Morning Wrap: S&P 500 gives back early gains, Uranium ETFs surge, ASX set to bounce

ASX Futures (SPI 200) imply the ASX 200 will open 18 points higher, up 0.26%.

US stocks reverse from session highs, Fed Kashkari happy with markets reaction to Powell’s speech, US rents soar to all-time highs and China’s stimulus is having a limited impact on steel demand.  

Let’s dive in.

MARKETS

Major US benchmarks faded towards close as it tries to price-in a ‘higher for longer’ interest rate environment. All three benchmarks experienced at least a 1% intraday swing. Volatility is really starting to pick up. Session highs include:

• S&P 500 +0.70%

• Dow Jones +0.15%

• Nasdaq -0.14%

Today’s market-related snippet comes from Morgan Stanley’s Chief Investment Officer, Mike Wilson:

• “Chair Powell and the Fed make it crystal clear that their job fighting inflation remains unfinished. Ironically, while bonds took the message in stride, stocks seemed to be shocked by the message.”

• “We chalk this divergence up to the fact that the equity market became a victim of its own momentum over the past few months.”

• “The 2H22 outcome will ultimately be determined by earnings expectations for next year, in our view. As a result, equity investors should be laser focused on this risk, not the Fed, particularly as we enter the seasonally weakest time of the year for earnings revisions, and inflation further eats into margins and demand.”

On the note of seasonality (which has made quite the appearance in the last few Morning Wraps), September is by far the worst month for US stocks.

Source: Dow Jones Markets Data

• 9 out of 11 US sectors fell

• Energy and Utilities were the only green sectors

• Defensives were relative outperformers

• Tech underperformed

• 64% of US stocks declined

• 58% of US stocks stocks trade below their 200-day moving average (56% on Monday, 54% a week ago)  

STOCKS

• Pinduoduo (+14.7%) shares rallied as much as 25% on better-than-expected earnings. The China-based eCommerce giant said it has observed a recovery in consumer sentiment

  • Pinduoduo CEO: “We saw a recovery in consumer sentiment in the second quarter especially during the 618 shopping festival, a reflection of the resilience of overall consumption.”

• Honda Motor (+1.8%) and LG Energy Solution plan to invest US$4.4bn to build an advanced lithium-ion battery plant for electric vehicles in the US. The plant is expected to be operational by the end of 2025

• Netflix (+0.6%) is considering pricing its new ad-supported tier between US$7-9 a month, almost half as much as its current most popular plan, Bloomberg reported

  ECONOMY

Not much major economic news overnight. So here’s some other things of interest:

• Number of open jobs at tech companies down -32.6% from May 2022 peaks, according to Trueup

  • There were 321,908 jobs available on the site as at 26 August, down from around 480,000 in May

• France is well-known for its strong reliance on nuclear energy (about ~69% of total electricity generation). But France’s forward energy prices is currently higher than those of any other major European economies, according to Saxobank. 

  • France’s baseload power price sits at almost 650 euros/megawatt hour compared to 200 euros at the beginning of the year

• US rents hit a new all-time high, with NYC soaring past US$4,200 in August

  • More than half of US cities have seen double-digit rent hikes. Some Sun Belt cities (southern states such as Las Vegas, Miami, Orlando and Dallas) are starting to show signs of cooling off. The only cities with declines were Des Moines and Cleveland

• Record-breaking temperatures in Europe are affecting a host of industries from transport to tourism to agriculture, according to Northern Trust

  • European water use by sector includes agriculture (58%), electricity and gas (18%), mining and industrial (11%), households (10%) and service industries (3%)

• Minneapolis Fed President Neel Kashkari comments with Bloomberg’s Odd Lots podcast:

  • “I was actually happy to see how Powell’s speech was received.”

  • “People now understand the seriousness of our commitment to getting inflation back down to 2%”

COMMODITIES

• Iron ore futures fell -0.25% to US$105.10 a tonne

  • Prices briefly rallied 2.9% to a session high of US$108.5 on Monday

  • China announced an additional 300 bn yuan (US$44bn) in quotas for infrastructure spending and investments for banks last Wednesday

  • “While the additional infrastructure stimulus was welcome news, high-frequency data continues to show us just how poor construction steel demand is in China,” according to CNBC

  • Blast furnace utilisation rates among 247 Chinese steel mills had climbed for a fourth week by 1.39% to 85.27% as more steelmakers nationwide had resumed operation, according to Mysteel

• Oil continues to rally amid rising risks of civil war in Libya and the increasing likelihood of OPEC+ positioning for a production cut. The Iran nuclear deal - which could bring millions of barrels of oil back into global markets - is facing some pushback from Iran

  • Iran has not backed down from its demands that an inquiry into nuclear particles found at its nuclear sites be dropped

• Gold is starting to feel more like a risk asset than a safe haven. The non-interest bearing metal is getting smashed as markets try to price in an overly hawkish Fed

  • Gold prices briefly tumbled -0.95% to US$1,720 but bounced back towards breakeven

Don't trust futures: SPI futures currently point to a +0.26% open. Still, look at the way the US market faded from session highs. That's not to say we can't have a bounce. But acknowledge that the VIX is starting to climb and the equity market rollercoaster is starting to gather momentum.

Energy finds its groove: Energy was the best performing sector on Wall Street. Oil prices are starting to trend higher as the pendulum once again swings back in favour of the tight supply.

Brent crude oil price chart (Source: TradingView, Annotations by Market Index)

Uranium posts outsized gains: The Global X Uranium ETF rallied 7.4% overnight to an almost 3 month high. "The war in Ukraine is reviving global interest in nuclear power, since gas and oil shortages have reshaped energy markets and driven up fossil fuel prices," Zerohedge reported. Iran is progressing a rollout of upgrading its uranium enrichment capabilities, according to Reuters.

In a market where a risk-on sector like uranium is expected to see some selling pressure, it's instead rallied above the key 200-day moving average and closed at session highs. This could see some positive flow for local uranium names.

Global X Uranium ETF chart (Source: TradingView, Annotations by Market Index)

Notable ETFs pulling back to key areas: Several ETFs we track including Rare Earths/Strategic Metals (VanEck), Hydrogen (Global X), Solar (Invesco) and Copper Miners (Global X) have all pulled back into either the 20 or 50 day moving average. The recent rally has given them some breathing room, but need to defend these key areas or run the risk of rolling over. Most of these ETFs fell between -0.2% to -1.0% overnight

VanEck Rare Earth Strategic Metals ETF chart (Source: TradingView, Annotations by Market Index)

Stocks going ex-dividend:

• 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

• Mon: ADH, AFG, ALU, BEN, CTD, ILU, MAD, MCP, MEC, NHF, ORA, RHC, SNZ, YAL 

ASX corporate actions occurring today:

• Dividends paid: AFI, BKI, DXS

• Listing: None

• Issued shares: 1MC, A1M, ADR, BBT, BDX, BPH, CAJ, CDX, CMX, CNR, CPH, CWP, CWY, CXZ, FLT, GLN, HGH, HSN, KED, KPO, LKE, LRS, MFG, MMI, MRD, MSL, MXC, MZZ, NAB, NAC, NSC, PBH, PHO, PPC, RAS, RED, RHY, RNU, RTR, SLX, SRZ, TBA, TIE, TNT, TSL, W2V

Other things of interest (AEST): 

• Australia Building Permits (July) at 11:30

• Eurozone Economic Sentiment (August) at 7:00 pm

• Germany Inflation Rate (August) at 10:00 pm

• Fed Barkin Speech at 10:00 pm