Morning Wrap: RBA poised for another 50 bp hike, Chinese cities rush to lockdown, ASX to rise

Wall St was closed overnight for Labour day, European markets tumble on the indefinite halt of Nord Stream 1 gas flows, GDP of Chinese cities in lockdown jumps to 35% and the RBA likely to hike rates by another 50 bps at 2:30 pm AEST.

Let’s dive in.

MARKETS

With US markets closed, we turn to the next best alternative: European markets.

• Pan-European Stoxx 600 fell -0.6%, up from session lows of -1.9%

• German DAX index tumbled -2.2%, up from session lows of -3.3%

• European markets tumbled after Russia’s state-owned energy giant Gazprom announced an indefinite halt of gas flows to Europe via the Nord Stream 1 pipeline. This caused European natural gas futures to spike more than 20% on Monday

WORLD NEWS 

Testing a new little segment here. Pulling a few noteworthy overnight headlines.

• China sees third quarter as key for rollout of stimulus measures (Bloomberg)

• China cuts forex reserve ratio in bid to support tumbling Yuan (Bloomberg)

• Morgan Stanley's Secker sees 2008-era plunge in European margins (Bloomberg)

• Global miners confident China's stimulus will help prop up steel demand (CNBC)

• Germany to spend at least 65bn euros to shield customers from inflation (Reuters)

ECONOMY

• UK manufacturing and services PMI revised down to 49.6 in August from a preliminary reading of 50.9

  • Marks the first sub-50 reading the second wave of COVID-19 in early 2021

  • “Demand for consumer-facing services such as restaurants, hotels, travel and other recreational activities is collapsing under the weight of the cost-of-living crisis,” said Chris Williamson, Global chief business economist at S&P

• Eurozone retail sales rose 0.3% month-on-month in July from -1.0% in June

  • Economists polled by Reuters expected a 0.4% monthly rise

• Eurozone manufacturing and services PMI fell to 48.9 in August from 49.9 in July

  • “The deterioration is also becoming more broad-based with services now joining manufacturing in reporting falling output,” said Williamson

  • “Looking ahead, an increase rate of loss of orders in August suggest that the downturn in business activity could gather pace in September,” he added

• GDP of Chinese cities in lockdown increased to around 35% of GDP, the highest since 2021

  • "If [this] persists, Q3 GDP will be even worse than Q2 of 0.4% growth," said market analyst Hao Hong

COMMODITIES

• Iron ore futures rose 3.3% to US$98.5 a tonne

  • Between 29 August and 2 September, China’s domestic steel prices for rebar and hot-rolled coil showed signs of softening, according to Mysteel.

  • “... market sentiment turned pessimistic with steel production rising after the power shortage in some regions had been eased, while downstream steel demand remained flat mainly due to the constraint in funding,” notes Mysteel

• Oil prices rallied after OPEC+ agreed to cut output by 100,000 barrels a day in October. The cartel said it stands ready to meet again at short notice to reduce output further if needed

• Gold is still struggling for upside as investors favour the safety of the US dollar

  • The US Dollar Index hit 110 overnight for the first time since June 2002

When US markets are closed, it kind of breaks the system we have in place. The ETF table (that's usually above this section) are mostly US-listed.

In Wall Street's absence, here's some food for thought:

Another take on seasonality: Almost every wrap for the past week has talked about seasonality and the typical weakness we see in September. But here's another interesting take from Topdown Charts.

"Typically we see defensive assets outperform this time of the year (e.g. gold, bonds, defensive equities), while risk assets lose ground (VIX, credit spreads go up, and equities go down."

Source: Topdown Charts

Coal for power, not steel: A decline in China's steel industry has weighed on coking coal prices (white). But thermal coal prices have surged, reflecting its heightened demand for electricity production from Europe and Asia.

Source: Bloomberg

RBA rate hike: Another 50 bp rate hike to 2.35% is widely expected. ASX 200 performance on rate decision days in 2022:

• 3 May -0.42% (larger-than-expected)

• 7 June -1.53% (larger-than-expected)

• 5 Jul +0.25% (in-line)

• 2 Aug +0.07% (in-line)

RBA rate hike outlook: "We now expect 25 bps rate hikes at the Reserve Bank of Australia's meetings in September, October, November, December and February, which would see the cash rate peak at 3.10% early next year," according to Wells Fargo

Source: Wells Fargo Economics

Stocks going ex-dividend:

• 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

• Fri: ALI, AMO, NEC, NTD, SEQ, WTC

• Mon: CNU, DSK, DUR, DVR, HUB, JYC, LSF, MTO, PGC, PRU, SND

ASX corporate actions occurring today:

• Dividends paid: BFG, GWA, MFG, WOT

• Listing: None

• Issued shares: 5EA, AD8, AEI, AIV, APE, ART, AUB, BET, BFC, CCA, CGA, CLZ, CM8, CSL, DYL, EQE, FGR, HLS, ID8, IMU, IRI, JHG, KZR, LMG, LRT, LVH, MAY, MCR, MFG, MME, MRD, MRI, NAB, NSR, OFX, PDN, PHO, PNR, PPC, PPE, RMS, RUL, SQ2, TIE, TRJ, WCG, XRO, ZER

Other things of interest (AEST): 

• RBA interest rate decision at 2:30 pm

• German July factory orders at 4:00 pm

• US August ISM non-manufacturing PMI at 12:00 am