Market Wraps

Morning Wrap: S&P 500 fades easing inflation fueled gains, gold soars, ASX to rise

Wed 14 Dec 22, 8:36am (AEST)

ASX Futures (SPI 200) imply the ASX 200 will open 16 points higher, up 0.22%.

Major US benchmarks sold off from session highs despite a cooler-than-expected inflation report, both the US dollar and bond yields fell sharply, gold rallied to a near six month high and all eyes on the Fed's interest rate decision on Thursday at 6:00 am AEDT.

Let's dive in.

Overnight Summary

Wed 14 Dec 22, 8:36am (AEDT)

Name Value Chg %
Major Indices
S&P 500 4,020 +0.73%
Dow Jones 34,109 +0.30%
NASDAQ Comp 11,257 +1.01%
Russell 2000 1,832 +0.76%
Country Indices
Canada 20,023 +0.02%
China 3,176 -0.09%
Germany 14,498 +1.34%
Hong Kong 19,596 +0.68%
India 62,533 +0.65%
Japan 27,955 +0.40%
United Kingdom 7,503 +0.76%
Name Value Chg %
Commodities (USD)
Gold 1,822.80 +1.70%
Iron Ore 109.47 -
Copper 3.847 +1.22%
WTI Oil 75.43 +3.09%
Currency
AUD/USD 0.6853 +1.58%
Cryptocurrency
Bitcoin (AUD) 25,923 +2.92%
Ethereum (AUD) 1,925 +3.39%
Miscellaneous
US 10 Yr T-bond 3.501 -3.05%
VIX 23 -9.48%

US Sectors

Wed 14 Dec 22, 8:36am (AEDT)

Sector Chg %
Real Estate +2.04%
Energy +1.77%
Communication Services +1.70%
Materials +1.34%
Information Technology +1.14%
Industrials +0.36%
Utilities +0.31%
Financials +0.30%
Health Care +0.27%
Consumer Discretionary +0.20%
Consumer Staples -0.17%

MARKETS

Major US benchmarks briefly rallied on a much cooler-than-expected inflation print but the way they faded was rather vicious.

  • Session highs for benchmarks include S&P 500 (+2.77%), Dow (+2.08%) and Nasdaq Composite (+3.84%)

  • Bond yields sold off sharply, with the US 2 and 10-year Treasury yields down -3.2% and -2.5% respectively

  • US dollar index fell -0.9% to a near six month low

  • Market pricing for peak fed funds rate fell around 10 percentage points to below 4.90% after the inflation print

  • Real Estate led to the upside thanks to a big drop in bond yields

  • Energy and Materials trailed closely behind thanks to a bounce in oil prices and weaker US dollar

  • 64% of stocks advanced

  • 45% of stocks trade below their 200-day moving average (47% on Tuesday, 47% a week ago) 

STOCKS

Moderna (+20.4%) announced that its experimental melanoma vaccine combined with Merck’s cancer treatment Keytruda cut the risk of skin cancer recurrence or death by 44%

  • "... the data is so strong, for me it’s a Covid-like moment.” - CEO Stephane Bancel

Oracle (-1.4%) posted better-than-expected second quarter results thanks to a jump in cloud infrastructure revenues. The software company provided a light guidance, weighed by foreign-exchange rates.

  • "In Q2, Oracle’s total revenue grew 25% in constant currency—exceeding the high end of our guidance by more than $200 million...powered by our infrastructure and applications cloud businesses that grew 59% and 45% respectively, in constant currency.” - CEO Larry Ellison 

United Airlines (-7.1%) announced the largest widebody order by a US carrier in commercial aviation history: 100 Boeing 787 Dreamliners with options to purchase 100 more.

  •  "... the 737 MAX & 787 will help United accelerate its fleet modernization & global growth strategy.” - Boeing CEO Dave Calhoun

WORLD NEWS

  • Bond traders bet on recession level plunge in inflation (Bloomberg)

  • JP Morgan's Kolanovic sees downside risk for stocks in Q1 (Bloomberg)

  • China ready to unveil 1 trillion yuan package for its semiconductor industry (Reuters)

  • China hits back at US chip sanctions with WTO dispute (FT)

  • FTX founder SBF arrested in Bahamas after US files criminal charge (NY Times)

ECONOMY

US inflation eased to 7.1% in November from 7.7% in October. 

  • Beat analyst expectations of 7.3%

  • Smallest increase since December 2021

  • Shelter was the largest contributor to the monthly increase (+0.6% MoM, +7.1% YoY), more than offsetting decreases in energy (-1.6% MoM, +13.1% YoY)

  • Food index rose 0.5% MoM and up 10.6% YoY

US core inflation fell to 6.0% in November from 6.3% in October. 

