Morning Wrap: S&P 500 plunges after rate hikes, US retail sales slump, ASX set to tumble

The Dow posted its worst day in three months amid a series of weak economic data: US retail sales marked its biggest decline in nearly a year, almost the same for US manufacturing production and the ECB hiked by 50 bps and took a hawkish turn.

Let's dive in.

MARKETS

Choppy on Thursday and get chopped on Friday. US markets didn’t stand a chance after another round of rate hikes by the Bank of England and European Central Bank. US retail sales data posted the largest drop in 11 months and manufacturing data fell into negative territory for the first time since June.

• Major US benchmarks sold off quite hard intraday. Opening levels include: S&P 500 (-0.93%), Dow Jones (-0.57%) and Nasdaq Composite (-1.42%)

• Energy stocks held up the best, a few interesting comments from IBs including:

  • JPMorgan CEO said the world needs oil, “we need cheap, reliable, safe, secure energy, of which 80% comes from oil and gas. And that number’s going to be very high for 10 or 20 years.”

  • Goldman Sachs lowered its 1Q23 oil forecasts to US$90 a barrel from US$110

• Defensives outperformed on a relative basis, including Utilities, Real Estate and Stables

• Risk sectors and Materials led to the downside 

• 73% of stocks declined

• 51% of stocks trade below their 200-day moving average (47% on Thursday, 47% a week ago) 

STOCKS

Lennar (+4.0%) posted mixed results for the most recent quarter, with revenue beating analyst expectations but earnings below. The homebuilder said the outlook for new orders has been weaker-than-expected.

• The availability of labor and materials is improving dramatically, “very quickly turning the shortages of the last two years into excesses.” 

Tesla (+0.4%) CEO Elon Musk sold at least US$3.5bn worth of shares according to an SEC filing. Tesla shares are down -60.6% year-to-date.

• “The nightmare of Musk owning Twitter has been an episode out of the Twilight Zone .. a train wreck situation.. We believe .. more activism and growing investor frustration will force the Board of Tesla to confront some of these issues head on ..” - Wedbush Securities 

Netflix (-8.6%) is refunding advertising customers due to missing viewership targets for its recently launched ad-supported service, according to Digiday.

WORLD NEWS

• FOMC downshifts to 50bp but lifts terminal rate (Bloomberg)

• ECB to slow rate hikes, but far from done (Reuters)

• BoE tempers policy outlook (Bloomberg)

• Bond markets still doubts Fed's higher-for-longer messaging (Bloomberg)

• China’s Nov factory output, retail sales miss expectations (Reuters)

• Musk sells over US$3.5B of Tesla stock (CNBC)

ECONOMY

The Bank of England raised interest rates by 50 bps to 3.5%.

• In-line with consensus expectations 

• “The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response.” - Bank of England 

The European Central Bank raised interest rates by 50 bps to 2.5%.

• In-line with consensus expectations

• "Based on the information that we have available today, that predicates another 50 basis point rise at our next meeting and possibly at the one after that, and possibly thereafter.” - ECB President Christine Lagarde 

• “If you compare with the Fed, we have more ground to cover. We have longer to go … We’re not slowing down. We’re in for the long game.”

US retail sales fell -0.6% month-on-month in November from 1.3% in October.

• Missed analyst expectations of a -0.1% decline

• The largest decline in 11 months and worst print of the year

• “Retail sales can be quite a volatile report, but this is a disappointing outcome … [the Fed] is signalling another 75bp of hikes from here on, it is going to reinforce market concerns about the prospect of a recession.” - ING Economics 

US industrial production fell -0.2% month-on-month in November from -0.1% in October. 

• Missed analyst expectations of a 0.1% increase

• Manufacturing output fell -0.6% – the first decline since June             

COMMODITIES

Iron ore futures fell -0.5% to US$110.70 a tonne. 

• China’s steel production fell -6.5% month-on-month in November, the weakest figure reported this year

• Over the last 11 months, output is down -1.4% compared to 2021 levels

Oil prices snapped a three-day winning streak amid hawkish central bank rhetoric which further stoked recession fears.

• “Oil’s recent rally is running out of steam as risk aversion runs wild. ​ The dollar might be poised to rally here and that should keep some pressure on oil prices.” - Oanda senior market analyst Ed Moya 

Gold weakened amid another wave of central bank rate hikes and higher US dollar. 

• “Gold is weakening as markets worry that global central bank tightening will drive recessionary fears and keep the dollar supported here … Gold will eventually resume its safe-haven status, but first we need to see more traders convinced that the Fed won’t follow through with their hawkish threats.” - Oanda senior market analyst Ed Moya 

A little bit of a chart dump today. Several overnight ETFs fell to key inflection points, broke key trendlines etc.

Lithium: Local lithium names are leading the decline, with Pilbara Minerals falling an outsized -11.4% on Thursday. The VanEck Rare Earths/Strategic Metals ETF followed suite, down -5.2% overnight.

Tech: Risk barometers like the Nasdaq and the Ark ETF led to the downside overnight. The Ark ETF has made a swift return to recent lows.

Materials: Commodities was another point of weakness, faltering under a wall of worries: Higher US dollar, hawkish central bank commentary, fall in Chinese steel output and missed industrial production expectations, weak US manufacturing data etc. Copper fell -2.7% but iron ore futures held up relatively well, down -0.4%.

Stocks going ex-dividend over the next week:

• Fri: None

• Mon: None

• Tue: Metcash (MTS) 

• Wed: None

• Thu: None

ASX corporate actions occurring today:

• Dividends paid: Aristocrat Leisure (ALL), Elders (ELD), Technology One (TNE), Australian Vintage (AVG), ALS (ALQ) 

•  Listing: Desoto Resources (DES) 

Economic calendar:

• 9:00 am: Australia manufacturing and services PMI

• 6:00 pm: UK retail sales