Market Wraps

Morning Wrap: US markets mixed as China covid cases hit all-time highs, ASX to fall

Mon 28 Nov 22, 8:24am (AEST)

ASX Futures (SPI 200) imply the ASX 200 will open 9 points lower, down -0.12%.

It was a Black Friday lull for US markets, with the blue-chip Dow pushing ahead while the Nasdaq fell. China's covid situation continues to worsen, Germany's Q3 GDP growth was better-than-expected, China cuts its required reserve ratio by 25 bps and why shelter will drag inflation down in the coming months.

Let's dive in.

Overnight Summary

Mon 28 Nov 22, 8:24am (AEST)

Name Value Chg %
Major Indices
S&P 500 4,026 -0.03%
Dow Jones 34,347 +0.45%
NASDAQ Comp 11,226 -0.52%
Russell 2000 1,869 +0.30%
Country Indices
Canada 20,384 +0.20%
China 3,102 +0.40%
Germany 14,541 +0.01%
Hong Kong 17,574 -0.49%
India 62,294 +0.03%
Japan 28,283 -0.35%
United Kingdom 7,487 +0.27%
Name Value Chg %
Commodities (USD)
Gold 1,753.30 +0.48%
Iron Ore 92.74 -
Copper 3.627 +0.25%
WTI Oil 76.28 -2.13%
Currency
AUD/USD 0.6720 -0.43%
Cryptocurrency
Bitcoin (AUD) 24,633 -0.28%
Ethereum (AUD) 1,806 -0.16%
Miscellaneous
US 10 Yr T-bond 3.691 -0.40%
VIX 21 +0.39%

US Sectors

Mon 28 Nov 22, 8:24am (AEST)

Sector Chg %
Real Estate +0.64%
Utilities +0.63%
Health Care +0.62%
Financials +0.41%
Industrials +0.37%
Consumer Discretionary +0.06%
Consumer Staples +0.06%
Materials -0.12%
Energy -0.30%
Information Technology -0.67%
Communication Services -0.70%

MARKETS

Last Friday was a rather unsurprising session on Wall Street: subdued post-Thanksgiving and Black Friday trading volumes, lackluster price action, the Nasdaq lower, the Dow higher and the S&P 500 somewhere in between.  

  • Defensive and value sectors led to the upside

  • Technology underperformed amid the apparent rotation away from growth

  • The US 10-year Treasury yield closed 0.76% higher but well off session highs of 2.51%

  • Materials and Energy were also red as China's covid lockdowns intensify

    • "There are an increasing number of cities including Beijing, Guangzhou, Chongqing and Shijiazhuang that have recently re-imposed district-based lockdowns." - Goldman Sachs

  • 58% of stocks advanced

  • 43% of stocks trade below their 200-day moving average (46% a week ago)

STOCKS

Apple (-2.0%) shares fell after hundreds of workers joined protests at Foxconn’s flagship iPhone factory in China. 

  • "We believe many Apple stores now have iPhone 14 Pro shortages .. of up to 25-30% below normal .. which is not a good sign heading into holiday season for Cupertino. The zero China Covid policy has been an absolute body blow to Apple's supply chain .." - Wedbush

Activision Blizzard (-4.1%) faces an antitrust lawsuit by the US Federal Trade Commission to block Microsoft’s US$69bn takeover bid for the video game publisher.

WORLD NEWS 

  • Commodity currencies weaken as China's covid unrest hits mood (Bloomberg)

  • China covid unrest boils over as citizens defy lockdown efforts (Bloomberg)

  • Germany's economy was stronger-than-expected in Q3 (Bloomberg)

  • Labour returns for a third term in Victoria (Reuters)

ECONOMY

Germany’s GDP rose 1.3% year-on-year in the September quarter from 1.6% in the June quarter. 

  • Beat analyst expectations of 1.2% growth

China’s central bank cut its required reserve ratio by 25 percentage points from 5 December for all banks, except those already charging a 5% reserve ratio.

  • “Our view is that if the RRR cut is the only monetary policy tool that the PBoC is going to implement, it may not lead to a significant increase in bank lending.” - ING 

  • “Companies are currently facing weaker retail sales from a higher number of Covid cases and falling home prices from unfinished home projects.” 

  • “What I expect is that the PBoC will exercise some form of unconventional monetary policy to increase the effectiveness of this RRR cut.” 

COMMODITIES

Iron ore futures rose 0.5% to US$93.05 a tonne. 

Oil prices closed at their lowest level since 12 January weighed by ongoing discussions about a price cap on Russian crude and China’s deteriorating covid battlefront. 

