Morning Wrap: Hawkish Fed speak returns, Amazon increases job losses, ASX set for flat open

The numbers may have weakened slightly but the narrative remains the same - labour markets around the world are tight and that means more central bank tightening is coming. Crude oil prices inched higher overnight while the collapse in natural gas prices continues. And technology’s bad news run continues as Amazon hikes the number of jobs it expects to cut and Samsung tells its shareholders that the next interim profit print could be its lowest on record.

Let's go.

MARKETS

Wall Street's main indexes were in the red on Thursday as fresh evidence of a tight labour market and hawkish comments from policymakers deepened fears of elevated interest rates for longer than expected. 

• Energy was the only S&P 500 sector to finish in the green.

• Real estate stocks gave back all their gains from yesterday.

• The Australian dollar fell by more than one percent against the US Dollar.

• US bonds were bought at the long end of the curve (10-year maturities and above) but sold at the short end of the curve.

• 38% of stocks advanced

• 51% of stocks are trading below their 200-day moving average (49% yesterday)

STOCKS

Shares in crypto-centric bank Silvergate (SI) crashed by more than 42% after it said customers withdrew their money en masse during the fourth quarter. The bank said it had $3.8 billion in assets from digital asset customers at the end of December, down more than 60% from three months earlier.

Bed Bath and Beyond (BBBY) shares plummeted 24% after revealing it’s considering bankruptcy measures. The company blames it on a lack of cash and poor sales.

Shares in Crowdstrike (CRWD) and Shopify (SHOP) both fell following downgrades from Jefferies to hold from buy. The Wall Street firm said 2023 “will be a more challenging fundamental year for growth names.”

WORLD NEWS

China defends its COVID response after WHO, Biden concerns (Reuters)

McCarthy Blocked in Eighth House Speaker Vote Despite Concessions (Bloomberg)

ChatGPT Creator in Talks for Tender Offer That Would Value It at $29 Billion (WSJ)

LNG revenue hits $92.8b as exporters cash in (AFR)

ECONOMY

The US jobs report is really the culmination of a whole week’s worth of data. Fresh off another strong job openings (JOLTS) report, we had the ADP employment report beat forecasts handily. While the ADP to government report correlation has broken down since the pandemic, the general direction could still provide some clues about the strength of hiring in the US labour market.

Weekly jobless claims hit 204,000. Given that was less than 230,000 forecast on Wall Street, the thesis of a strong labour market is further supported by this print.

QUICK BITES

Growth investing may have been the story of the last 10-15 years but income investing is what gets experienced investors’ tongues wagging. Case in point? This chart from US-based Richard Bernstein Advisors shows the difference in performance between US-listed utilities (paying stronger dividends traditionally) and the NASDAQ 100. Utilities have outperformed in the long run and certainly since the COVID-19 pandemic. 

Hello, Chris Conway here stepping in for Kerry as he is taking a well-earned break. They are some big shoes to fill and hopefully, I can do him (and you) justice.

The ASX 200 attempted to rally early yesterday, following the prior session’s big move higher, but ultimately gave up the ghost and settled just 15 points higher – it was up around 50 at one stage. For anyone who likes Japanese candlesticks, the fade into the close has created a bearish pin bar (candle with a long upper shadow) which is not a particularly good sign, especially given we have bearish leads from Wall Street overnight.

If we see follow-through selling today (likely), it will complete a bearish three-bar reversal pattern.

That’s all very short-term stuff, however. More broadly, the index looks in decent shape technically. Whilst we have seen a pullback from 7400 into 7000, there was a circa 14% rally off the September/October lows prior to that, and the bulls have shown some willingness to provide support at this big round number of 7K.

SECTORS TO WATCH

Coal: expectations around China’s coal ban ending are ramping up, with local producers increasingly confident of such a move. After Penny Wong’s recent visit to China, enquiries coming from Chinese buyers about Australian coal, and four major Chinese importers and one steel mill being cleared to restart trade, it seems trade is close to resuming. That said, there is no timeline for when a resumption could occur and there may be quota limits imposed.

Energy: After falling almost 10% in the first two trading days of the year, and with energy one of the weakest sectors on the ASX 200 yesterday, oil prices steadied overnight. Brent crude added 1.1%, whilst WTI (US oil) also added 1.1%. It wasn’t all good news in the energy space, however, with Natural Gas futures falling almost 11% after US domestic supplies fell less than forecast.

ASX corporate actions occurring today:

• Dividends paid: None

• Listing: None

Economic calendar (AEDT):

• 9:00 pm: Eurozone CPI Flash estimate

• 12:30 am: US non-farm payrolls, average hourly earnings and unemployment rate

• 2:00 am: US ISM Services PMI