Morning Wrap: S&P 500 fizzles another rally, uranium stocks bounce, ASX set to fall

Major US benchmarks tried to rally again but failed, US 30-year mortgage rates jump above 7.0% for the first time since 2000, Fed policymakers churn out more hawkish rhetoric, oil prices bounce back after a two day tumble and uranium stocks rally.

Let’s dive in.

MARKETS

• Major US benchmarks tried to rally but closed towards session lows. Their highs were:

  • S&P 500 +1.71%

  • Dow Jones +1.36%

  • Nasdaq +2.2%

• The US 10-Year Treasury yield rallied back to 3.96% after an intraday dip to 3.8%. It was trading at 3.19% at the beginning of September

• 4 out of 11 US sectors advanced

• Energy headlined gains as oil prices snapped a two day losing streak

• Growth-heavy sectors including Discretionary and Tech were also green

• Defensive and rate sensitive sectors such as REITs, Utilities and Staples fell more than 1%

•  49% of US stocks advanced

• 74% of US stocks trade below their 200-day moving average (74% on Tuesday, 65% a week ago)

STOCKS

• Hertz (+4.4%) announced a partnership with BP’s electrical charging unit to install thousands of charging stations at Hertz locations

• Tesla (+2.5%) shares rallied after a report from Electrek said it expects the EV maker to post a very high volume of vehicle deliveries for the quarter

• Moderna (+2.1%) received FDA approval for five additional batches of the company’s updated covid booster shot 

QUICK BITES

• The 2-year yield needs to top: "Stocks have never bottomed before yield on the 2-year has topped out. So, if you are looking for a sign that it might be ok to start buying stocks again, a turn in the 2-year would be a good start," said Cannacord Genuity's Tony Dwyer.

• Comments from JP Morgan's Marko Kolanovic:

  • "It should be increasingly probable that the next months could see some dovish tilt by the Fed."

  • "There could be an opportunity for another tactical bounce in growth, similar to what we saw in the summer."

  • Real-time inflation is falling faster than the CPI can recognise. Core goods and energy continue to post declines. Although services and shelter are still running high

• Variable mortgage pain: Current 30-year US fixed rate mortgages have pushed above 7.0%, the highest since 2000

• Turnaround October: "October is known as a bear market killer, as 6 of the past 17 bear markets (or near bear markets) since WWII ended in this month," said Ryan Detrick, Chief Market Strategist at Carson Group

Source: Ryan Detrick, Carson Investment Research

WORLD NEWS 

• China growth to fall behind rest of Asia for first time since 1990 (FT)

• Private equity is piling into health (Bloomberg)

• Nickel spreads collapse as banks face soaring financing costs (Bloomberg)

ECONOMY

• US durable goods orders fell -0.2% month-on-month in August from -0.1% in July

  • Consensus expected a decline of -0.4%

  • Transportation equipment and non-defense aircraft segments led the declines

  • Increases were seen in defence, electrical equipment, computers and electronics

• US new home sales unexpectedly surged 28.8% to a seasonally adjusted annual rate of 685,000 in August from 532,000 in July

  • Sales peaked at a rate of 993,000 units in January 2021, the highest since 2006

Highlights from key central bank speakers:

• Fed Chair Powell participates in discussion on digital finance:

  • Monetary policy normalisation has revealed significant structural issues in the decentralised finance system. It needs careful and thoughtful regulation

  • “We will need approval from both the executive branch and congress to move ahead with a central bank digital currency … we see this as a process of at least a couple of years, where we’re doing work and building public confidence in our analysis and in our ultimate conclusions.” 

• Fed St Louis President Bullard:

  • The labour market is very strong, this gives us room to take care of inflation as soon as we can

  • US policy rate is arguably now in restrictive territory

  • More rate rises to come in future meetings 

  • Strict comparisons with Volcker are inappropriate now

  • Likely peak for policy rate is around 4.5% 

  • We will have to stay at a higher policy rate for some time 

COMMODITIES

• Iron ore futures rose 0.01% on Tuesday to US$98.6 a tonne

  • “Iron ore prices may strengthen along with steel products’ price trend, with a high replenishment demand before the Chinese National Day Holiday (1 - 7 Oct) and the increasing downstream demand,” said Mysteel

• Oil prices bounced 2.5% to US$85.9 a barrel after sliding -7.1% in the previous two sessions

  • “The prospect of a deeper economic slowdown, perhaps even global recession, has naturally turned traders more bearish on the price of oil,” said Oanda senior market analyst, Ed Moya

  • “Of course, there is another side to that equation, supply. The message from OPEC+ earlier this month was quite clear; it stands ready to adjust supply if fundamentals change or volatility continues and prices no longer reflect the situation.”

• Gold bounced to session highs of US$1,642 but faded back to the US$1,620 level

• Newcastle coal futures rose 0.6% to US$438 a tonne

• Uranium futures fell -0.5% to US$48.5/lb

US markets are handballing us a rather weak session and that's been reflected in the -0.54% decline in SPI futures. The decline would mean we undercut Monday and Tuesday lows. Still, volatility is so high you never know where the session might take us.

The market is at somewhat of an inflection point as it dangles around June lows. A bounce from oversold levels and a short covering rally is certainly possible. At the same time, undercutting those lows into the next leg down is another possible path. But again, with volatility so high it feels like nothing is actionable.

ASX sectors to watch

Most of the overnight ETFs we track (above table) were up around 0.5% to 2%. But much like major US benchmarks, closed well below session highs.

Uranium: The Global X Uranium ETF bounced 4.2% overnight after Germany said it plans to keep 2 of its remaining 3 nuclear power plants in operation. This could see some positive flow for local uranium names.

Energy: Oil prices bounced around 2% overnight to US$85.6 but down from session highs of US$87.1. Still, energy was the best performing sector on Wall Street and some follow through strength would not be surprising.

Stocks going ex-dividend:

• Wed: CIW, CWP, FSF, MYR

• Thu: AOF, ARF, CIP, CLW, CMW, COF, CQE, CYG, DXC, DXI, HCW, HDN, KKC, LNK, MGL, NPR, PCI, REP, RFF, SFY, SKS, SLF, TCF, TOT, WPR, XRF

• Fri: EP1, GVF, NCK, PGG, SST

• Mon: VAS, LCE, IPC, WAR

• Tue: SGM, WAX

ASX corporate actions occurring today:

• Dividends paid: ALD, AMC, ASX, COL, DOW, IBC, VG1, WOR

• Listing: None

• Issued shares: BTE, CEN, CNU, DDR, DW8, EOL, HSN, IGL, IR1, KZR, LMG, MAY, MFG, MHJ, MIN, RMC, SGM, SHL, SLC, SPX, SZL, TBN, TMH, VLS

Other things of interest (AEST):

• 11:30 am: Australian August retail sales

• 4:00 pm: Germany October GFK consumer confidence

• 5:15 pm: ECB President Lagarde speech

• 10:35 pm: Fed Bostic speech