Morning Wrap: Massive reversal day for Wall St, US halts chip sales to China, ASX to rise

Wall St reverses a steep open to close higher, Nvidia ordered to stop selling chips to China, Western Australian exploration spend hits an all-time high and commodity prices continue to dip. 

Let’s dive in.

MARKETS

If you check your calendar, Turnaround Tuesday was mistakenly postponed to Thursday.

It was a massive reversal day for US stocks as major benchmarks clawed back steep opening losses. Session lows were:

• S&P 500 -1.3%

• Dow Jones -0.92%

• Nasdaq -2.28% 

This is the 8th time this year that the S&P 500 has managed to reverse a fall of more than -1% and close green, the most since 2011. (What a useless but interesting fact) 

• 8 out of 11 US sectors higher

• Health Care, Utilities, Discretionary and Staples outperformed

• Tech, Materials and Energy were the only red sectors

• 62% of US stocks declined

• 63% of US stocks trade below their 200-day moving average (61% on Thursday, 50% a week ago)

STOCKS

• Nvidia (-7.7%) has been told by the US government to stop selling some of its chips to China and Russia, to reduce the risk of those products being used for military applications

  • China’s foreign ministry said the move is ‘tech hegemony’ and stretching the concept of national secretary, impacts the stability of global industrial and supply chains

• Okta (-33.7%) shares plummeted despite its first quarter earnings beating both top and bottom line expectations. The stock faced analyst downgrades across the board following Okta’s plan to re-evaluate its FY26 revenue target

  • Okta CEO: "There are some short-term challenges...over half of the outlook headwind relates to our sales integration challenges. A secondary portion of the reduction relates to the heightened attrition, which resulted in a lower-than-expected capacity build"

Company quotes of interest:

• Seagate CEO fiscal first quarter 2023 outlook: "Since our earnings call in mid-July, weaker economic trends in certain Asian regions have amplified customer inventory corrections & supply chain disruptions. We have also seen more cautious buying behaviour among global Enterprise / OEM & certain U.S. cloud customers"

• Visa CFO speaking at the Deutsche Bank Tech Conference on Thursday: "So I think the best way to describe consumer spending is that it's stable. We told you in July that things had been remarkably stable for quite a while, and that sort of continued into August"

  ECONOMY

• Germany retail sales fell -2.6% year-on-year in July from -9.6% in June

  • Consensus expected a larger decline of -6.5%

• Eurozone manufacturing PMI fell to 49.6 in August from 49.8 in July

  • “More importantly, some of the PMI's sub-indices painted a far gloomier picture of the health of the manufacturing sector, suggesting worse is to come and adding to recession risks,” according to IHS Markit

  • “Weak demand and efforts to reduce high inventory levels are therefore combining to drive production lower in the months ahead.” 

  • “The orders-to-inventory ratio - an important indicator of future production - is in fact now signalling a downturn of an intensity not seen since 2009, barring the initial pandemic lockdown months.”

• Eurozone unemployment fell to 6.6% in July from 6.7% in June

  • The number of unemployed people hit an all-time low of 6.6%, reflecting the strength of the eurozone labour market 

• US ISM manufacturing PMI was 52.8 in August, unchanged from July

  • The manufacturing sector accounts for approximately 12% of the US economy

  • Economists polled by Reuters expected the index to fall to 52.0

  • The survey’s sub-index for new-orders rebounded back into expansionary territory, to 51.3 from 48.0 in July

Other things of interest:

• “If CPI were to remain unchanged and stay at 0.0% month-on-month, we would see year-on-year CPI quickly fall to 3% by next March and down to 1.36% by next May … barring any big surprises, we could see it get back down in the 2-4% range sometime next spring or summer,” said Bespoke

• Total traveler throughput in the US was 6% less than 2019 levels for the week ended 29 August, one of the highest readings since COVID, according to the TSA

• Western Australia mineral exploration expenditure reached its highest-ever quarterly level

  • ABS figures show $673.1m was spent in the state during the June quarter, up 28% quarter-on-quarter

  • Greenfield exploration was up 20.2% to $312.9m and exploration on existing deposits was up 24.5% to $740.7m

