Morning wrap: US inflation jumps to 40-year high, ASX set to open flat

ASX Futures (SPI 200) imply the ASX will open 3 points lower, down -0.05%.

Major US indices started out on a stronger note but retreated after inflation data came in at a four-decade high.

The US reported a 0.5% month-on-month increase in December consumer price index (CPI). The figure came in just above the 0.4% forecast from economists polled by The Wall Street Journal. 

When compared to December 2020, the cost of living has accelerated 7% to a near 40-year high. The elevated costs were largely driven by segments including food, shelter, used cars and energy prices. 

Stubbornly high inflation adds more conviction that the US Federal Reserve will raise interest rates this year. It looks like four interest rate hikes in 2022 is becoming an increasingly likely reality.

More broadly speaking, it might be difficult to gauge how ASX sectors will perform on Thursday after the US market struggled to close at session highs.

▲ Materials

Copper prices are breaking out, jumping 3% overnight to a 3-month high of US$4.56/lb.

Iron ore is another point of interest given recent supply concerns coming out of Brazil. 

According to FastMarkets, heavy rains in Brazil's major mining areas are causing prices of Brazilian iron ore prices to increase quickly. 

The US-listed counterparts of BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO) continue to push near term highs, up a respective 4.1% and 2.2% in overnight trade. 

▲ Technology 

Large cap tech stocks including Microsoft (1%), Google (1.2%) and Tesla (3.9%) helped pull the technology sector into positive territory.

The ASX tech sector could cop some heat, given a -2% decline in Square shares. 

▼ Healthcare 

A notable healthcare headline came out of the European market, with Dutch health tech giant Philips plunging -14.8%, its biggest fall since the 2008 Global Financial Crisis. 

Philips flagged a profit warning, with “intensified global supply chain shortages” to blame. 

ASX Sectors to watch

#1 Copper

Yesterday, we flagged copper as an ASX sector to watch as the ETF began poking its head near 3-month highs.

Overnight, copper prices broke out of its recent trading range, rallying 3% to 3-month highs of US$4.56/lb.

Copper futures, TradingView

The Copper ETF delivered outsized gains (relative to spot prices), rallying to a 7-month high. 

Investors should keep an eye out for local copper names, both producers and explorers including:

• Oz Minerals (ASX: OZL) 

• Copper Mountain Mining (ASX C6C) 

• Sandfire Resources (ASX: SFR)  

#2 Lithium

The Lithium & Battery ETF is showing signs of strength after the recent interest rate driven selloff. 

Two sessions ago, the ETF was looking slightly bearish after touching its 200-day moving average for the first time since March 2020. The ETF has since rallied 6.6%. 

Lithium & Battery ETF, TradingView

The solid overnight gains could provide positive tailwinds for local names like:

• Pilbara Minerals (ASX: PLS)

• Allkem (ASX: AKE) 

• Lynas Rare Earths (ASX: LYC) 

Towards the more speculative end of town:

• Essential Metals (ASX: ESS) has gone berserk, up 70% in the last three sessions 

• Winsome (ASX: WR1) is a recent lithium IPO, looking to breakout 

• AVZ Minerals (ASX: AVZ) has trended strongly, up almost 500% since June. The stock has its eyes set on cracking $1.00 for the first time

#3 Nickel 

Yesterday, nickel was flagged as a sector to watch as spot prices were breaking out to multi-year highs.

Nickel prices, Trading Economics

It proved to be an immensely bullish day for ASX nickel stocks.

• Blackstone Minerals (ASX: BSX) opened 3.5% higher but closed up 25% to all-time highs 

• Nickel Mines (ASX: NIC) rallied 4.5% at open before closing 6.5% higher at all-time highs 

Other notable names include 

• IGO (ASX: IGO), which is due to acquire Western Areas (ASX: WSA) 

• Mincor Resources (ASX: MCR) 

• Panoramic Resources (ASX: PAN)

Nickel could continue to be a point of interest given the recent concerns around supply. Earlier this week, Reuters reported that nickel stockpiles in LME warehouses were down around 62% since April 2021. 

#4 FinTech 

There wasn’t too much action towards the losing end of town. The FinTech ETF could be a point of interest, down 0.7% despite the Nasdaq index (tech) closing slightly higher.

Notable US fintech names like Block and Coinbase fell -2% and -1.2% respectively. 

Block’s -2% fall will weigh on the local tech sector, driving losses for its soon-to-be subsidiary, Afterpay. 

Today’s events 

ASX corporate actions occurring today:

• Ex-dividend: None today 

• Dividends paid: OZF, OZR, SDG, SFY, SSO, STW, SYI

• IPOs: None today

• Issued shares: 360, 92E, AM7, BIO, BXB, CBO, CM8, DGO, DTZ, ICN, JYC, KMT, LCL, LOT, M7T, NAC, NBI, NTD, NWE, RDT, RFX, SNG, ST1, SZL, TRY, WAM