Morning Wrap: S&P 500 struggles for direction, gold shines, ASX set to bounce

The S&P 500 and Dow closed slightly higher to snap a four-day losing streak, the US dollar slumped after the Bank of Japan raised its yield curve band, gold soars to a fresh six month high, German producer prices continue to deflate thanks to falling energy prices and Russian crude oil exports fall off a cliff.

Let's dive in.

MARKETS

The S&P 500 and Dow snapped a four-day losing streak in the most unconvincing way possible, bouncing just 0.10% and 0.28% respectively. The growing wall of worries has made it rather difficult for the dust to settle.

• Energy led to the upside amid reports that Russian crude exports had plunged by more than 50% since the G-7 price cap

• Materials followed closely behind thanks to a weaker US dollar, which was triggered by the Bank of Japan widening its yield curve control band

• Discretionary was the worst performing sector, weighed by a -8.05% selloff for heavyweight Tesla

• 54% of stocks advanced

• 55% of stocks trade below their 200-day moving average (56% on Tuesday, 45% a week ago) 

STOCKS

General Mills (-4.6%) shares fell despite posting better-than-expected earnings for the last quarter and upgrading its full-year outlook. The company is one of the world’s largest branded processed consumer food companies.

• Price-driven growth: "Organic net sales were up 11%, reflecting 17 points of positive organic price/mix, partially offset by a 6% decline in organic pound volume.” - CFO Kofi Bruce 

• Pet business: “... we experienced an unexpected headwind in Q2 in the form of inventory reductions at some key retailers. As a result...our net sales were essentially flat.” - CEO Jeff Harmening 

Tesla (-8.05%) price target was cut to $200 from $300 by Evercore ISI.

• “[Tesla] has been under significant pressure … The $150-163 technical level was seen as a critical battleline to defend … and failed … may put $100 in play … investors now fear US brand damage.” 

WORLD NEWS

• Treasuries not expected to feel long-term drag from Japan govt bonds (Bloomberg)

• BofA clients bought $2.8bn of US stocks last week, a 6th straight inflow (Bloomberg)

• Elon Musk in active search for a new Twitter CEO (CNBC)

• Russia's seaborne crude exports plunge by more than half Bloomberg)

• New Cleveland Fed index shows US rent inflation slowing (Bloomberg)

ECONOMY

The Bank of Japan made a surprise decision to let the 10-year Japanese government bond rise as high as 0.5% from a previous cap of 0.25%.

• During the interest rate meeting, the BoJ kept interest rates unchanged at -0.1%

• The central bank had set a target range around zero for benchmark government bond yields since 2016

• In parallel, the BoJ said it will ‘significantly’ increase the amount of bond purchases (trying to tighten by letting yields rise but still undertaking large-scale QE) 

• Higher bond yields encourages Japanese investors to keep their cash at home amid a global economic slowdown, which strengthens the Yen

• Of note, Japan is a huge exporter of capital and as of July 2022, the largest holder of US treasuries in the world (over US$1 trillion in USTs) 

Germany's producer price index fell -3.9% month-on-month in November from -4.2% in October.

• Beat analyst expectations of a -2.5% fall

• Producer prices are up 28.2% year-on-year compared to a 34.5% rise in October

COMMODITIES

Iron ore futures +0.2% to US$109.50 a tonne.

Oil prices were mostly unchanged amid a volatile session where prices fluctuated between lows of -2.3% and highs of 0.9%.

• All of Russia’s seaborne crude shipments collapsed in the first full week of G-7 sanctions, according to Bloomberg

• In the first full week, total volumes shipped from Russia fell by 1.86 million barrels a day or a 54% drop

Gold rallied to a fresh six month high as the Bank of Japan surprise pushed the US dollar lower.

• “It is rare to see gold perform so well when global bond yields are surging, but this widening of Japan’s yield curve band signifies that we could have a peak in the dollar put in place.” - Oanda senior market analyst, Ed Moya 

• “The dollar might be in the house of pain for a while and that should be good news for bullion. ​ Holiday trading volumes might disrupt this rally but for now it seems like gold has definitely got its groove back.” - Moya 

QUICK BITES

• FAANG pains: "Yesterday, Amazon become the first of the mega-caps to see a US$1+ trillion drawdown in market cap. All six of Apple, Amazon, Google, Microsoft, Meta and Tesla are in the US$750+ billion market cap drawdowns for a combined drop of more than US$5 trillion." - Bespoke Investment Group

The S&P 500 closed just 0.1% higher after falling -5.0% in the past four sessions. Hardly a bounce from an oversold state/no man's land.

S&P 500 (Source: TradingView)

The ASX 200 is set to open 0.83% higher but amid subdued Christmas volumes and volatile bond markets – who knows where we'll finish.

The BoJ shocker sent the US dollar index lower, which is typically a tailwind for commodity markets.

US Dollar Index (Source: TradingView)

Just a heads up, Thursday will be the last Wrap of the year. I'll save the sentimental message for tomorrow :)

Sectors to watch

Gold: Spot prices powered ahead as the US dollar weakened. Most mid to large cap names have been drifting sideways since early to mid November – awaiting further feedback from spot prices. The jump in spot prices could see some positive flows for local gold miners.

Gold spot (Source: TradingView)

ASX corporate actions occurring today:

• Dividends paid: Incitec Pivot (IPL), Fisher & Paykel (FPH), Dalrymple Bay Infrastructure (DBI) 

•  Listing: None

Economic calendar:

• 6:00 pm: German consumer confidence

• 12:30 am: Canada inflation rate