  • “Lockdowns in all but name appear to be popping up in major Chinese cities in an attempt to get a grip on record cases which will weigh heavily on economic activity once more and in turn demand. It’s now a question of how long they last but clearly investors’ enthusiasm toward the relaxation of Covid restrictions was a bit premature.” - Oanda senior market analyst, Craig Erlam

Gold closed the session flat as bond yields and the US dollar faded from session highs (but still positive). 

QUICK BITES

  • Beijing turns into a ghost town: Subway ridership in Beijing is down more than 64% for the week ending 23 November, compared to the same period in 2019, according to Bloomberg.

Metro usage beijing
Source: Bloomberg
  • Visa on November spending: "November US payments volume on a year-on-year basis was up 9%. Credit grew 10% and debit grew 8%. Compared to 2019, November US payments volume was 147%, with credit at 138% and debit at 157%."

  • US Black Friday bonanza: US consumers spent a record US$9.12bn shopping online on Black Friday, up 2.2% year-on-year, according to Adobe Analytics. Electronics sales were up 221% over the average day in October 2022.

  • Gasoline drives disinflation: "Historically, gasoline has been the leader in the process of disinflation. While food and shelter are often late to the party ... existing leases will renew at lower prices in the upcoming months acting as a drag for shelter inflation." - Game of Trades.

Gasoline to driver lower inflation
Source: Game of Trades, Bureau of Labour Statistics

Industry ETFs

Mon 28 Nov 22, 8:24am (AEST)

Description Last Chg %
Commodities
Steel 60.5 +0.17%
Gold 163.08 +0.09%
Copper Miners 34.7 -0.06%
Uranium 20.96 -0.19%
Silver 19.81 -0.45%
Aluminum 50.2129 -1.36%
Lithium & Battery Tech 68.19 -3.01%
Nickel 35.06 -3.77%
Strategic Metals 92.99 -3.95%
Industrials
Global Jets 18.38 +1.25%
Aerospace & Defense 111.02 +0.55%
Healthcare
Cannabis 14.5 +4.34%
Biotechnology 133.55 +0.20%
Description Last Chg %
Cryptocurrency
Bitcoin 10.19 0.00%
Renewables
Hydrogen 12.25 +1.63%
CleanTech 16.13 +0.79%
Solar 82.35 +0.17%
Technology
Cloud Computing 16.16 +0.43%
Robotics & AI 21.29 +0.38%
Cybersecurity 23.25 +0.22%
Sports Betting/Gaming 15.55 +0.18%
FinTech 20.07 -0.20%
E-commerce 16.23 -0.74%
Video Games/eSports 44.04 -0.79%
Electric Vehicles 22.72 -0.97%
Semiconductor 382 -1.33%

ASX Morning Brief

A rather dull session on Wall Street overnight, at least nothing that wasn't already confirmed by the local market on Friday like defensives outperforming and resources heading lower.

China has now emerged as the latest problem holding the markets back. Daily cases are ballooning to more than 30,000 and several protests are breaking out around the country, in a rare display of defiance against lockdowns.

The biggest unknown is just how deep are these lockdowns going to be and the impact on China's already beleaguered economy.

SPI futures suggest the ASX 200 opens -0.12%. The China situation could continue to put downward pressure on commodity-related sectors. Let's see if the outperformance of value sectors continues today.

Sectors to watch

Lithium: Chinese lockdowns smashed lithium stocks last Friday, with names like Allkem and Pilbara Minerals down -8.6% and -6.7% respectively. They both sold off on rather heavy volumes, around 70-80% more than 20-day averages. There are two things that come to mind:

  1. If you look at the Goldman Sachs inspired selloff on 1 June, the volume profile was pretty similar. It took Allkem around 6 weeks to find a bottom.

  2. This reminds me of how the Index was earlier this year. In short: Is it oversold? Increasingly yes. Is a bounce due? More likely, especially as it gets more oversold. The trend? Badly damaged.

Allkem share price chart
Allkem price chart (Source: TradingView)

Key Events

Stocks going ex-dividend over the next week:

  • Mon: None

  • Tue: Graincorp (GNC), My Food Bag Group (MFB), Ocean Healthcare (OCA), Liberty Financial Group (LFG), Ifratil (IFT), Red Hill Iron (RHI), Beacon Minerals (BCN), 

  • Wed: Pengana International Equities (PIA), Aristocrat Leisure (ALL), PTB Group (PTB)

  • Thu: Technology One (TNE), Pendal Group (PDL) 

  • Fri: None

ASX corporate actions occurring today:

  • Dividends paid: None

  •  Listing: Toubani Resources (TRE) 

Other things of interest (AEDT):

  • 10:00 am: RBA Gov Lowe Speech

  • 11:30 am: Australia retail sales

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.

Get the latest news and insights direct to your inbox

Subscribe free