Morning Wrap: S&P 500 gives back early strength, ASX futures flat, Liontown has a new mystery bidder

S&P 500 closes around breakeven from session highs of 0.4%, the US 10-year yield posts its biggest spike since September 2022, US ETF trading in April was the lowest since August 2020, JPMorgan swoops in to buy First Republic, Liontown receives a mystery bid that tops Albemarle's $2.50 offer and the RBA is set to pause again at 2:30 pm AEST.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 fades from session highs to close around breakeven (Source: TradingView)

MARKETS

• S&P 500 fades from session highs of 0.42% to close around breakeven

• US 10-year yield jumps 15 bps to 3.58%, the biggest one-day spike since last September

• Copper prices rallied almost 3.0% but closes the session up just 1.1%

• Tech is ~34% of the S&P 500 by weight but only contributing ~28% to net income vs. cyclicals contributing a near-record 38% but represent only 29% of weight – representing the largest cyclical out-earning tech margin since 2018, according to Jefferies

• Recession fears accelerate Treasury purchases ahead of FOMC (Reuters)

• US ETF trading of US$2.1tn in April lowest since August 2020 (Bloomberg)

• End of Fed rate hike cycle may not provide tailwinds for stocks (Bloomberg)

• More hawkish than expected at FOMC, messaging could derail stocks (Bloomberg)

• Quants are ‘Out of Ammo’ for buying stocks, Goldman warns (Bloomberg)

STOCKS

• JPMorgan to acquire First Republic (FT)

• Berkshire's Munger says US banks are 'full of' bad commercial property loans (FT)

• Meta targets US$7bn in bond offering (Bloomberg)

• Snap hires former Meta executives to bolster ad business (Bloomberg)

EARNINGS RECAP

There weren't many interesting results overnight, so here's another recap of how earnings season is going, according to FactSet:

• 53% of S&P 500 companies have now reported first quarter results

• Blended growth rate stands at -3.7% compared to -6.7% expected

• Almost 80% of results have surpassed EPS expectations, above the one-year average of 73% and five-year average of 77%

• Earnings have come in 6.9% above expectations, above the 2.8% one-year average surprise rate but below the five-year average of 8.4%

ECONOMY

• US manufacturing contracts again in April but pace slows (Reuters)

Deeper Dive

RBA, Liontown's mystery bid and two bits of broker research. No Sectors to Watch as it was a relatively uneventful overnight session.

RBA Preview: Another pause is likely

Last week's inflation print was enough of a cue for the rates market to be 100% sure there will be another pause at this afternoon's RBA meeting. The difference is more nuanced in the economics community. 21 economists surveyed by Bloomberg are calling for another pause while 9 are holding out for an extra 25 basis points hike.

In the pause camp is Nomura's Andrew Ticehurst. Ticehurst, once the most hawkish strategist on Bridge Street, believes we will see a "hawkish pause" this afternoon. In other words, no rate hike today but don't get too complacent.

"We think, however, that the market is underpricing the risk of a 25bp hike, with only ~3bp priced, versus our assessment that the possibility of a hike is roughly one chance in three. We expect RBA guidance to indicate a material risk of future tightening."

Others like George Tharenou at UBS are less sure. He is calling for a 25bps hike but is happy to admit it's a close call:

"We still expect the RBA will probably hike rates by another 25bps, to 3.85%, with the most likely timing at their next meeting in May. However, the slower trimmed mean read does 'open the window' for the RBA to extend its pause from April, and makes May a closer call. Nonetheless, the RBA's April meeting minutes were on the hawkish side, and clearly raised the risk of a 'later hike'."

We'll all find out who is right at 2:30 pm AEST this afternoon.

Liontown's mystery bidder

An unnamed bidder has been buying up a stake in Liontown around $2.75 a share, suggesting a bid around that level, according to the AFR. The article says the new bidder may face the same problem as Albemarle, which received pushback from the Liontown board on three separate occasions.

To recap some of the events so far:

• Albemarle offered $2.50 per share on 28 March

• As well as $2.35 per share on 3 March and $2.20 per share on 20 October 2022

The mystery 'bid' is a 10% increase compared to the latest offer but Liontown shares closed at $2.71 on Monday, which means we shouldn't see a massive gap up.

There's also two other things investors should note:

• The previous bid on 28 March triggered a broad-based rally for the local lithium sector. Names like Pilbara Minerals and Core Lithium rallied a respective 11.9% and 15.4% on the day but gave back most of those gains 3-5 days later

• Heavyweight lithium stocks continued to sink overnight, with Albemarle and SQM shares both down around 4%

Broker Watch: Two rounds of research

Morgan Stanley: Who is "over earning": Everyone wants to find quality companies that are making strong earnings and have the potential to push profits up even more. But how much is too much? Morgan Stanley's Australian equities team have been probing this exact question.

"A clear area of focus for investors for much of the last 12 months as the economy reopened and emerged from COVID-19 has been around identifying which sectors face a risk of seeing earnings levels retrace to pre-pandemic trends and margins."

Over-earning could send more than a few share prices with lofty P/E ratios back down to earth. For its part, Morgan Stanley is cautious this coming corporate earnings period. They're especially cautious on these sectors - the 'over-earners':

• Energy

• Consumer discretionary

• Consumer staples

• Real estate

• Materials

The under-earners are where they think there could be some upside if individual companies can prove it. The sectors to find these are:

• Communications

• Utilities

• IT/Tech

Citi: Dividend size does matter: And speaking of earnings, four of the Big Five banks report their respective interim results this and next week. Here are Citi's predictions for profit, earnings, and yes, dividends.

• NAB (4th May) – Cash NPAT $4,231m, Basic Cash EPS 135¢, 1H23 div 85¢

• ANZ (5th May) – Cash NPAT $3,834m, Basic Cash EPS 128¢, 1H23 div 82¢

• MQG (5th May) – Cash NPAT $5,128m, Basic Cash EPS 1,342¢, FY23 div $6.70

• WBC (8th May) – NPAT $4,142m, Basic EPS 118¢, 1H23 div 80¢

ASX corporate actions occurring today:

• Trading ex-div: NB Global Corporate Income Trust (NBI) – $0.012  

• Dividends paid: Brickworks (BKW) – $0.23, Oz Minerals (OZL) – $1.75 

• Listing: None

Economic calendar (AEST):

• 2:30 pm: RBA Interest Rate Decision

• 7:00 pm: Eurozone Inflation 

• 12:00 am: US JOLTs Job Openings