Market Wraps

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

Wed 21 Dec 22, 8:33am (AEST)

ASX Futures (SPI 200) imply the ASX 200 will open 72 points higher, up 1.03%.

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.

Overnight Summary

Wed 21 Dec 22, 8:33am (AEST)

Name Value Chg %
Major Indices
S&P 500 3,822 +0.10%
Dow Jones 32,850 +0.28%
NASDAQ Comp 10,547 +0.01%
Russell 2000 1,748 +0.53%
Country Indices
Canada 19,307 +0.55%
China 3,074 -1.07%
Germany 13,885 -0.42%
Hong Kong 19,095 -1.33%
India 61,702 -0.17%
Japan 26,568 -2.46%
United Kingdom 7,371 +0.13%
Name Value Chg %
Commodities (USD)
Gold 1,828.50 +1.71%
Iron Ore 109.56 -
Copper 3.807 +0.62%
WTI Oil 76.02 +1.10%
Currency
AUD/USD 0.6677 -0.35%
Cryptocurrency
Bitcoin (AUD) 25,256 +0.89%
Ethereum (AUD) 1,819 +2.63%
Miscellaneous
US 10 Yr T-bond 3.684 +2.88%
VIX 21 -4.24%

US Sectors

Wed 21 Dec 22, 8:33am (AEST)

Sector Chg %
Energy +1.52%
Communication Services +0.72%
Materials +0.65%
Financials +0.31%
Information Technology +0.16%
Industrials +0.14%
Utilities +0.06%
Consumer Staples -0.02%
Health Care -0.06%
Real Estate -0.27%
Consumer Discretionary -1.13%

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

Industry ETFs

Wed 21 Dec 22, 8:33am (AEST)

Description Last Chg %
Commodities
Silver 21.12 +5.26%
Nickel 35.95 +3.48%
Steel 56.0712 +2.23%
Gold 166.32 +1.66%
Uranium 19.07 +1.10%
Copper Miners 35.41 +0.85%
Aluminum 49.4649 +0.78%
Lithium & Battery Tech 62.84 -0.43%
Strategic Metals 80.34 -1.11%
Industrials
Aerospace & Defense 109.33 +0.79%
Global Jets 17.18 +0.41%
Healthcare
Biotechnology 130.56 +1.16%
Cannabis 11.97 -4.34%
Description Last Chg %
Cryptocurrency
Bitcoin 10.32 +2.23%
Renewables
CleanTech 15.37 -0.59%
Solar 77.4 -0.76%
Hydrogen 11.95 -5.10%
Technology
Cybersecurity 21.37 +1.03%
Cloud Computing 15.97 +0.38%
FinTech 18.76 +0.27%
Robotics & AI 20.73 +0.10%
Video Games/eSports 42.5 -0.22%
E-commerce 16.41 -0.30%
Electric Vehicles 20.75 -0.34%
Sports Betting/Gaming 14.34 -0.56%
Semiconductor 357.44 -0.61%

ASX Morning Brief

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.

SPX chart
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
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
Gold spot (Source: TradingView)

Key Events

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  

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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