Morning Wrap: S&P 500 posts weakest August performance since 2015, ASX to fall

ASX Futures (SPI 200) imply the ASX 200 will open 69 points lower, down -1.0%.

US stocks sell off sharply right before close, Snapchat plans to layoff 20% of its 6,400 employees, Eurozone inflation hits another record and BHP goes ex-divvy.  

Let’s dive in.

MARKETS

Welcome to September, the historically worst performing month for markets. Starting today, the Fed is doubling its quantitative tightening efforts from US$47.5bn to US$95bn, which could add additional upward pressure on interest rates.

Source: Sentiment Trader

It was interesting to see US markets sell off 10-15 minutes before close. I guess selling right before the beginning of a notoriously weak seasonal period is a thing. In the final 15 minutes of August trading:

• S&P 500 -0.59%

• Dow Jones -0.52%

• Nasdaq -0.69%

The S&P 500 and Dow both fell around -4.2% in August. The Nasdaq was down -4.6%. All three major US benchmarks registered their biggest August percentage declines since 2015.

• 10 out of 11 US sectors declined

• Communication Services was the only green sector, up just 0.01%

• Growth-heavy sectors including Discretionary and Tech underperformed

• 60% of US stocks declined

• 61% of US stocks trade below their 200-day moving average (60% on Tuesday,  53% a week ago)

STOCKS

• Snap (+8.7%) shares rallied after the social media company announced a restructuring plan which includes laying off approximately 20% of its more than 6,400 employees

• PayPal (+1.8%) shares rose after Bank of America upgraded the stock from Neutral to Buy. Analysts expect activist investor Elliott Management to drive more cost-cutting efforts which could give earnings a boost

• Seagate (-3.5%) lowered its first-quarter earnings expectations, now expecting revenue of US$2.1bn from US$2.35bn as an economic slowdown takes a toll on data storage and hardware products

  • CEO: "Since our earnings call in mid-July, weaker economic trends in certain Asian regions have amplified customer inventory corrections and supply chain disruptions,”

• Bed Bath & Beyond (-21.3%) tried to raise $325m, fired 25% of its workforce and closed 150 retail stores. Investors are concerned that the company will fail to turnaround the struggling business

  • CEO: “We've taken a thorough look at our business &today, we're announcing immediate actions aimed to increase customer engagement, drive traffic & recapture market share. This includes changing our merchandising & inventory strategy, which will be rooted in national brands.”

ECONOMY

• Eurozone inflation accelerated to 9.1% year-on-year in August from 8.9% in July

  • A Reuters poll of economists expected a 9.0% reading

  • Energy prices were up 38.3%, slightly lower than the 39.6% in July

  • Food prices crept higher, up 10.6% compared to 9.8% in July

• Canada GDP rose 3.3% in the second quarter from 3.1% in the first quarter

  • Consensus expected a gain of 5.3%

  • GDP rose 0.1% in the month of June compared to zero in May

  • 14 of 20 industrial sectors posted a slight expansion in June, with client-facing industries like restaurants and travel doing most of the heavy lifting 

Other things of interest:

• China’s top 100 developers said August sales fell -32.9% year-on-year, according to the China Real Estate Information Corp 

• China expects to publish detailed steps for a set of new policy measures in early September, according to Reuters

• Germany is forecast to lose approximately 6% of its 2022-2026 industrial output due to the war’s impact on energy prices, according to CRU Group

• Fed Cleveland President Loretta Mester speech highlights:

  • “My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there.”

  • I don’t anticipate Fed rate cuts next year”

  • “This will be painful in the near term but so is high inflation.”

COMMODITIES

• Iron ore futures were flat at US$101 a tonne

  • Prices briefly dipped to lows of US$97.4 a tonne on Wednesday

  • China’s manufacturing PMI for August was better-than-expected but still in contraction

  • Second-quarter earnings at 25 listed Chinese steel mills fell more than -70% compared to a year ago, according to Bloomberg

• Oil prices fell again as record high inflation in the Eurozone further validates aggressive tightening from the ECB

  • Baghdad is looking to raise exports and find new customers, bringing a potential 3.2m barrels of daily shipments back online, according to Bloomberg

  • US crude oil production rose 1.7% in June to its highest level since April 2020, according to the US Energy Information Administration 

• Gold continues to struggle amid an increasingly aggressive stance from central banks, rising global bond yields and a strong US dollar

SPI futures imply the ASX 200 will open -1.0% lower, which means it would gap below the recent trading range that it's tried so hard to defend.

Source: TradingView, Annotations by Market Index

Most of the overnight ETFs we track did not fall more than -1%. A small handful of them even closed in positive territory. Energy is probably the sector that'll be most hard hit given the sector's underperformance in US markets and oil prices rolling over.

I wanted to shed some more light about the month of September instead of the usual spiel about sectors to watch.

"We’ve had two consecutive quarters of negative GDP. Unemployment is still low, but the headlines are ripe with layoffs and hiring freezes. Sentiment got too bullish too fast. Technicals have broken down and threaten to breach support," said Almanac Trader.

"This creates end of Q3 window dressing and portfolio reshuffling. September performance may have improved over the past 15 years, but it is still a seasonally weak period."

"With history as our guide and current readings tame, we're inclined to heed the seasonal cautions that surround worst month and weak spot."

There's also the US inflation prints on 13 September and the Fed interest rate decision on 21 September, which could add more volatility to markets.

Source: Almanac Trader

Stocks going ex-dividend:

• Thu: AGL, BHP, CCP, FEX, GNG, HMC, IDX, IVC, JIN, JLG, MNY, PPE, PTM, SLH, SXL, WHC

• Fri: ALD, APE, BSE, BVS, COL, CYC, IFM, KLS, LIC, MIN, PFG, PTL, TER

• Mon: ADH, AFG, ALU, BEN, CTD, FMG, GOR, ILU, KSL, MAD, MCP, NHF, ORA, RHC, SNZ, SSG, YAL

• Tue: BSL, CSL, CUV, EFN, LGL, NST, ORG, SHL, SUL, VEE

• Wed: AMC, ASB, AUB, AVJ, BXB, CVW, HLS, IEL, IFL, MEZ, MPL, PAC, PBP, SEK, UNI, VEA, 

ASX corporate actions occurring today:

• Dividends paid: DDR

• Listing: None

• Issued shares: AAU, AGY, AKP, AMI, APE, AUA, AVA, AVR, BIO, C29, CAR, CDP, CF1, CMX, CPM, CVL, DDH, DJW, DMP, DRX, DTR, DUB, ELE, ELO, EQT, FFF, GMD, HRZ, JLG, MEU, MFG, NAB, NBI, NGS

Other things of interest (AEST): 

• Australia July Home Loans Growth at 11:30 am

• China August Caixin Manufacturing PMI at 11:45 am

• Eurozone July Unemployment Rate at 7:00 pm