Morning Wrap: Fed Minutes leave more to be desired, ASX set for higher open

If you thought the US Federal Reserve was going to be cutting interest rates this year, then today's meeting minutes poured cold water over your thesis. On a more positive note, Chinese growth stocks soared overnight after Beijing approved a billion-dollar capital plan for ANT Group. And crude oil's multi-point slide extends into another day.

Let's go.

MARKETS

Major US indices erased early losses as investors digested disparate economic data and snapped up stocks that were battered during Tuesday’s selloff. Those gains were pared by the Federal Reserve’s minutes (and the vagueness that came with it) but stocks still closed in the green.

• Only two of the S&P 500’s 11 sectors finished in the red, with energy at the bottom of the pile once again (but by only just). 

• Lower bond yields are great news for real estate stocks. The sector topped the S&P 500 performance on the day.

• The Australian dollar caught a 1.5% bid overnight against the US Dollar and was the best performer among the G10 currencies.

• US bonds were bought once again, with the US 10-year yield down another four basis points.

• 71% of stocks advanced

• 49% of stocks are trading below their 200-day moving average (53% on Wednesday, 51% a week ago)

STOCKS

Carnival Cruise (CCL) shares were up more than 9% after the company said that it would raise prices for U.S. and European guests starting April 1.

Bath and Body Works (BBWI) gained more than 10.5% as well after Piper Sandler increased its price target to $52 from $50.

Salesforce (CRM) jumped more than 3% after it revealed that it is cutting 10% of its workforce as part of a restructuring plan.

Shares of Chinese companies listed in the U.S. surged after Ant Group received approval from China for an extended capital plan. Alibaba jumped more than 11%, Chinese retailer JD.com gained 14%, and agri-tech company Pinduoduo rose more than 8%.

WORLD NEWS

• Fed minutes set to shed more light on why it's worried that strong inflation may linger (Bloomberg)

• Coinbase to Pay $100 Million in Settlement With New York Regulator (WSJ)

• Trump publicly urges House GOP to back McCarthy for speaker (Axios)

• Ukraine says Russia plans new mobilisation to 'turn tide of war' (Reuters)

ECONOMY

Federal Reserve officials last month affirmed their resolve to bring down inflation and also cautioned against underestimating their will to keep interest rates high for some time. Here are some of the key takeaway quotes:

• In discussing the policy outlook, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. 

• No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. 

• Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to two percent, which was likely to take some time.

Meanwhile, job demand stateside continues to be hot with the November JOLTS report showing available positions at 10.46 million, down just fractionally from October’s total and well ahead of economist forecasts.

(Source: US Bureau of Labor Statistics)

Finally, services PMIs across Europe beat expectations, but for the most part, remained in contractionary territory. 

(Source: Trading Economics)

QUICK BITES

One of the world’s most-watched data points with regard to the supply chain crisis took a tumble yesterday. The Baltic Dry Index measures the going rates for shipping vessels carrying dry bulk commodities. Yesterday’s fall was the largest since 1984 and it’s continued in US trade today. The massive fall is being attributed to the sharp falls in Chinese manufacturing activity. (Source: Bloomberg)

Hey, Kerry again. You’ve now met Hans. Tomorrow you’ll meet Chris Conway – whose a chart and trading fanatic like myself. Today will be my last wrap until Monday, 23 January. 

The ASX 200 rallied 1.63% on Wednesday – a much needed bounce from rather oversold levels where the market had undercut the 200-day moving average on Tuesday and down -2.88% in the previous five sessions. Is this just another technical bounce? Or is the market trying to set a low and show some strength around these levels?

XJO (Source: TradingView)

Sectors to watch

Coal: China is discussing plans to lift the ban of Australian coal imports – which was first imposed in October 2020. “This is a very rapid development, and will likely lead to more Australian coal being allowed into China,” a trader source in Singapore told Fastmarkets. An Australia based source also said “it is possible that the lifting of the ban will start from thermal coal.” This is an ongoing development but it could still see some positive flow for local coal names. 

Real estate: Real estate was the best performing S&P 500 sector. US treasury yields eased after the Fed minutes; 10-year yield fell 47 bps to 3.96% and the 2-year yield fell 12 bps to 4.36%.

Oil: In the first two trading days of the new year, Brent crude has tumbled almost 10% to US$77.8 a barrel thanks to rising recession risks and poor demand data from China. What's interesting is that the S&P 500 Energy sector finished the session 0.06% higher. There's a growing divergence between oil stock and oil price performance. In the case of Woodside, its share price is up 55.6% since the beginning of 2022. Over the same time period, Brent crude is down -2.75%. So who's leading who here?

Woodside vs oil price (orange)

Gold: Gold is finding its groove thanks to a weaker US dollar and falling bond yields. The yellow metal is up almost US$50 an ounce in the last five sessions. Most ASX-gold names are starting to move again after a massive run between October and mid-December.

Other notable movers: From our ETF list. Some notable movers include Jets (+5.24%), Rare Earths (+3.56%), Fintech (+2.23%) and Nickel (-5.5%).

Key events 

ASX corporate actions occurring today:

• Dividends paid: None

•  Listing: None

Economic calendar:

• 12:45 pm: China services PMI

• 4:00 pm: Japan consumer confidence

• 6:00 pm: German balance of trade

• 12:30 am: US balance of trade