Morning wrap: US selloff continues, Nasdaq in correction territory, ASX to open flat

ASX Futures (SPI 200) imply the ASX will open 10 points higher,  up 0.14%.

The ASX could be in for a challenging session after US stocks struggled to hold onto gains.

The S&P 500 (blue-chip), Dow Jones (large cap) and Nasdaq (tech) all opened in positive territory, posting intraday gains between 0.5% and 1%. 

These gains faded towards close, with all three major indices closing around -1% lower. 

The Nasdaq has breached its 200-day moving average for the first time since March 2020, officially entering correction territory.

US stocks continue to whipsaw in wake of tightening economic conditions and elevated inflation. The US Federal Reserve will hold its interest rate decision meeting next Wednesday and Thursday. 

The general consensus is that the Fed won’t raise interest rates until March.

On the economic front, the US International Energy Agency predicts global oil demand to exceed pre-covid levels, expecting the impact of omicron to be ‘mild’.

Crude oil prices broke above 7-year highs on Wednesday, currently trading at US$86.7 a barrel.  

With all three major US indices staging a sharp U-turn before close, this could flag a weak session for local sectors.

▼ Materials  

The US materials sector was weighed by the performance of construction companies.

Whereas commodity prices posted broad-based gains overnight including iron ore, gold, nickel and silver. 

The US-listed counterparts of BHP (ASX: BHP) and Rio Tinto (ASX: RIO) rose 3.1% and 2.9% respectively.

▼Financials

US banks faltered despite Morgan Stanley posting a better-than-expected fourth-quarter profit. 

Other major banks including Goldman Sachs, JPMorgan and Citi all fell more than -1%. 

Yesterday, Goldman Sachs’ fourth quarter results flagged a 23% jump in operating expenses.

While the general view is that higher interest rates will help expand bank margins, it looks like expenses are also on the rise. 

#1 Nickel 

Last week, we flagged Nickel’s initial breakout into all-time highs. 

The Nickel Index hit another all-time high overnight as spot prices rallied to 11-year highs. 

Nickel Index, TradingView

According to Reuters, stockpiles in LME-registered warehouses have fallen more than -60% since April 2021. Inventories in Shanghai Futures Exchanges warehouse are at “near record lows”. 

Massive premiums are being paid to secure the limited supply.

This could see another bullish day for local nickel names including: 

• Nickel Mines (ASX: NIC) 

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

• Mincor Resources (ASX: MCR) 

• Panoramic Resources (ASX: PAN) 

#2 Silver

Silver made an appearance as an ASX sector to watch yesterday, given a meaningful 2.2% rally. 

Silver prices posted another overnight gain, up 3.1% to a 2-month high, closing above its 200-day moving average and testing the downward trend line.

Silver spot prices, TradingView

Silver is a relatively niche sector, especially on the ASX. Notable names include:

• Silver Mines (ASX: SVL) 

• Adriatic Metals (ASX: ADT) 

#3 Copper 

Copper has made a regular appearance as a sector to watch, with major breakouts taking place on 12 and 13 January. 

After a brief pullback, the Copper Mines ETF hit a fresh 7-month high overnight. This is despite no major breakout in copper spot prices.

Earlier today, Reuters reported expectations of further policy easing for the metals sector in China. Policymakers said that they will roll out more policy measures to stabilise the economy.

Although a higher Copper Mines ETF with no movement in spot prices could send mixed signals for local copper stocks. 

#4 Lithium and Rare Earths 

The Rare Earth/Strategic Metals ETF staged a slight pullback yesterday, where we flagged that: 

“Many ASX lithium stocks have greatly outperformed the ETF and set new all-time highs almost on a daily basis. This could put them at risk if the ETF experiences a sharp correction.” 

Overnight, the Lithium & Battery Tech ETF slumped -2.8%, close to a 3-month low. The Rare Earths ETF also fell -1.5%.  

Large cap ASX lithium stocks faltered on Wednesday, including: 

• Pilbara Minerals (ASX: PLS) down -3.9% 

• Allkem (ASX: AKE) sliding -6.9%

Whereas a number of explorers continued to run.

• Arizona Lithium (ASX: AZL) surged 21.4% 

• Winsome Resources (ASX: WR1) rallied 14.6% 

#5 Hydrogen

Investors continue to pull out of risky sectors, including hydrogen. 

The ETF hit its fourth consecutive all-time low overnight. 

This could drive negative flow for local names, notably Hazer (ASX: HZR).

ASX corporate actions occurring today:

• Ex-dividend: None today

• Dividends paid: None today

• IPOs: SQ2

• Issued shares: AD1, ADR, AEE, AND, BID, CRR, DOU, DRX, E25, EMT, ICI, IVT, KWR, LIO, MSB, NAB, PX1, QML, SEQ, SQ2, TYR, WAM, ZLD

Other things of interest 

Unemployment rate: Australia’s unemployment data for December will be released at  11:30 AM AEDT