Morning Wrap: Stocks rise ahead of inflation report, ‘meme stocks’ surge, ASX set to bounce

Wall Street traders are continuing to buy bonds and stocks in the hope that inflation will soften further. We’ll know for sure at 12:30am AEST tomorrow morning. Meanwhile, copper prices have hit a seven-month high as the Chinese reopening thematic continues to fuel commodity markets. And who should you trust - central banks or the bond market? Today's Quick Bites might provide some clues.

Let’s go.

MARKETS

• US bonds were bought overnight. 10-year yields were lower by 6 basis points, now at 3.56%

• Gold inched higher while copper hit a seven-month high

• Brent crude prices were higher by 3.5% overnight while iron ore is back near $120/tonne

• Currencies were little changed but generally stronger against the US Dollar.

STOCKS

The "meme stocks" which dominated a lot of the conversation in 2020 and 2021 are back. Bed Bath & Beyond rallied 66%, GameStop climbed about 6%, and AMC Entertainment soared 20%.

Expedia’s stock gained more than 4.8% after Oppenheimer upgraded it to OUTPERFORM from perform (neutral). Brokers believe Expedia shares are discounting macro headwinds.

GE HealthCare Technologies' shares rose 8.8% after the company issued preliminary results for the fourth quarter and forecasted continued organic revenue growth in the year ahead.

WORLD NEWS

FTX has recovered $5 billion worth of ‘liquid’ assets, lawyers say (CNBC)

Alphabet Unit Verily to Trim More Than 200 Jobs (WSJ)

Billionaire bust-up burns Sun Cable project (AFR)

BlackRock plans to cut 500 jobs worldwide following 2022 sell-off (FT)

QUICK BITES

DoubleLine Capital founder Jeffrey Gundlach remarked recently that investors should put more faith in the bond market than the Federal Reserve. Here’s the million dollar line:

“My 40 plus years of experience in finance strongly recommends that investors should look at what the market says over what the Fed says,” Gundlach said at a webcast. 

At present, markets are expecting interest rates to be cut by the end of the year, down to 4.5%, while Fed officials see rates holding above 5%. So who will be right? This chart from Bloomberg may go some way to answering that question. 

The two-year yield is the bond most traders look to for instant reaction to Federal Reserve decisions or any central bank speak. It’s also the yield a lot of people use as a short-term forecast for the “terminal” rate. As you can see, it’s at 4.5% and it hasn’t even had a look above it for some time.

Reported by Chris Conway of Livewire Markets.

The Aussie market powered higher yesterday, despite the hotter-than-expected inflation print. The ASX 200 jumped 64 points (+0.9%) to be back in the winners’ circle and make it five winning sessions out of the last six.

The miners continued to be a big driver, with BHP (ASX: BHP) hitting a fresh record high. As discussed previously, the technical picture looks constructive, with major resistance not arriving until close to 7400. All of that said, it should be remembered that volumes are typically low through the early part of the year, and moves can be distorted. Food for thought.

Overnight, US markets closed higher in relatively subdued trading – it seems traders were keeping their powder dry ahead of tonight’s CPI print (more on that below). Equities finished near the top, adding to last week’s gains, despite limited catalysts.

Sectors to watch

• In the US overnight, big tech, EVs, REITs, homebuilders, managed care, trucking, building materials, IBs, credit cards, retail/apparel, meme stocks were some of the better performers. Oil services, precious-metals miners, pharma, tobacco, telecom were among the laggards.

• You will forgive us for repeating ourselves, but the miners should fare well today: iron ore was up 1.1% overnight, to a six-month high of US$121.02 per tonne.

• Energy names should also find support, after WTI crude (the US benchmark) jumped 3.1% overnight. It was the fifth consecutive winning session – the longest streak since early October. Chinese demand has been a big driver of prices lately, with Chinese companies stockpiling before Lunar New Year holidays.

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: HiTech Group Australia (HIT): $0.015

• Listings: Acusensus Limited – today, 11:00 am

Economic calendar:

• AU – Balance of Trade – 11:30am

• CN – Inflation Rate – 12:30pm

• US – Inflation/Core Inflation Rate – 12:30am (tonight)