53%
Information Technology -0.41%
Materials -1.30%
Real Estate +1.55%
Utilities +1.03%

Industry ETFs

Thursday, 23 June 2022

Description Last Chg %
Commodities
Aluminum 54.5651 -2.39%
Copper Miners 34.78 -5.38%
Gold 170.63 +0.40%
Lithium & Battery Tech 73.87 -1.58%
Nickel 34.19 -5.76%
Strategic Metals 88.26 -4.16%
Steel 52.72 -3.87%
Silver 19.98 -1.10%
Uranium 19.37 -4.08%
Industrials
Aerospace & Defense 96.56 -0.42%
Global Jets 16.72 +0.48%
Healthcare
Biotechnology 111.87 +1.23%
Cannabis 17.44 -1.09%
Description Last Chg %
Cryptocurrency
Bitcoin 12.95 -3.71%
Renewables
CleanTech 14.14 -1.70%
Hydrogen 12.77 +0.08%
Solar 71.45 -0.48%
Technology
Cloud Computing 16.36 +1.10%
Cybersecurity 24.85 +0.12%
E-commerce 16.96 -0.24%
Electric Vehicles 22.31 -0.54%
FinTech 21.79 -0.05%
Robotics & AI 20.96 -0.24%
Semiconductor 363.31 -1.04%
Sports Betting/Gaming 14.79 -0.34%
Video Games/eSports 48.83 -0.80%

ASX Sectors to watch

SPI futures currently point to a 0.36% open, but that's hardly reassuring given the ASX's fade on Wednesday and Wall Street giving back gains overnight.

There was a lot of weakness in commodity-related ETFs, including:

  • Nickel -5.8%

  • Rare earth/strategic metals -4.2%

  • Uranium -4.1%

  • Steel -3.9%

Lithium (rare earth/strategic metals) and uranium ETFs bounced earlier this week, only to give back gains and threaten fresh year-to-date lows. It's not a good look.

It was overall a pretty boring overnight session. It's worth noting that the ASX is somewhat acting on its own accord this week instead of reacting to US market performance, as the US market was closed on Monday in observe of the Juneteenth Independence day holiday.

#1 Copper

Things are looking pretty ugly for copper, with futures falling -2.4% to a 15-month low of US$3.9/lb.

Copper has an acute sensitivity to global industrial activity and a longstanding leading indicator of the economic cycle. It's not a good look when prices are rolling over and breaking towards the downside.

Copper futures prices
Copper futures (Source: TradingView)

This weakness was reflected in the Global X Copper Mines ETF, which fell -5.4% overnight.

Today's events

ASX corporate actions occurring today:

  • Ex-dividend: None

  • Dividends paid:  None

  • Listing: LLL

  • Issued shares: AGY, AIM, AS1, BIO, BPM, DTZ, FRS, ID8, IMB, JHX, LKE, LLL, LRD, MCP, MFG, NAB, NTU, ONE, PSC, QHL, T3D, TRJ, UUV, VAL, WC1, ZNC

Other things of interest (AEST): 

  • Australia Manufacturing and Services PMI (June) at 9:00 am

  • US Initial Jobless Claims (week ending 18 June) at 10:30 pm 

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

Get the latest news and media direct to your inbox

Sign up FREE