Morning Wrap: S&P 500 slumps, Target earnings send retail stocks tumbling, ASX to fall

The S&P 500 and Nasdaq slumped after disappointing earnings from chipmaker Micron and Target, UK's inflation unexpectedly accelerates to a 41-year high, US retail sales growth defines expectations and Deliveroo enters voluntary administration.

Let's dive in.

MARKETS

Major US benchmarks declined after grim quarterly earrings from Target, US retail sales beat expectations which might embolden the Fed to continue hiking as well as hawkish comments from the Fed’s Daly and Williams.  

• Defensive sectors were relative outperformers

• Energy led to the downside after oil fizzled Wednesday’s ‘Russian missile’ inspired gains

• Consumer Discretionary also under pressure after Target flagged a slowdown in sales in late October

• 61% of US stocks declined 

• 47% of US stocks trade below their 200-day moving average (44% on Wednesday, 56% a week ago)

STOCKS

Lowe’s (+3.1%) beat earnings expectations and raised its FY22 outlook.

• Home improvement defies expectations: “Consumer savings are near record highs, while disposable personal income remained strong ... and this is why we're so confident even in a period of high inflation and rising interest rates." - CEO Marvin Ellison

Target (-13.1%) missed earnings expectations and cut its fourth-quarter outlook after noting slower sales in late October. Profits fell by around -50% as it cut through excess inventory and consumers opted for lower margin products and promotions.

• Recent sales: "In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behaviour increasingly impacted by inflation, rising interest rates and economic uncertainty. This resulted in Q3 profit performance well below our expectations.''

• Inventory costs: "A second factor that's impacting our gross margin is inventory shortage or shrink … year-to-date incremental shortage has already reduced our gross margin by more than $400m versus last year, and we expect it will reduce our gross margin by more than $600m for the full year"

WORLD NEWS 

• Vast majority of retail investors in Bitcoin lost money (Bloomberg)

• Food prices likely lower next year, Cargill CEO says (Bloomberg)

• Indonesia wants an 'OPEC-like' organisation for nickel (Bloomberg)

ECONOMY

UK inflation accelerated to 11.1% in October from 10.1% in September. 

• Well-above analyst expectations of a rise to 10.7%

• Inflation would have run even harder, to around 13.8% in October, if the government did not step in to limit the price of household energy bills to 2,500 pounds a year, according to the Office for National Statistics 

• The Bank of England remains far behind the curve, with interest rates at 3.0%

Canada’s inflation held at 6.9% in October, unchanged from September figures.

• In-line with analyst expectations 

US retail sales rose 1.3% month-on-month in October from 0% growth in September. 

• Beat analyst expectations of 1.0% growth

• "Retail sales now show no loss of momentum with the three-month increase in sales at 8.1%, which is very similar to the 12-month gain of 8.3% ... it seems likely that we will see upward revisions to estimates for GDP ... Atlanta Fed .. is already at 4.0%." - Brean Economics

• “Retail sales came in hot again. Not the data you want to see if you are betting on a Fed pivot. Higher for longer is the set up here. One has to accept it.” - Gianluca 

COMMODITIES

Iron ore futures fell -0.4% to US$93.05 a tonne.

• China’s crude steel output fell at a slower pace, down -2.2% on year to 860.6m tonnes over Jan-Oct compared to a -3.4% decline for the first nine months of the year, according to the country’s National Bureau of Statistics 

Oil prices eased after NATO said the missile that hit Poland wasn’t a Russian attack and likely to have come from Ukraine defences. 

• The US Energy Information Energy reported an inventory decline of 5.4m barrels for the week ended 11 November compared to a 5.6m barrel build a week ago

• “Yesterday’s bullish triggers for oil prices were quickly undone today. ​ Oil prices declined after flows from the Druzhba pipeline resumed and preliminary analysis of the missile that killed two in Poland was likely an errant missile fired by Ukraine’s defence system.” - Oanda senior market analyst, Ed Moya 

Gold prices are beginning to stall after a massive rally in the last eight sessions. 

• “Gold will eventually act like a safe-haven, but right now its primary catalyst is the Fed’s rate hike path …​ Today’s hawkish round of Fed speak put some pressure on bullion as policymakers push back on traders who are making calls for a pivot.” - Moya

Other commodities of interest:

• Newcastle coal futures -3.9% to US$317/t

QUICK BITES

• Goodbye Deliveroo: Deliveroo Australia has been placed into voluntary administration. Its Aussie business employs approximately 120 staff and 15,000 riders with 12,000 restaurant partners

• Tech layoffs, no biggie: Goldman Sachs notes there have been approximately 34,000 layoffs across large cap tech companies in November. "The unemployment rate would rise less than 0.3 percentage points even in the inconceivable event that all workers employed in the "internet publishing, broadcasting and web search portal" industry are immediately laid off."

• Dovish PPI: "The producer price index print ... should give the market comfort that the CPI print may not be a one-off/anomaly. The calls for a Fed stepdown and then pause should grow louder, meaning December Fed is a 50 bps hike and then we enter a wait and see mode.” - JP Morgan

• China's housing slump: China's efforts to buoy its property market has failed to live up to expectations

Source: Caixin

Learn more about our overnight ETFs.

Markets continue to stall and/or pullback as 'peak inflation' euphoria settles and the Fed remains adamant that it's too early to call victory over inflation.

SPI futures suggest a -0.13% open. The local sharemarket has held up relatively well compared to Wall Street thanks to our weightings towards banks and materials. The ASX 200 trades well above all key moving averages. Let's see how we hold up and where we snap this losing streak.

XJO chart (Source: TradingView)

Sectors to watch

Our ETF list paints a far more dire picture for specialty sectors.

Nickel: The LME said on Wednesday it will step up its supervision of nickel trading after prices fell as much as -12% in volatile and illiquid conditions, according to Reuters.

Tech: Overnight tech-related ETFs like iShares Semiconductor, Global X Fintech and Global X Cloud ETFs fell at least -3.3%. Semiconductor manufacturer Micron downgraded its guidance again overnight and lowered its capital spending plan. Alongside the underperformance of the Nasdaq, this could see some negative flow for local names.

Uranium: The trendless uranium sector is back to doing what it does back. One step forward and one step back. The Global X Uranium ETF fell -4.06% overnight, which could see some weakness follow through for local players.

Stocks going ex-dividend over the next week:

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

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

• Mon: Macquarie Bank (MQG), Elders (ELD)

• Tue: Amcor (AMC), Sunland Group (SDG), Tamawood (TWD)

• Wed: Embark Education (EVO)  

ASX corporate actions occurring today:

• Dividends paid: EVT (EVT), Jupiter Mines (JMS)

•  Listing: None

Other things of interest (AEDT):

• 11:30 am: Australia unemployment rate