Morning wrap: US stocks fizzle as Ukraine optimism fades, ASX to inch higher

ASX Futures (SPI 200) imply the ASX will open 10 points higher, up 0.13%.

Major US indices declined as Russia-Ukraine optimism began to fade, inflation data across Europe smashed expectations, the yield curve continued to flag recession warnings and commodity prices inched higher.

Let’s dive in.

Stocks

• Major US indices finally took a breather after a massive run since mid-March. Factors weighing on the market include:

  • Russian forces continue to shell areas around Kyiv and other Ukrainian cities, despite pledging to cut back attacks

  • Omicron subvariant known as BA.2, described as even more contagious than the original omicron, accounted for more than half the new covid cases in the US, according CDC

  • The yield curve temporarily inverted as the US 2-year Treasury yield surpassed the 10-year

• 4 out of 11 sectors closed in positive territory

• Energy, utilities, healthcare and staple stocks outperformed

• Sectors that have led recent gains underperformed, notably discretionary and tech

• 63% of US stocks declined

• 58% of US stocks trade below their 200-day moving average (55% yesterday, 62% a week ago)

• Lululemon Athletica rallied 9.6% after topping US$6bn in sales for the first time. The company expects to hit US$7.5bn this year

Economy

• The US private sector added 455,000 jobs in March. Economists surveyed by Dow Jones Newswires and The Wall Street Journal were expecting a gain of 450,000

• Spanish inflation was up 9.8% year-on-year in March, the biggest rise since 1985

• German inflation was up 7.3% year-on-year in March, a 30-year high

Commodities

• Iron ore prices continue to hover US$150 a tonne. Market participants in China remain pessimistic about physical iron ore demand in China in the short-term amid low steel mill margins, sources told Fastmarkets 

• Oil prices are trading around US$110 a barrel as no progress was made in peace talks between Russia and Ukraine

• Gold staged a small rally as investors grew more skeptical over peace agreements 

Nothing too interesting happened overnight.

As US trader Mark Minervini said this morning, "indexes are pulling back as expected. A pullback of 3-5% would be normal during a new up leg ... the key is how stocks behave during a pullback and if the indexes can avoid serious distribution."

Putting that into my own words - this is just a garden variety pullback after a massive run up. Index volumes will be key. If the market experiences heavy distribution (selling), this could indicate further weakness.

In terms of sectors to watch, most industry ETFs were up or down less than 1% overnight.

• Bitcoin and US Global Jets ETFs eased slightly

• Rare Earths/Strategic Metals, Uranium, Steel and Copper ETFs were slightly positive.

#1 Tech

In the past few months, tech has the tendency to amplify whichever direction the market is going.

Several meme stocks topped the loser-boards overnight, including:

• AMC -12.7%

• RobinHood -8.5%

• GME -7.3%

The Global X FinTech, Cloud and eCommerce ETFs fell between -1.8% and -2.8%.

This will likely drive negative flow for local tech names.

#2 Energy

Oil prices appear to be trapped in quite a binary position.

• Peace talks advance = oil prices fall

• Further escalation = oil prices rally

"As skepticism grows over whatever progress happened the other day, energy traders could quickly erase the drop that occurred over the past week," said Oanda senior market analyst, Ed Moya.

"The oil market still remains very tight and stockpiles are too low. Concerns about demand destruction are growing as the economic growth outlook is starting to look a little vulnerable."

#3 Gold

Gold has gotten far too many investors excited at the prospect of breaking out to all-time highs.

"Gold is poised to make a strong run here as geopolitics, inflation, and growth concerns, all remain big risks to the outlook," said Moya.

ASX corporate actions occurring today:

• Ex-dividend: APE, CDM, CDO, EDC, GVF, HVN, IMA, MOT, MXT, PGG, RCB, RDV, RGB

• Dividends paid: ALD, ALX, AMO, BEN, BGP, BPT, BSE, BST, CGO, COL, DRR, DTL, GC1, IBC, KLS, KPG, MEC, NCM, PL8, PWR, RHC, SSG, SYM, TOP

• Listing: None today

Things of interest (AEDT): 

• China manufacturing PMI (March) at 12:30 pm