Morning Wrap: S&P 500 rallies despite hot jobs data, US dollar dives, ASX set to surge

Major US benchmarks rallied despite a conflicting jobs report, the US dollar posted its largest decline since 2015, commodity markets rallied thanks to the freefalling dollar and central banks are loading up on gold.

Let's dive in.

US MARKETS

US stocks rallied in the face of a stronger-than-expected jobs report that posted a strong headline number and further wage growth. Still, the market decided to focus on the tiny cracks in the form of a higher unemployment rate and a slight pullback in month-on-month wage growth.

• Materials led to the upside amid a broad-based rally among commodities, aided by a sharp selloff for the US dollar

• A mix of growth and defensive stocks outperformed benchmarks, including Financials, Tech and Industrials

• Consumer discretionary was a notable underperformer, weighed by a -3.6% decline from heavyweight Tesla

• 65% of stocks declined

• 55% of stocks trade below their 200-day moving averages (58% last Friday, 54% a week ago) 

EARNINGS

A lot of juicy quotes from companies regarding the consumer and macro environment.

Block (+11.5%) beat profit and sales expectations, with gross profits up 38% year-on-year to US$1.13bn

• "Our outlook includes a slowdown across several areas of our discretionary expenses.” - CFO Amrita Ahuja

• “In 2023, we expect to significantly moderate our pace of hiring .. which will benefit our financial results on a lag.” 

• “In 2023, we intend on pulling back on lower ROI, more experimental areas, including brand and awareness spend across both our Square and Cash App ecosystems.” 

Starbucks (+8.5%) beat earnings estimates thanks to a 7% increase in global same-store sales growth. In the US, same-store sales growth rose 11% alongside a 6% increase in average prices.

• "Over the past few weeks, there has been a significant resurgence of COVID in China. With the resurgence has come renewed lockdowns and mobility restrictions pursuant to China's strict zero-COVID policy .. meaningfully reducing traffic in our stores.” - CEO Howard Schultz

• "We saw strong demand for Starbucks coffee in Q4 and throughout the year in every market and channel in which we operate .. we're not seeing any negative impacts.”

PayPal (-1.8%) beat analyst expectations, raised its EPS guidance but lowered its revenue outlook.

• “In the third quarter, we processed nearly US$5bn in volume, up 157%  year-on-year, with over 25 million customers using our Buy Now, Pay Later services, approximately 150m times since launch.” - CEO Dan Schulman

• “As of the end of Q3, our loss rates remain among the lowest in the industry with no observable deterioration to-date.” 

Atlassian (-29%) missed earnings expectations and provided a light guidance for the December quarter. 

• “Atlassian is not immune to the broader macroeconomic environment. We continue to see a slower rate of Free instance converting to paid plans … we started to see a slower rate of growth in paid seats from existing customers as companies slowed their pace of hiring.” - co-CEOs Mike Cannon-Brookes and Scott Farquhar 

Carvana (-39%) posted a deeper less than expected and a revenue miss. The company is an online use car retailer based in Arizona.

• "The environment has continued to get increasingly difficult since the end of the quarter and it is probable things will continue to get more difficult before they get easier.” - CEO Ernest Garcia 

ECONOMY

Canada added 108,300 jobs in October from 21,100 in September.

• Smashed consensus expectations of 10,000 new jobs

• Unemployment rate remained unchanged at 5.2%, which was ahead of expectations of a rise to 5.4%

• The unexpectedly strong job figures comes a week after the Bank of Canada surprised the markets with a smaller-than-expected hike of 50 bps

US added 261,000 jobs in October from 315,000 in September. 

• Well-above consensus expectations of 200,000

• Unemployment rate rose to 3.7% from 3.5% in September

• Wage growth slowed to 4.7% year-on-year in October after reaching 5.0% in September

• The Fed’s terminal rate slipped to 5.1% after the data from 5.2% earlier that day    

COMMODITIES

Iron ore futures rose 0.7% to US$97.95 a tonne, up 7.8% last week.

• “Recently released data shows that daily crude output at large and medium-sized mills in China averaged 2.06m tons during October 11 - 20. This is 2% less than was seen during the prior ten days but is up year-on-year by 10%.” - Breakwave Advisors

Oil prices rallied close to a 2-month high on fears of tight supply as the G7 agree on a fixed price capping mechanism for Russian crude.

• US Strategic Petroleum Reserve releases are beginning to end. Since April, approximately 180m barrels have been released

• “$100 oil is coming as the US service sector labor market remains robust and on expectations supplies will remain tight.” - Oanda senior market analyst, Ed Moya

Gold prices surged despite the stronger-than-expected jobs data.

•  “After Wall Street digested the NFP report, yields and the dollar reversed. ​ The Fed appears to be on the right path for fighting inflation and that will lead to a weaker economy early next year.” - Moya 

Other commodities of interest:

• Natural gas +9.1% to US$6.56/MMboe

• Zinc +4.6% to US$265/oz

• Aluminium +4.2% to US$2,352/t

QUICK BITES

• Central banks load up on gold: Global central banks have loaded up on more gold in the third quarter this year than any other quarter since 2010, according to the World Gold Council.

• Dollar freefall: The US dollar index just had its worst day since December 2015 and its second worst day since the GFC. Even after such a massive decline, it was still up 0.1% last week.

• Biden on coal: “We’re going to be shutting these plants down all across America and having wind and solar," said Biden at a speech in California on Saturday.

• When does the Fed pivot: Looking at 1974, the Fed only meaningfully pivoted after unemployment jumped to 6.6% and real GDP growth tumbled to -1.9% year-on-year

Source: Bank of America, The Daily Shot

Sometimes the market just does whatever it wants and I can come to terms with that. Last month, the S&P 500 tumbled -2.80% after the stronger-than-expected jobs data. This time round, it managed to rally.

Unemployment rate and wage growth data showed slight signs of easing but the US labour market, as a whole, remains incredibly strong. Still the market rallied on hopes that these data points will continue to soften and support a downshift in rate hikes.

As a result, the US dollar staged its biggest decline in seven years and the US 2-year Treasury yield pulled back as well.

SPI futures imply a 1.32% open. Its worth noting that Financials and Materials were among the best performing US sectors. Commodity markets posted broad-based gains after the steep selloff for the US dollar.

Sectors to watch

• Copper: Easing US dollar triggered a 7.6% jump in copper spot prices, eyeing some follow through strength for local names.

• Commodities: Most other commodity related ETFs rallied 3-7% including Steel (+7.94%), Nickel (+4.69%), Aluminium (+3.89%), Gold (+3.07%), Uranium (+2.64%).

• Lithium: The VanEck Rare Earth/Strategic Metals ETF rallied 8.6% to a six week high.

Stocks going ex-dividend over the next week:

• Mon: Australia and New Zealand Bank (ANZ), Champion Iron (CIA), Macquarie (MQG) 

• Tue: Reckon (RKN)

• Wed: KMD Brands (KMD), ResMed (RMD), Waterco (WAT)

• Thu: Acorn Capital (ACQ)

• Fri: Challenger (CGF)

ASX corporate actions occurring today:

• Dividends paid: Myer (MYR), Cosol (COS) 

• Listing: None

Other things of interest (AEDT):

• 2:00 pm: China balance of trade