Morning Wrap: Stocks sink on poor data, Microsoft to start layoffs, ASX to fall

Stocks fell after a fresh batch of data on producer prices and retail sales offered mixed signs of how the economy is responding to all those rate hikes. On the corporate front, Microsoft will let go of 10,000 employees in the latest round of labour force cuts within the US big tech names. Plus, find out how one broker's downgrade shaved more than 15% off a company's share price.

Let’s go.

MARKETS

US markets slumped while European markets were a little more mixed with the continental indices faring better than the FTSE 100. 

• All 11 S&P 500 sectors finished lower, led by consumer staples

• The VIX volatility index closed with a 20 reading for the first time in more than a week

• Investors bought bonds with the US 10-year yield falling nearly 12 basis points to 3.387%

• The Australian dollar was the only major currency to fall against the US Dollar overnight

• Gold fell slightly while WTI crude oil fell below US$80/bbl

US EARNINGS

Microsoft shares fell 2% despite revealing plans to cut 10,000 jobs in an attempt to trim costs as economic uncertainties linger and growth slows. Satya Nadella also said the company is taking a $1.2 billion charge connected to lease consolidation and other activities.

Moderna shares rose 3.3% a day after management said its respiratory syncytial virus vaccine is effective in preventing the disease in older adults.

Chegg shares fell more than 16% after one broker downgraded the education firm’s stock to HOLD from buy. The analyst argues Chegg will have trouble reaching consensus for full-year revenue growth.

Gap shares inched higher after Morgan Stanley upgraded Gap to equal weight from underweight, saying there’s “more upside than downside” at current levels for the stock.

WORLD NEWS

BOJ leaves policy unchanged, as (kind of) expected (Bloomberg)

ECB staff losing confidence in leadership over failure to control inflation (Reuters)

China Covid deaths expected to hit 36K per day over LNY (Airfinity)

German Chancellor Scholz expects Germany to avoid recession despite energy squeeze (Bloomberg)

ECONOMY

Two reads on inflation overnight from overseas economies. We begin with the United Kingdom where headline inflation slowed for a second straight month - which is good to hear until you remember that the year-over-year figure is still above 10%. Just like in Canada, petrol prices are responsible for the big falls but food prices continue to soar. 

In the US, producer price inflation dropped 0.5% last month. The good news is that it’s the largest decrease since April 2020. The even better news is that it handily beat economist expectations of a 0.1% rise. The bad news is that services inflation continues to tick up as businesses pass on the increased cost of energy, food, and labour. 

Finally, US retail sales declined 1.1% month-over-month in December 2022, following an upwardly revised 1% drop in November and worse than forecasts of a 0.8% fall. It should be noted that retail sales aren’t adjusted for inflation and part of the decrease in December can be explained because the traditional holiday shopping season was pulled forward into October last year. 

CHART OF THE DAY

If you’re familiar with the predictions of global finance, chances are you’ve heard this refrain for 2023 - underweight US equities, overweight emerging markets. This chart is living proof of that underweight, thanks to the Bank of America Fund Manager Survey.

Reported by Chris Conway at Livewire Markets.

There is not a lot to add to today’s commentary following yesterday’s seven point (+0.1%) gain on the ASX 200. It was another tight range session and there is no new technical evidence to work through, other than to say that the bulls did a pretty solid job of defending the recent rally. With the Dow down 600+ points overnight, they will need to do it again today.

ASX 200: Another tight range day on the ASX 200 yesterday

US equities were lower overnight, ending near worst levels after giving back earlier gains as the S&P posted its worst session since 15-Dec. The weakness followed a slide in a fairly uneventful session prior, that came on the back of a second straight week of good gains to start 2023.

S&P 500: Tough session on Wall Street with losses into the close

SECTORS TO WATCH

• All sectors lower with regional banks, software, fintech, cruiselines, food and beverage, telecom, electricals/multis, oilfield services some of the worst performers. Few outright gainers though builders, trucking, tech hardware, media, global miners fared better.

• Keep an eye on the big miners today. Iron ore steadied, adding 0.2%, whilst BHP has a quarterly production report due out.

• Gold finished slightly weaker, down 0.2%, whilst WTI crude also settle lower (-0.9%) after earlier hitting its highest level since early December.

ASX corporate actions occurring today:

• Trading ex-div: Spheria Emerging Companies (SEC), $0.022; Kelly Partners Group Holdings (KPG), $0.004, Plato Income Maximiser (PL8), $0.006.

• Dividends paid: None

• Listings: None

Economic calendar:

• AU – Employment chance and unemployment rate @ 11:30 am

• ECB President Lagarde speak @ 9:30 pm

• US – Philly Fed manufacturing index, unemployment claims @ 12:30am