Morning Wrap: S&P 500 fades early gains, Apple hits June 2021 lows, ASX set to bounce

New year, same stories but with a twist. China’s finally beginning to reopen but travel restrictions imposed on its citizens by other nations are already creating rumbles in Beijing. German inflation continues to soar and the S&P Global Manufacturing PMI is now at a 30-month low, suggesting that the worst is not over yet (at least in the data). And in what must be some sort of 2022 reversal wake up moment, energy stocks led the S&P 500’s declines.

Let’s go. 

MARKETS

US equity futures were pointing higher in Asian trade yesterday but bright-eyed traders had other plans. The S&P 500 was negative by 10:00 am ET (30 minutes after the opening bell) and languished lower thereafter. The lower move comes ahead of two key risk events for investors - the US Federal Reserve’s latest meeting minutes and the stateside jobs report. 

Unlike what we saw stateside, major equity benchmarks across Europe finished the first session higher.

• Only four of the S&P 500’s 11 sectors finished the trading day higher with communication services and financials leading the charge

• Energy was the worst performing S&P 500 sector, with some big names like ConocoPhillips and Halliburton leading the declines

• US bonds were heavily bought overnight (apparently, the “buy bonds” chorus has started). The 10-year yield now fetches 3.79%, up nine basis points from the prior trading session

• US Dollar Index inched 1% higher overnight, supporting the risk-off tone on markets

• Spot gold prices are sitting at their highest since June while silver prices have not been this high since April 2021

• 48% of stocks declined

• 53% of stocks trade below their 200-day moving average (52% on Tuesday, 55% a week ago)

STOCKS

Apple (AAPL) fell more than 4%, threatening to close below a $2 trillion market value for the first time since 2021.

Tesla (TSLA) fell more than 13% on Tuesday, after falling 65% for 2022 after it reported lower-than-expected deliveries for the quarter and year.

But it’s not all bad news for Elon Musk. Per CNBC reporting, SpaceX has raised an extra $750 million in a funding round. By their calculations, the company is now worth $137 billion. 

Casino stocks were rising on the prospect of China's Macau gambling mecca reopening after COVID-related shutdowns and restrictions. Wynn Resorts Limited shares were up 2%, while Las Vegas Sands shares were up 1.7%. The earlier of these names was also upgraded by Wells Fargo’s equity broking team.

WORLD NEWS

• BofA’s Stock Indicator Is the Closest It’s Been to ‘Buy’ Since 2017 (Bloomberg)

• Pro-Putin operatives in Germany work to turn Berlin against Ukraine (Reuters)

• Beijing decries curbs on Chinese travellers, threatens to reciprocate (SCMP)

• Wheat, Soybean, Corn Prices Seen Having Choppy 2023(WSJ)

ECONOMY

Global manufacturing remains in contraction for the fourth month running, with the S&P Global Manufacturing PMI falling to a 30-month low of 48.6 in December.

German inflation cooled on a year-on-year basis but is still up 8.6% from 12 months ago. The month-on-month headline figure contracted by 0.8% in December.

Hello! Kerry here. Everything above this line was written by my colleague Hans from Livewire. He'll be looking after the Morning Wrap while I'm on leave from 9-20 January.

What an abysmal start to the year for both markets.

The ASX 200 spent most of Tuesday selling off after a brief 0.46% rally at the open. The market closed near a two month low, down -1.31%. Similarly, the S&P 500 briefly rallied 1.01% overnight but closed the session -0.4% lower.

Volatility and distribution remains heavy – which is quite a precarious sign of an unhealthy market.

Sectors to watch

Nickel: Nickel futures rose 3.7% overnight, according to the Bloomberg Nickel Subindex – which tracks a series of nickel futures. Looking at the chart below, nickel has rallied into previous highs and formed some higher highs along the way. Still, the bearish price action of the broader market and ongoing weakness across battery metal stocks has outweighed the strength in nickel prices. Names like Mincor, Centaurus Metals and Panoramic Resources have mostly drifted lower in recent weeks.

Bloomberg Nickel Subindex (Source: TradingView)

Gold: Spot prices rallied 0.7% to US$1,836 while the Australian Dollar fell -1.0% to 0.67 cents. This means that gold is trading around a 6 month high in US dollars but it also hit a fresh 9 month high in Aussie dollar terms. The Fed minutes on Thursday morning could be a catalyst to watch out for. In short: the market is currently pricing in a terminal rate of under 5.0% but the Fed has been adamant on bringing rates above 5.0%.

Gold in US dollars (top) and Australian Dollar (bottom)

Lithium: Tesla’s disappointing Q4 earnings alongside the broader market weakness triggered another fall for local lithium names on Tuesday. This is mostly yesterday's news but still something to take note of. Interesting comments from Bernstein analysts below:

“Despite aggressive price discounting, Tesla reported Q4 delivery of 405%, up 31% year-on-year and below consensus expectations of 418k … We believe that Tesla is facing a significant demand problem … We expect demand challenges to persist in 2023, particularly since no Tesla models appear to currently qualify for any IRA rebates except the 7-seat Model Y,” said AB Bernstein analysts in a note on Tuesday.

Tech: Junky US tech names continued to fall overnight, including Affirm (-5.8%), Etsy (-5.2%), Coinbase (-5.1%) and Draftkings (-2.9%). There was also some selling across heavyweight names like Apple (-3.7%) and Nvidia (-2.1%). Does this spell more weakness for local names?

ASX corporate actions occurring today:

• Dividends paid: None

•  Listing: None

Economic calendar:

• 6:45 pm: France inflation rate

• 2:00 am: US ISM manufacturing PMI

• 6:00 am: FOMC minutes