Morning Wrap: Nasdaq jumps on Alphabet layoffs, recession odds fall sharply, ASX set to rise
ASX 200 futures are trading 34 points higher, up 0.45% as of 8:20 am AEDT.
ASX 200 futures are trading 34 points higher, up 0.45% as of 8:20 am AEDT.
The S&P 500 rallied but failed to recoup earlier decline, the Nasdaq powered ahead after Google-parent Alphabet's layoff announcement, Fed policymakers Harker and Waller both prefer a 25 basis point increase and a look at how unprofitable tech companies performed post dot com bubble.
Let's dive in.
MARKETS
Major US benchmarks rallied amid growing expectations for another downshift in Fed tightening and Google-parent Alphabet's plans to cut its global workforce by more than 6%
The rally was not enough to recoup earlier declines, with the S&P 500 finishing last week down -0.66% but up nearly 4.2% year-to-date
Approximately 11% of the S&P 500 has reported their Q4 earnings. The blended earnings decline for the quarter is -4.6%, below the -3.2% expected, according to StreetAccount
US 10-year bond yield rose 9 basis points to 3.48% but down from 3.5% in the previous week
Crude oil prices rose around 1.0% to a two month high as China kicks off its Lunar New Year celebrations
71% of stocks advanced
49% of stocks trade below their 200-day moving average (53% on Wednesday, 51% a week ago)
STOCKS
Coinbase (+11.6%) was Neutral rated by JPMorgan. The investment bank called it a potential “beneficiary of the challenges that have faced other brokers/exchanges in the aftermath of the collapse and bankruptcy of FTX.”
Netflix (+8.5%) shares rallied after adding 7.66m subscribers in the December quarter, beating the 4.57m expected. The stock is now up 100% from its recent lows but still down 50% from all-time highs.
Alphabet (+5.3%) announced plans to fire 12,000 employees and undergo a rigorous review of product priorities.
“Over the past two years, we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than one we face today.” - CEO Sundar Pichai
WORLD NEWS
Markets continue to bet Fed will reverse its tightening (FT)
Banks gearing up for biggest round of job cuts since global financial crisis (FT)
ECB's Knot says bank set to hike by 50 bp in both February and March (Reuters)
China's top epidemiologist says 80% of population has already been infected (FT)
JPMorgan model shows implied odds of recession below 50%, down from nearly 100% in October (Bloomberg)
ECONOMY
Germany’s producer prices rose -0.4% month-on-month in December which was below analyst expectations of a -1.2% decline. Producer prices remain 21.6% higher than where they were a year ago.
Source: TradingEconomics
UK’s retail sales fell -1.0% month-on-month in December, below analyst expectations of a 0.5% increase. Sales volumes were also down -5.8% compared to a year ago, the largest decline since 1997.
Source: TradingEconomics
Three central bank speeches took place overnight. Key highlights include:
European Central Bank President Christine Lagarde: “Economic news have become much more positive … We may only see a small contraction in the Eurozone … Will stay course with rate hikes … Inflation expectations are not de-anchoring.”
Philadelphia Fed President Patrick Harker: "I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed … Hikes of 25 basis points will be appropriate going forward.”
Fed Governor Christopher Waller: “And in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favour a 25-basis point increase at the FOMC’s next meeting at the end of this month.”
QUICK BITES
Unprofitable companies: The dot com bubble gives us a good idea of what to expect with unprofitable tech companies. The chart shows us that improving returns to shareholders will matter more going forward.
Last year, I wrote an explainer for our ETF table. You can check it out here.
ASX Morning Brief
I’m back! I stepped away from the screens for a two week roadtrip around South Australia and of course the market makes a V-shaped move, up 4.8%. I couldn't help but notice these mountains on the drive back.
The Morning Wrap will see a few changes moving forward as Chris, Hans and I embark on creating the best possible pre-market read in Australia. I will update you guys on any upcoming changes or decisions, as they come. I'd also love to hear from you guys as to how the Wraps went while I was gone. What did you enjoy, what was different etc.
Anyway. Back to the market talk.
The S&P 500 is back at this longstanding trendline. Will this time be any different?
S&P 500 weekly chart (Source: TradingView)
The ASX 200 has fared much better thanks to the outperformance of heavyweight iron ore miners and banks. With the market up 11 of the last 13 sessions or 7.3%, its rather extended. Will we begin to see some stalling or will it continue to grind higher?
It would be healthy to see a little bit of a pullback, which would then also show us the underlying strength of the market. As we've seen with previous rallies, the pullback tends to be anything but healthy. Has the market undergone a true change of character or will this time be the same as the others?
Source: TradingView
Sectors to watch
Coal: Newcastle coal futures fell -3.5% to US$350.95 a tonne last Friday. US-listed coal names held up relatively well, with names like Consol Energy closing up 2.7%. Many ASX-listed coal miners moved out strongly last Friday. Notably names like Whitehaven, Yancoal and Terracom.
Tech: The Nasdaq rallied 2.66% last Friday led by names like Affirm (+16.7%), Coinbase (+11.6%), Block (+7.4%), Tesla (+4.9%). Could this see some more positive flow for beaten up names like BNPL stocks, Kogan, PointsBet etc.
Lithium: VanEck Rare Earths/Strategic Metals ETF rallied 3.27% last Friday. It's next test will be the key 200-day moving average (blue).
VanEck Rare Earth/Strategic Metals ETF (Source: TradingView)
Uranium: Global X Uranium ETF rallied 2.86% last Friday to a four month high. Uranium was a rather choppy and trendless trade in 2022. It's started the year off pretty strong, pushing above the 200-day moving average. Will this be the year for uranium/nuclear energy?
Key Events
ASX corporate actions occurring today:
Trading ex-div: None
Dividends paid: None
Listing: None
Economic calendar:
10:50 am: Bank of Japan meeting minutes
