Morning Wrap: Powell puts pivot hopes to rest, Dow dives 1,000 points, ASX to tumble

US stocks nosedive after Powell puts pivot dreams to rest, Powell expects the Fed to keep at it until "we are confident the job is done", Affirm shares tank -21% on earnings and Bitcoin is rolling over.

Let’s dive in.

MARKETS

Happy Monday, thanks for stopping by before we all get absolutely pummeled. The way US markets plunged last Friday reminds me of two charts from previous Morning Wraps.

1. From a seasonality perspective, an August peak is quite normal. (22 Aug)

Source: Almanac Trader

2. "The S&P 500 has retraced 53% of its decline, and this is as far as bear market rallies go," said Jurrien Timmer, Director of Global Macro at Fidelity. (23 Aug)

Source: Fidelity

Equity markets rallied hard after the cooler-than-expected US CPI print on 10 August and on hopes that the Fed will pivot out of its current tightening stance. The pendulum is now swinging in the other direction as the market tries to price in what "hike until we get the job done" looks like.

Last Friday's session witnessed the S&P 500 slice through all key moving averages, including the 50-day and 200-day. What bulls don't want to see is the market re-test those mid June lows.

• All 11 US sectors fell

• Energy was a relative outperformer, down -1.1%

• Defensive sectors including Utilities, Staples and Real Estate held up better than most

• Technology and Discretionary underperformed benchmarks

• 80% of US stocks declined

• 56% of US stocks stocks trade below their 200-day moving average (50% last Friday, 49% a week ago)  

STOCKS

• Workday (+2.5%) posted better-than-expected quarterly earnings and reaffirmed its full-year guidance. Workday develops software that companies use for financial management and human resources  

  • Workday CFO: “This focus on digital transformation; it just remains unabated. Companies are moving move and more things to the cloud. The pace is not slowing down.”

  • “There’s no question the macro environment is challenging for the second half of the year. I think it is for everybody … We had a couple deals slip from Q1 into Q2. Companies will talk about how they're slipping. We were able to close all those deals that slipped.” 

• Electronic Arts (-3.6%) shares rallied as much as 6.5% after speculation that Amazon will announce an offer to buy the company. However, sources confirmed with CNBC that no such deal is in the works

• Dell (-13.5%) posted mixed earnings with revenue falling short of analyst expectations amid a slump in PC sales

  • Dell CFO: “We saw the weakening [PC] environment. We have instituted a number of cost measures as a result of that, including effectively limiting external hiring.” 

• Affirm (-21.3%) reported US$364.1m in fourth quarter revenue, up 39% compared to a year ago and ahead of analyst expectations of US$355m. Still, the BNPL company posted a larger-than-expected loss of -US$201.2m and disappointing full-year outlook

  • Affirm CEO: “While the uncertain macro picture over the next 10 months to 11 months, as well as us lapping some staggering year-over-year comps are leading us to be prudent in the short-term, we remain very bullish about our opportunities.”

ECONOMY

• US personal income rose 0.2% month-on-month in July from 0.7% in June

  • Consensus expected a gain of 0.5% 

• US personal spending rose 0.1% in month-on-month in July from 1.0% in June

  • Consensus expected a gain of 0.2%

• US University of Michigan 1-year inflation expectations fell to 4.8%

  • 5-10 year expectations ticked lower to 2.9%

• Powell’s speech at Jackson Hole highlights:

  • Quotes former Fed chairman Paul Volcker, which leaves no dovish interpretation, except that at “some point” they will slow down. Some point doesn’t mean immediately

  • “History warns against prematurely loosening policy.”

  • “We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored … We will keep at it until we are confident the job is done.”

  • “While the lower inflation readings for July are welcome, a single month's improvement falls far short of what [Fed policymakers] will need to see before we are confident that inflation is moving down.”

  • “While higher rates, slower growth and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are unfortunate costs of reducing inflation.”

Who’s Paul Volcker you might ask?

• Tenure as Fed chair was from 1979 - 1987

• Inflation peaked at 14.6% in April 1980

• Fed Funds hit 19.1% in June 1981

• Recessions between Jan 1980 to July 1980 and July 1981 to November 1982

• S&P 500 fell around -30%

COMMODITIES

• Iron ore futures rose 0.2% to US$105.4 a tonne, up 0.6% last week

  • “Chinese traders saw their stocks of the 5 major steel products continue declining during August 19-25, but the total volume fell at a slower pace of -1.7% week-on-week, as against the -2.8% week-on-week decline seen in the prior week,” Mysteel reported

• Oil prices briefly dipped on weaker-than-expected US economic data and the Fed’s commitment to hiking into a possible recession. Still, Brent crude managed to rally back up to the psychological US$100 level

  • “The next big in crude will likely be determined by the demand side and that will draw extra attention to China’s factory activity data,” said Oanda senior market analyst, Ed Moya

  • “The Czech Republic is expected to call an extraordinary meeting of energy ministers to combat the surge in power prices.  The pressure is on for decisive action and that could lead to emergency measures that might cap the move higher with energy prices.”

• Gold tumbled thanks to a more hawkish-than-expected Powell speech which pushed Treasury yields higher

There's not too much value I can add when it's going to be one of those 'sea of red' days.

US markets were aggressively sold down, with no opportunity to defend key moving averages and price points. Risk sectors led the selloff, with the Nasdaq 100 down -4.1%.

Bitcoin, which is often viewed as a barometer for risk, is down -7.6% since the Powell's Jackson Hole speech. It's rapidly approaching previous lows. Eyes on how it behaves around US$19,000.

Source: TradingView, Annotations by Market Index

It's going to be a wild day. Keep your emotions in check, stay safe and I'll see you later this afternoon for the Evening Wrap.

Stocks going ex-dividend:

• Mon: ANN, CGF, CRN, GAP, HSN, INA, PCG, PNI, SIV, VG8, WOR

• Tue: BAP, BPT, CAA, DMP, DOW, EVN, NWL, PCI, SDG, TCF, TIP, VNT, WTN

• Wed: ADA, AEF, ASH, AX1, BGA, BKL, CIN, EDV, HUM, IRE, OML, OZL, PFP, PGG, PIA, SRV, TAH, TWE, WES, WOW

• Thu: AGL, BHP, CCP, GNG, GTN, HIT, HMC, JIN, MNY, PTM, SLH, SXL, WHC

• Fri: ALD, APE, BSE, COL, CYC, KLS, LIC, PFG, PTL, 

ASX corporate actions occurring today:

• Dividends paid:  SLF

• Listing: None

• Issued shares: ADX, AHF, AMO, APC, ARR, AVL, BCN, CE1, COB, CXL, DJW, DMP, DVL, EIQ, ESS, FME, FRB, IDA, KIN, LBY, LDR, LNU, LRD, MAY, MEA, MEB, MFG, MLM, NAB, NSX, PBL, PGC, PGY, PIC, PRL, RUL, SCP, SGM, TPD, URF, WTC, X2M

Other things of interest (AEST): 

• Australia Retail Sales (July) at 11:30 am