Morning Wrap: US bank earnings disappoint, iron ore tumbles, ASX to fall

Rate hike fears and weak bank earnings weighed on Wall Street, iron ore briefly dips below US$100 a tonne, Australian unemployment hits an almost 50-year low and keep an eye out for China’s GDP data at noon.

Let’s dive in.  

Markets

JPMorgan kicked off US earnings season with a splat, reporting weaker-than-expected earnings and setting aside additional reserves in anticipation of tough times ahead. This created a rather downbeat mood for the S&P 500 and Dow.

• Tech outperformed all sectors

• Financials, Energy and Materials headlined losses

• 67% of US stocks declined

• 76% of US stocks trade below their 200-day moving average (75% on Thursday, 73% a week ago)

Earnings

• JPMorgan Chase (-3.5%) shares hit a 52-week low after its quarterly earnings missed analyst expectations

  • Profit declined -28% year-on-year to US$8.65bn

  • Share buybacks were suspended to help the bank reach regulatory capital requirements

  • On the topic of inflation “... Notably, the average consumer is spending 35% more  year-on-year on gas and approximately 6% more on recurring bills and other non-discretionary categories.”

  • The bank had a US$1.1bn provision for credit losses, including a US$428m reserve build. The additional reserves was because of a “modest deterioration” in its economic outlook

• Conagra Brands (-7.2%) shares sank after quarterly results revealed volumes for the packaged goods company declined. This meant that revenue growth came from factors such as sales mix and price increases

• What we’re watching this week:

  • Friday: Wells Fargo, Citibank, BlackRock

Stocks

• Costco (+4%) shares rallied after Deutsche Bank upgraded the stock to a Buy. Costco is ““is one of the most consistent operators in our group, and its steady traffic gains and high membership renewal rates serve as key differentiators in an increasingly uncertain backdrop," the bank said

• Cisco (-0.9%) was downgraded to Neutral from Outperform by JPMorgan

Economy

• Australia unemployment fell to 3.5% in June, from 3.9% in May

  • Lowest level since September 1974

  • Record labour force participation. The share of the working-age population either employed or seeking employment increased to 66.8%, up almost a full percentage point since covid

• US producer price index rose 11.3% year-on-year in June, the highest reading since the record 11.6% in March

  • Almost 90% of the gains came from a 10% increase in energy costs including oil, natural gas and other products

• US core producer price index rose 6.4% year-on-year in June, down from 6.8% in May

  • Core PPI removes volatile segments including energy, good and trade service prices

• US weekly jobless claims rose to 244,000 for the week ended July 9

  • Highest number since November 2021

  • Signals that the US jobs market is starting to weaken 

Commodities

• Iron ore briefly went sub US$100 for the first time since November last year amid China’s property turmoil

• Oil plummeted to session lows of US$94.5 a barrel, with recession fears once again the driving force. Prices have rebounded back to US$99

• Gold continues to falter in the face of hotter-than-expected inflation and the aggressive tightening that’ll follow

#1 Iron Ore

Iron ore briefly collapsed below US$100 a tonne amid an increasing number of homebuyers across China that are refusing to pay mortgages on stalled projects.

Homebuyers have stopped mortgage payments on at least 100 projects across more than 50 cities as of Wednesday, according to Jefferies Financial Group.

The US-listed counterparts of BHP (ASX: BHP) and Rio Tinto (ASX: RIO) tumbled a respective -4.1% and -5.9% in overnight trade.

#2 Tech

We've all been taught that higher interest rates is bad for richly valued tech stocks. But here we are, with the Nasdaq showing more resilience than the S&P 500 and Dow.

Notable overnight gainers include:

• Affirm +4.95%

• Apple +2.05%

• AMD +1.4%

• Nvidia +1.4%

Even though the Nasdaq and tech sector closed higher, there was some weakness among the specialty ETFs we track.

The Global X Cloud ETF was down -2.8%, eCommerce -2.6% and Fintech -1.4% - so rather mixed signals.

#3 Cannabis

Cannabis-related ETFs saw an uptick overnight after reports that Senate Democrats were planning to introduce a bill to decriminalise marijuana at the federal level next week.

The 'long-shot' decriminalisation bill is aimed at removing marijuana from the list of drugs covered by the Controlled Substances Act.

US-listed cannabis names like Tilray and Aurora Cannabis both rallied more than 10%.

#4 Uranium

Japanese Prime Minister Fumio Kishida has ordered the restart of up to 9 nuclear power reactors to help support a looming winter power shortage.

Headlines aside, uranium spot prices are struggling, down to US$45.5/lb according to fuel brokers Numerco, down from US$51/lb in early June.

The Uranium ETF managed to push out a 1.1% gain overnight, trying to stabilise around recent lows.

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: QRI, RDV

• Listing: None

• Issued shares: BRK, COE, CPH, CXO, FBR, GAL, HYT, IRE, MIN, NAB, NZS, RRR, SGM, SLH, SSR, STM, TI1, TYR, X2M

Other things of interest (AEST): 

• China Q2 GDP Growth Rate at 12:00 pm

• China Industrial Production (June) at 12:00 pm

• China Retail Sales (June) at 12:00 pm

• China Fixed Asset Investment (June) at 12:00 pm

• US Retail Sales (June) at 10:30 pm

• US Industrial Production (June) at 11:15 pm