  • Iron ore experienced the greatest increase in expenditure in the June quarter, up 44% to $201m

  • Nickel and cobalt recorded a 24% increase to $80.2m  

COMMODITIES

• Iron ore futures fell -4.7% to US$96.40 a tonne

  • China’s daily crude steel output rose steadily over the last eleven days of August  to average 2.76m tonnes a day, up around 2.2% from the prior ten days, according to Mysteel

  • Steel mills have started to ‘gradually ramp up production’ to prepare for the upcoming traditional peak season for steel consumption over September to October 

• Oil prices are tumbling as China locks down the southwest city of Chengdu, home to approximately 21m people

  • “Oil is looking very vulnerable here as the risk of further Chinese lockdowns grow and as king dollar might be ready for another major run,’ said Oanda senior market analyst, Ed Moya

  • “If September becomes a bloodbath on Wall Street, WTI crude could slide towards the $80 region, but the supply outlook should prevent a significant selloff beyond there,” he added. 

• Gold is starting to breach the psychological US$1,700 level. A strong US jobs report on Friday could empower the Fed to deliver more interest rate hikes, which would further weigh on the non yield-bearing yellow metal

The S&P 500 was on a four-day losing streak, down almost -6%. It bounced overnight, but so what?

From Wednesday's Morning Wrap: "A pullback can tell us a lot about the true character of the recent move". So far, it's been extremely volatile and sliced through key areas with little to no support. A lot more is needed.

Today's a rather odd day for the ETFs we track. Even though US benchmarks bounced, a lot of these ETFs are still red.

Several ETF charts like FinTech, eCommerce, Semiconductors, Cloud, Lithium & Battery Tech and Steel - all look pretty similar. Something along the lines of retrace 50% of the 50% retrace and now, in no man's land.

VanEck Steel ETF (Source: TradingView)

Oil smashed: Great for the peak inflation narrative, not so good for Energy stocks. Oil has completely back-flipped on its turnaround price action, down -12.3% in the last three sessions. Selling accelerated after China announced a lockdown for Chengdu. Oil has re-entered the downward trend and below all key moving averages.

Brent crude oil (Source: TradingView, Annotations by Market Index)

Copper breaking out to breaking down: Copper teased at a breakout around the US$3.7/lb level but struggled to close above the 50-day moving average (green) with conviction. It's now on a four-day losing streak, down almost -8%. Another plus for 'peak inflation', but not so good for those who are long copper stocks

Copper futures (Source: TradingView)

Stocks going ex-dividend:

• Fri: ALD, APE, BSE, BVS, COL, CYC, IFM, KLS, LIC, MIN, PFG, PTL, TER

• Mon: ADH, AFG, ALU, BEN, CTD, FMG, GOR, ILU, KSL, MAD, MCP, NHF, ORA, RHC, SNZ, SSG, YAL

• Tue: BSL, CSL, CUV, EFN, LGL, NST, ORG, SHL, SUL, VEE

• Wed: AMC, ASB, AUB, AVJ, BXB, CVW, HLS, IEL, IFL, MEZ, MPL, PAC, PBP, SEK, UNI, VEA 

• Thu: APM, ASX, BLX, CEN, CLX, EBO, EHL, GEM, GLB, LBL, MHJ, MND, MVF, OCL, PME, PPT, PWR, RMC, RWC, SFC, SIQ, SKT, SRG, WDS, 

ASX corporate actions occurring today:

• Dividends paid: HPI, KOV, MAM, NSR, QVE

• Listing: None

• Issued shares: ABB, ALU, APZ, ASN, AVE, B4P, CBE, CF1, CVL, DDR, DMP, DTL, EBO, EML, EMN, FGX, GT1, HMD, IME, KAT, LRT, LVH, MDR, MEA, MFG, MNB, MOB, MVP, NWF, PTX, PXS, SBM, SCP, SLA, SNZ, TBA, TOP, VHT, VTX, XRG, ZEO

Other things of interest (AEST): 

• Germany Balance of Trade July at 4:00 pm

• US Non-farm Payrolls August at 10:30 pm

• US Unemployment Rate August at 10:30 pm

• US Factory Orders July at 12:00 am