Morning Wrap: Iron ore and oil prices tumble, ASX losing streak set to continue

The Nasdaq and S&P 500 finished a brutal week on a positive note, the Fed commits to restoring price stability, oil plummets on recession fears and Bitcoin briefly dips to US$17,500. 

Let’s dive in.

Markets

The Dow was the odd one out, closing slightly lower thanks to names like Chevron (-4.6%), Walmart (-1.9%) and Goldman Sachs (-1.8%).

The market is in no man's land as central banks become even more aggressive with their tightening plans. The only thing that's certain is volatility, and a lot of it.

• 6 out of 11 US sectors advanced

• Discretionary, tech and real estate sectors outperformed

• Utilities, staples, industrials and materials underperformed

• The energy sector fell an outsized -5.6%

• 63% of US stocks were green

• 79% of US stocks trade below their 200-day moving average (79% last Friday, 69% a week ago)

Stocks

• Moderna (+5.7%) shares rallied after the FDA authorised their covid vaccines for children as young as 6 months old

• JD.com (+5.2%) CEO Xin Lijun said in a Bloomberg interview that the Chinese eCommerce company is considering an expansion into food delivery

• Adobe (-1.2%, session low: -7.4%) shares bounced off session lows after issuing a weaker-than-expected current quarter and full-year guidance

• Kroger (-7.3%) shares fell sharply after the grocery giants' March quarter results flagged that rising inflation is causing consumers to shop at cheaper store brands   

Economy

• US industrial output rose 0.2% on-the-month in May

  • Economists surveyed by The Wall Street Journal expected a 0.4% gain

  • Industrial output has increased for a fifth consecutive month

  • The weaker-than-expected outcome signals that the US economy slowing very quickly

• US Fed Governor Waller said he  supports another 75 bps hike at the next meeting

  • Waller added that if the US economy dips into a recession, “there is a decent chance that we will be considering policy decisions in the future similar to those we made over the past two years”

• US Fed Chairman Jerome Powell spoke at the Inaugural Conference on the International Roles of the US Dollar

  • Powell said the Fed’s commitment to stabilising inflation contributes to the widespread confidence in the US dollar, and encouraged the international community to hold and use dollars

Commodities

• Iron ore futures fell sharply on Friday amid worsening sentiment cause by poor downstream steel markets, sources told Fastmarkets 

• Oil prices dipped as the US dollar rallied and as recession fears grow. Russia also signalled that oil exports should increase

• Gold is struggling for upside amid a stronger US dollar and expectations of more aggressive interest rate hikes

#1 Iron Ore

Iron ore futures are on an 8-day losing streak, down from US$145 to around US$131.

Iron ore futures (Source: TradingView)

Choppy economic data from China is struggling to inspire iron ore prices. Data this month has shown that economic troubles continue to persist, even if the pain is less severe as lockdowns are lifted.

Interestingly, Moody's has issued 91 downgrades for Chinese property developers in the past 9 months, compared to only 56 downgrades in the 10 years ending December 2020.

US-listed BHP and Rio Tinto fell -4.1% and -5.1% respectively, which could point to a soft open their local counterparts.

#2 Tech

The US tech sector outperformed last Friday, with the usual narrative of 'the more beaten up the stock, the bigger the rally'. Notable winners include:

• Affirm +9.5%

• Draftkings +6.5%

• Zoom +3.7%

• Amazon +2.5%

• PayPal +2.3%

• Block +1.7%

With SPI futures pointing to a -0.3% open, it will be interesting to see if local tech names can hold their ground.

#3 Lithium

There was a lot of support coming through lithium and green metals related stocks last Friday. Notable ETF gainers include:

• Solar +5.9%

• Hydrogen +4.9%

• Clean Tech +4.6%

• Lithium & Battery Tech +3.8%

• Rare Earth/Strategic Metals +2.9%

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: None

• Listing: None

• Issued shares: 4DS, 92E, ANN, APX, BIO, BMG, BRK, BSL, BXB, CRR, D2O, ENX, GCX, GTI, LSX, MGF, NAB, NBI, OFX, PG1, PME, PRL, RAP, RCE, RYD, WMC

Other things of interest (AEST): 

• RBA Gov Low Speech at 9:10 am