Morning wrap: ASX to surge, US market struggles to bounce

ASX to open up strongly +79 points or +1.2% (ASX Futures).

The ASX is expected to bounce strongly after the US Federal Reserve triggered a global equity market selloff on Thursday. 

The release of minutes from the Federal Open Markets Committee meeting for December showed officials eyeing more frequent interest rate hikes and a more aggressive wind down of its massive US$8.9 trillion balance sheet. 

Dow Jones (bluechips) fell for a second consecutive session, weighed by names in the health care and technology sector. 

Nasdaq Composite (technology) and S&P 500 (large-caps) fell into negative territory in the final hour of trade. Several tech stocks continued to falter as investors pivot away from high valuation names. 

Russell 2000 (small-caps) was flat on low volume.

Benchmark US 10-year Treasury yields rallied for a fifth consecutive session to 1.73%. A breakout for yields appears imminent.  

Benchmark US 10-year Treasury yield, weekly chart

The market is currently pricing in a 67% probability of the first Fed rate hike occurring in March. A month ago, that probability was just 27%.

How will US sectors impact ASX companies today?

Expect Energy and Financials to rise, and Materials to underperform.

▲ Energy

Oil climbed as crude oil prices retested US$80/bb levels. Crude oil prices have rallied +20% since December lows of around US$65/bb. 

▲ Financials

Financials benefit from the normalisation of interest rates, and were the standout gainers overnight. Citi rallied +3.7%, Wells Fargo +2.5% and Bank of America +2.0%. 

Technology

Technology stocks varied in performance. The Nasdaq plunged -3.3% with Tesla down -2.2%, Apple -1.6% and Microsoft -0.8%. Meta Platforms (Facebook) was the only tech titan that bounced strongly, up +2.7%. 

▼ Materials

Materials to fall amid weakness across gold miners and steel producers. The US-listed counterparts of BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO) managed to outperform, up +0.1% and +1.9% respectively.

ASX Sectors to watch

#1 Aluminium

Prices rose to a two-month high as investors are concerned that tightness in the European market could drive a large deficit in global supply.

The European power crisis is driving input costs higher, leading to producers lowering output. Power at current prices account for approximately 50% of aluminium smelting costs, according to Reuters. 

• South32 (ASX: S32) has already rallied 8% in the last month, briefly touching 3-year highs on Tuesday 

• Alumina (ASX: AWC) has lagged behind the recent aluminium price gains

#2 Uranium

The Uranium ETF plunged -5.6%, after Wall Street’s Larry McDonald of “The Bear Traps Report” issued an alert to sell a third of Cameco Corp, the world’s largest listed uranium company. Cameco shares closed -6% lower in overnight trade.

Civil unrest and protests in Kazakhstan has helped uranium stocks hold up relatively well amid recent market volatility.

Kazakhstan is the world’s biggest uranium producer, responsible for 41% of world supply in 2020, according to the World Uranium Association. 

The ETF's weakness could put pressure on:

• Paladin Energy (ASX: PDN)

• Deep Yellow (ASX: DYL)

• Boss Energy (ASX: BOE)

#3 Hydrogen

The Hydrogen ETF fell to all-time lows overnight as investors rotate out of risky and high valuation names. 

The negative flow could affect ASX companies like:

• Hazer (ASX: HZR)

• Lion Energy (ASX: LIO)

• Pure Hydrogen (ASX: PH2)

Today's events

ASX corporate actions occurring today:

• Ex-dividend: EBND, FLOT, GCAP, PLUS, SUBD

• Dividends paid: NABPD, SSLPA, TCF

• New ASX listings: MBX

• Trading Halts: WCN, ZNC, IR1, HMI

• Issued shares: AD8, AEE, BBX, BNO, CAU, CRR, DEM, GMA, ICG, IHR, JHG, KCC, LDR, LLO, LPD, MBX, MFF, MTR, MX1, NWF, ORA, RNU, SSR, URW, WAM, WGB

Other things of interest:

• RBA Cash Rate: The RBA meets today at 2:30pm AEDT for the monthly cash rate decision. There's a 91% chance the cash rate will remain on hold at 0.10%.