Morning Wrap: S&P 500 rallies to 14-month high, gas prices pop, ASX 200 to rise

Major US benchmarks continued to push higher as traders bet that rates are close to peaking, every US sector traded higher led by megacap tech and healthcare stocks, Mediterranean restaurant chain Cava doubles on its trading debut, the ECB hikes rates to the highest level in 22 years and Charts of the Week.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher and closed at best levels  (Source: TradingView)

MARKETS

• ASX 200 set to finish the week on a positive note, given the strong lead from Wall Street plus broad-based gains across commodity markets

• S&P 500 higher, finished near best levels and continues to climb 14-month highs

• All sectors where higher, led by megacap tech and defensives

• US dollar slumped to a 1-month low, gold finished up 0.8% and trying to bottom

• WTI crude 2.7% higher, bringing prices back to around breakeven for the week

• Powell says nearly all officials expect "some" further rate hikes (Bloomberg)

• Bond traders raise bets Fed will steer US economy into a recession (Bloomberg)

• Surge in S&P 500 led by seven megacap and 'safe haven' mega cap tech stocks, masks the underlying weakness for the rest (Bloomberg)

STOCKS

• Cava shares soar as much as 117% on market debut (CNBC)

• Domino’s Pizza shares higher as Stifel upgraded the stock from hold to buy (CNBC)

• Target jumps after Bernstein reiterated Outperform, said the dip is buyable (CNBC)

ECONOMY

• US retail sales higher in May, led by motor vehicles and building materials (Reuters)

• ECB raises rates further as economy stutters (Reuters)

• BoE's interest rate hikes are taking longer to curb UK inflation (Reuters)

• China's economic rebound loses momentum (Reuters)

• PBOC cuts 1-year bank lending rate rate by 10 bps as expected after 7-day reverse repo cut earlier this week (Bloomberg)

• China's slower home price growth, underwhelming retail sales growth and deepening investment slump signal more easing from Beijing (Reuters)

• Australian employment tops expectations,sets RBA for more hike (Bloomberg)

• New Zealand falls into recession, Q1 GDP data below expectations (Bloomberg)

Deeper Dive

The Fed's Hawkish Pause

A few more interesting takes and data points about the Fed's pause on Thursday.

• Pause and hikes are rare: When the Fed pauses rate hikes, it tends to cut shortly after. The only time it paused and then followed up with more hikes was in the 1980s, when it hiked from around 5.0% to 10.0%, paused, and then from 10.0% to 20.0%. Apart from that, a pause leads to cuts.

• Morgan Stanley's take: "... the Fed is done here ... We continue to see a soft landing ... We continue to look for the Fed to hold the peak rate at 5.1% for an extended period before making the first 25 bp cut in March 2024."

• Goldman's take: "The combination of the hawkish surprise in the dots and the hint at an every-other-meeting pace strengthens our confidence that the FOMC will hike in July and make a possible second hike more likely in November than September."

• What does the data tell us: The S&P 500 is higher five-sixths of the time (6 and 12 months) after a Fed pause. The average return for the six month period is 13.2%. Here's the breakdown from Bloomberg.

Charts of the Week

This segment of the morning wrap brings you weekly technical commentary on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations. They are for illustrative purposes only. Any discussion of past performance is for educational purposes only. Past performance is not a reliable indicator of future return. Always do your own research.

ASX 200 – Broken record

Source: Commsec

You will forgive me for sounding like a broken record but there is not much happening from a technical perspective at the index level. That broad range we’ve been focused on over the past few weeks continues to be respected and continues to narrow.  So, what happens next? Obviously it’s impossible to tell but often times these quiet periods precede a big break. Once that break happens – one way or the other – things will become clearer and potential opportunities will ensue.

AUB Group (AUB) – Gaining momentum

Source: Commsec

For those unfamiliar, AUB Group comprises insurance brokers and underwriting agencies operating in 520 locations across Australia and New Zealand. The chart makes for interesting reading. There is a clear neckline at $28 and whilst that has acted as stubborn resistance, the bulls have been increasingly willing to bid the stock up from lower level. Average volume has been rising of late and a break above $28 seems imminent. If $28 can be cleared, it would represent a significant shift in the way the market is thinking about this stock.

WiseTech (WTC) – Get wise

Source: Commsec

Very simply, WTC has one of the best looking charts on the ASX right now. Strong momentum, uptrend support, rising average volume. All the bullish elements are there. $80 should be cleared with little fanfare and then the bulls will be setting their sights on $100. Get wise.

ASX corporate actions occurring today:

• Trading ex-div: Afr Pharma (AFP) – $0.007

• Dividends paid: Technology One (TNE) – $0.46

• Listing: NGX Ltd (NGX) – 11:30 am 

Economic calendar (AEST):

• 1:00 pm: Japan Interest Rate Decision

• 12:00 am: US Consumer Sentiment