  • Beat analyst expectations of 6.0% 

COMMODITIES

Iron ore futures fell -0.3% to US$108.20 a tonne.

Oil prices bounced around 3.0%, up close to 6.0% in the last two sessions. 

  • “Crude prices got a boost from a cool inflation report that supports the case that the US economy could still have a soft landing. The oil market can’t justify prices below the $70 level even if bumpy times are ahead.” - Oanda senior market analyst, Ed Moya 

  • OPEC’s monthly oil report left its world oil demand forecast unchanged for 2022 (2.5 million barrels a day) and 2023 (2.2 million barrels a day)

  • “The year 2023 is expected to remain surrounded by many uncertainties, mandating vigilance and caution.” - OPEC 

Gold prices got a massive boost from the cooler-than-expected inflation report. 

QUICK BITES

  • Highly paid guessers: Economists have an abysmal record for US inflation estimates.

economist US inflation estimates
  • Another highly paid guesser: Likewise, the Fed always underestimates the eventual pain in labour markets. Will this time be any different?

Fed labour estimates vs actuals
  • Current US rate expectations: 50 bps to 4.25% - 4.50% tomorrow, 25 bps to 4.50% - 4.75% in February 2023 and 25 bps to 4.75% - 5.00% in March 2023, followed by a pause and cuts from November 2023 onwards.

US rate expectations

Industry ETFs

Wed 14 Dec 22, 8:36am (AEDT)

Description Last Chg %
Commodities
Silver 21.46 +1.72%
Gold 165.68 +1.71%
Copper Miners 36.33 +1.65%
Aluminum 50.4351 +1.60%
Strategic Metals 89.18 +1.16%
Steel 61.47 +0.81%
Uranium 19.84 +0.05%
Lithium & Battery Tech 66.41 -0.47%
Nickel 39.1999 -3.95%
Industrials
Aerospace & Defense 111.45 -0.12%
Global Jets 18.6 -2.85%
Healthcare
Biotechnology 133.9586 +1.52%
Cannabis 13.81 -1.52%
Description Last Chg %
Cryptocurrency
Bitcoin 10.72 +3.54%
Renewables
Solar 79.46 +2.13%
CleanTech 15.8 +1.08%
Hydrogen 12.15 +0.66%
Technology
Sports Betting/Gaming 15.5051 +2.16%
Robotics & AI 21.49 +2.14%
FinTech 20.01 +1.85%
Semiconductor 380.0576 +1.72%
E-commerce 16.96 +1.47%
Cybersecurity 22.85 +1.40%
Video Games/eSports 45.44 +1.30%
Electric Vehicles 22.09 +1.13%
Cloud Computing 16.8 +1.13%

ASX Morning Brief

That's not the kind of price action you'd want to see following a bullish cooler-than-expected inflation print which validates the 'peak inflation' narrative.

Interestingly, the S&P 500 continues to respect the downward trendline.

SPX chart
S&P 500 chart (Source: TradingView)

Nevertheless, that's one massive catalyst done. One and a half to go. At 6:00 am AEDT on Thursday, we have the Fed's interest rate decision, where consensus expects a 50 bp rate hike. This will be followed by the Fed's presser at 6:30 am, where the market will be looking for clues as to what the Fed has in stall for 2023.

The ASX 200 is set to open +0.22% but the way the US markets faded puts us in a rather awkward position. Could this negative momentum drag our markets lower in early trade?

Sectors to watch

Real estate: A decline in bond yields could see positive flow for the rate sensitive real estate sector. It was also the best performing sector on the S&P 500.

Energy: Oil prices are up around 5.0% in the last two sessions.

Gold: Gold got its groove back thanks to the cool inflation report. Most gold miners have been trading sideways for the past 1-2 weeks after a massive run up. Does the jump in gold overnight reignite the rally?

Gold spot price
Gold spot (Source: TradingView)

Key Events

Stocks going ex-dividend over the next week:

  • Wed: None

  • Thu: Plato Income Maximiser (PL8) 

  • Fri: None

  • Mon: None

  • Tue: Metcash (MTS) 

ASX corporate actions occurring today:

  • Dividends paid: National Australia Bank (NAB), Graincorp (GNC), Infratil (IFT), Oceania Healthcare (OCA) 

  •  Listing: None

Economic calendar:

  • 9:30 am: RBA Gov Lowe speech

  • 6:00 pm : UK inflation

  • 6:00 am: Fed interest rate decision

  • 6:30 am: Fed press conference

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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