Morning Wrap: US stocks extend losses, Bank of England hikes by 75 bps, ASX to fall

Wall Street extended losses after the Fed's hawkish press conference on Thursday, the Dow continues to outperform the S&P 500 and Nasdaq, Energy stocks leap on bumper earnings, China sticks to its zero covid strategy and the Bank of England raises interest rates by 75 bps but appeared rather dovish.

Let's dive in.

US MARKETS

US markets continued to sell off, in search of a new floor.

• The blue-chip Dow continues to outperform the Nasdaq on a relative basis, suggesting a rotation away from growth-heavy sectors

• The Nasdaq Composite is down -5.03% in the last two sessions and a little over 2% away from its 13 October low

• Energy led to the upside despite weaker oil prices. Heavyweight names like Marathon Oil and Conocophillips rallied on bumper earnings, pulling the sector higher

• Defensive sectors varied in performance but still ahead of benchmarks, led by Industrials and Utilities

• 55% of stocks declined

• 58% of stocks trade below their 200-day moving averages (57% on Thursday, 58% a week ago) 

STOCKS

• Crown Holdings (+10.4%) shares rallied after Carl Icahn took an 8% stake in the packaging company worth around US$700m

• Boeing (+6.3%) plans to ramp up production and deliveries of new aircraft, targeting 400 to 450 of its 737s in 2023. Boeing also upgraded its cash flow forecast for next year, up to US$3-5bn

EARNINGS

Approximately 80% of S&P 500 has reported earnings, the expected growth rate is 4.7%, according to Refinitiv, up slightly from the 4.5% at the start of October.

Etsy (+14.3%) posted a strong third quarter that was ahead of analyst expectations and noted the business remained strong in a volatile economic environment

• "We don’t know whether consumers will spend more or less on gift giving, or whether they’ll do more shopping online or in the mall..." - CEO Josh Silverman

Conocophillip (+5.8%) joins in on the long list of bumper earnings from oil and gas players.

• Third quarter earnings almost doubled against the prior period but down -9.7% compared to the previous quarter

• ConocoPhillips raised its quarterly dividend by 11% and increased its share buyback plan by US$20bn 

Qualcomm (-7.7%) shares tumbled after its fourth quarter guidance missed analyst expectations.

•  “We now project 3G, 4G, 5G handset volumes in calendar 2022 to decline by low double digits on a year-over-year basis … This rapid deterioration in demand and easing of supply constraints across the semiconductor industry have resulted in elevated channel inventory.” - CEO Cristiano Amon

• “Due to these elevated levels, our largest customers have made significant changes to their inventory policy. They are now drawing down on their inventory, negatively impacting our near-term financial performance.” 

• “We believe this may take a couple of quarters to work itself through.”

WORLD NEWS 

• Lagarde says 'mild recession' won't tame inflation (Financial Times)

• Chinese health authorities reiterate adherence to zero covid (Bloomberg)

ECONOMY

Eurozone unemployment fell to 6.6% in September from 6.7% in August.

• Eurozone unemployment stands at an all-time low

UK raised interest rates by 75 bps to 3.0%.

• The Pound nosedived more than 2 cents after the historic increase

• “We can’t make promises about future interest rates, but based on where we stand today we think Bank Rate will have to go up by less than currently priced in financial markets.” - Governor Andrew Bailey 

• UK inflation was 10.1% in September, up from 9.9% in August

US September trade balance was -US$73.3bn from -US$65.7bn in August.

•  The trade deficit rose 11.6% month-on-month with exports down -1.1% and imports up 1.5% 

US services PMI declined to 54.4 in October from 56.7 in September.

• Missed consensus expectations of 55.5

• The US services industry is growing at its slowest pace in almost two-and-a-half years

• “The sector had a pullback in growth for the second consecutive month in October due to decreases in business activity, new orders and employment.” - Institute for Supply Management

COMMODITIES

Iron ore futures rose 0.7% to US$84 a tonne.

• “Recently released data shows that daily crude output at large and medium-sized mills in China averaged 2.06 million tons during October 11 - 20. This is 2% less than was seen during the prior ten days but is up year-on-year by 10%. Overall, it remains encouraging that China’s steel output has remained well above last year’s level,” - Breakwave Advisors

Oil prices slumped as China sticks to its ‘zero tolerance’ approach to covid. Local daily cases hit 3,200 for November 2, the highest in two and a half months.

• “Oil is battling both a weakening global economic outlook and a surging dollar. ​ It seems these bearish drivers won’t be easing up anytime soon and that could mean WTI crude could be vulnerable to last week’s low.” - Oanda senior market analyst, Ed Moya

Gold is fast approaching recent lows after Fed Chair Powell signalled that rates will be going much higher, which is weigh on the non-interest bearing yellow metal.

Other commodities of interest:

• Newcastle coal futures -3.45% to US$350 a tonne

QUICK BITES

• 50 or 75 bps: CME's Fedwatch tool is pricing in an almost coinflip between a 50 and 75 bp hike (47.2% versus 52.8%) at the Fed's December meeting.

• Trillion dollar club no more: Apple ($2.3tn) is now worth as much as Alphabet ($1.13tn), Amazon ($940bn) and Meta ($240bn) combined

• China's GDP by region: Covid zero has hit some of the most important manufacturing and service hubs in China.

Source: Bloomberg

Source: Bloomberg

Learn more about our overnight ETFs.

The Fed denied us of an early pivot, sending the markets in search of a new floor. The terminal fed funds rate is now 5.10% from 4.75%, which suggests another 125 bps of hiking.

The higher terminal rate plus the 'higher for longer' narrative is not a positive for tech. We can see a very clear rotation and divergence in performance between the Nasdaq and Dow.

The ASX 200 sits somewhere in between the two US benchmarks, given our weighting towards financials and materials. As far as today is concerned, SPI futures imply a -0.35% open. Can we hold above the 50-day moving average and find some support around the ~6,820 level?

XJO chart (Source: TradingView)

Sectors to watch

Unsurprisingly, our overnight ETF list shows an underperformance across tech-related sectors like Cybersecurity, FinTech, Semiconductors and Cloud.

Some resource-related ETFs like Lithium, Solar, Copper and Uranium tried to bounce but price action remains choppy.

Overall, the market remains in a vulnerable and volatile place. Yields and the US dollar continue to trend higher post-Fed, which has pressured equities.

Stocks going ex-dividend over the next week:

• Fri: Janus Henderson (JHG)

• Mon: Australia and New Zealand Bank (ANZ), Champion Iron (CIA), Macquarie (MQG) 

• Tue: Reckon (RKN)

• Wed: KMD Brands (KMD), ResMed (RMD), Waterco (WAT)

• Thu: None

ASX corporate actions occurring today:

• Dividends paid: Webcentral (WCG)

• Listing: Taiton Resources (T88)

Other things of interest (AEDT):

• 11:30 am: RBA statement on monetary policy

• 11:30 pm: Canada unemployment rate

• 11:30 pm: US unemployment rate