Morning Wrap: S&P 500 kicks on, China's policy shift sends oil and iron ore higher, ASX to rise

Major US benchmarks continued to rally thanks to the cooler-than-expected inflation report last Thursday, China announces a major policy shift towards covid and real estate, FTX files for chapter 11 bankruptcy and UK GDP marks its first quarter-on-quarter decline since the pandemic.

Let's dive in.

MARKETS

US markets kicked on after Thursday’s inflation report revived the Fed pivot narrative. Investors breathed a sigh of relief as a downshift in tightening efforts might soon become a reality. This drove a risk-on tone across Wall Street, driving the S&P 500 and Nasdaq higher while the Dow underperformed, for once. The US dollar continued to sell off sharply while bond yields ticked slightly green. European markets also ticked higher while Asian markets surged.

• The US dollar is down -5.8% in the last six sessions, down to an almost three month low

• The likelihood of a 75 bp rate hike is now 83%, up from 80.6% a day ago and 61.5% a week ago, according to CME’s Fedwatch tool 

• Energy led to the upside after China cut quarantine times for close contacts, sending oil prices higher. Officials said the rules are being refined, but not relaxed

• Growth-heavy sectors like Tech and Discretionary rallied

• Materials also higher thanks to the weaker US dollar and China’s issuing of “sweeping relaxation measures on property and covid controls,” according to Bloomberg

• Defensive stocks like Healthcare, Utilities and Staples led to the downside, which explains the underperformance of the blue-chip Dow 

• 60% of US stocks advanced

• 44% of US stocks trade below their 200-day moving average (46% last Friday, 55% a week ago)

STOCKS

Adidas (+5.9%) shares are up 44% in the last six sessions but still down -46% year-to-date. Here’s an interesting snippet from its earnings report last week:

• “Given the slowdown in consumer demand and the inventory buildup in the marketplace, the level of discounting that we have been experiencing since September was more significant than initially expected.” - CEO Kasper Rosted 

Amazon (+4.3%) rallied after the company plans to ‘review its staff’, according to Bloomberg.

• "As part of this year’s review, we’re of course taking into account the current macro-environment and considering opportunities to optimise costs.” - WSJ

• The company will also focus on right sizing unprofitable business units such as Alexa  

WORLD NEWS 

• China's revised covid rules bring hope (Bloomberg)

• China plans property rescue as Xi surprises (Bloomberg)

• FTX files for Chapter 11 bankruptcy (Bloomberg)

ECONOMY

UK Q3 GDP rose 2.4% year-on-year from 4.4% in Q2.

• A better-than-feared result as analysts expected 2.1% growth

• “The UK economy shrank by 0.2% (quarter-on-quarter) in the third quarter of the year, marking the start of what’s likely to morph into a recession spanning several quarters.” - ING Economics

• This marks the first QoQ decline since the pandemic

US consumer sentiment fell to 54.7 in November from 59.9 in October. 

• Well-below consensus expectations of 59.5

COMMODITIES

Iron ore futures rose 2.1% to US$90.90 a tonne and up 4.0% last week.

Oil prices rallied after China eased some of its Covid measures including shortening the quarantine times for close contacts and inbound travellers to five days at a centralised location plus three days at home, from seven days centralised and three days at home.

• “Brent remains in the middle of its $90-$100 range for now but more bullish developments like this, or a further relaxation of Chinese restrictions on Saturday may test the upper end of that.” - Oanda senior market analyst, Ed Moya

Gold continues to enjoy gains from the cooler-than-expected CPI print. The yellow metal has rallied 8.7% in the last six sessions to a near three month high.

Other commodities of interest:

• Aluminium +5.9% to US$2,451 a tonne

• Newcastle coal futures +3.5% to US$299.50 a tonne

• Natural gas -3.5% to US$6.1/MMboe 

Learn more about our overnight ETFs.

A few observations about the US market and China.

US market: The inflation print has revived risk appetite, driving the S&P 500 and Nasdaq higher. We're also seeing a lot of junky, heavily-shorted names surge, like Affirm and AMC. The short-term moving averages for the S&P 500 are beginning to slope positive as the near-term trend recovers. But its rallying into a rather key trendline that's been difficult to break above in the past few months.

S&P 500 chart (Source: TradingView)

China: Covid cases are surging and the economy is faltering under lockdowns. We're beginning to see a bit of a pivot from the Chinese government, although they still remain committed to 'zero covid'. According to Bloomberg, Beijing issued a 16-point rescue package for its struggling real estate sector. This represents a major policy shift by Xi's government and seeks to buoy the rather neglected economy. The rescue plans seeks to address the liquidity crisis faced by developers and loosen conditions for homebuyers.

Sectors to watch

Iron ore: China's policy shift is bullish news for its real estate sector, which is a massive consumer of iron ore. Iron ore prices are starting to turn after a brief dip below US$80 a tonne. Although, its worth noting that the margins for steel mills are still negative. US-listed BHP and Rio Tinto rallied 3.8% and 6.4% last Friday, so a strong open is expected for local names.

Source: Macquarie Research

Copper: Likewise, copper is finding its groove, up 14.2% in the last six sessions and trading above its 200-day moving average for the first time since early June.

Copper futures (Source: TradingView)

Energy: Another commodity-related sector that's benefiting from the emerging policy shift in China. Woodside has been on a formidable run, do we see it kick on from here?

Woodside weekly chart (Source: TradingView)

Tech: The revived pivot narrative is bringing life back into the Nasdaq. Names like Altium and Wisetech have been trading sideways for the past few months. While they rallied pretty hard last Friday, does easing inflation narrative put a breakout on the cards?

Altium chart (Source: TradingView)

Wisetech chart (Source: TradingView)

Stocks going ex-dividend over the next week:

• Mon: None

• Tue: QV Equities (QVE), Plato Income Maximiser (PL8), Dicker Data (DDR), National Australia Bank (NAB)

• Wed: Challenger (CGF) 

• Thu: Wam Leaders (WLE), SSR Mining (SSR), Westpac (WBC)  

• Fri: Coronado Global (CRN), Washington H Soul Pattinson (SOL), Orica (ORI) 

ASX corporate actions occurring today:

• Dividends paid: Harvey Norman (HVN) 

•  Listing: Tiger Tasman Minerals (T1G)

Other things of interest (AEDT):

• 9:00 pm: Eurozone industrial production