Market Wrap

Morning wrap: US stocks lower despite strong GDP growth, ASX set to jump

Fri 28 Jan 22, 8:37am (AEST)

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ASX Futures (SPI 200) imply the ASX will open 101 points higher, up 1.5%. 

Major US indices tried to bounce from oversold territory, but once again staged another late session reversal to close in red.

Overnight summary

Thu 27 Jan 22, 9:37pm (AEST)

Name Value Chg %
US Indices
S&P 500 0 0.00%
Dow Jones 34,161 -0.02%
NASDAQ 100 13,353 -1.40%
Russell 2000 1,931 -2.29%
Country Indices
Canada 20,544 -0.25%
China 3,361 -0.97%
Germany 15,524 +0.42%
Hong Kong 23,550 -1.08%
India 57,200 -0.13%
Japan 26,717 +2.09%
United Kingdom 7,554 +1.13%
Name Value Chg %
Commodities (USD)
Gold 1,796.00 +0.16%
Iron Ore 130.81 -
Copper 4.422 -0.05%
WTI Oil 87.45 +0.97%
Currency
AUD/USD 0.7035 +0.04%
Cryptocurrency
Bitcoin 52,440 -0.38%
Ethereum 3,417 -3.25%
Miscellaneous
U.S. 10 Year Treasury 1.807 -2.22%
VIX 30 -4.60%

Key points

  • The S&P 500 (large cap), Dow Jones (blue-chip) and Nasdaq (tech) all rallied at least 1.6% in early activity. It appears that selling into strength has become a recurring theme as of late

  • The US Federal Reserve signalled its plans to raise interest rates in March on Thursday. Fed-funds futures now show that there is a 33% likelihood that the Fed will deliver five 25 basis point hikes this year, according to the CME FedWatch tool. The odds were sitting at 22% on Monday 

  • The US 2-year Treasury yield - which reflects short-term interest rate expectations rallied to 1.19%, the highest since March 2020

  • The US economy sped up in the December quarter, growing at an annual rate of 6.9%. Economists polled by the Wall Street Journal forecasted GDP to rise 5.5% 

  • Interestingly, the growth was supported by a lift in inventories and consumer spending, meaning supply chain bottlenecks are easing. Could we begin to see inflationary pressures ease? 

  • Tesla reported December quarter earnings, topping revenue and earnings expectations. However, the automaker flagged that supply chain issues are likely to persist throughout 2022. The company’s stock tanked -11% overnight


US Sectors

Thu 27 Jan 22, 9:37pm (AEST)

Sector Chg %
Communication Services 0.00
Consumer Discretionary 0.00
Consumer Staples 0.00
Energy 0.00
Financials 0.00
Health Care 0.00
Sector Chg %
Industrials 0.00
Information Technology 0.00
Materials 0.00
Real Estate 0.00
Utilities 0.00

Defensive sectors were mixed overnight, with utilities and consumer staples higher, but real estate and industrials lower.

▲ Energy 

Oil prices continued to hold around 7-year highs, weighed by the general pessimism surrounding equity markets. 

"The environment continues to be very bullish for oil prices, given supply issues within OPEC+, strong demand, and now, geopolitical risk premiums,"  said OANDA senior market analyst, Craig Erlam.

"It’s hard to see what’s going to stand in the way of triple-digit oil, especially if we see no diplomatic breakthrough between Russia and the West any time soon."

▲ Materials 

Copper prices tumbled -2.4% overnight but remain in the US$4.2-4.5 trading range. Iron ore continues its winning streak, adding 0.5% to US$138.75/t.

FastMarkets reported largely limited iron ore market activity in China ahead of the upcoming week-long Lunar New Year holiday.

The US-listed counterparts of BHP (ASX: BHP) and Rio Tinto (ASX: RIO) both rose 1.8% in overnight trade. 

▼ Technology 

Intel stock fell -6.5% after reporting its December quarter earnings. The chipmaker topped Refinitiv consensus expectations, with revenue coming in at US$19.5bn vs. US$18.31bn expected. Intel’s largest segment, the Client Computing Group, experienced a 7% year-on-year revenue decline to US$10.1bn.  

Intel and Tesla shares both sold off despite topping consensus expectations. This goes to show just how high expectations are. Perhaps investors are using earnings as a means to exit their positions.

Tomorrow marks a huge day for earnings with Mastercard, Apple, Visa and Robinhood reporting. 


Industry ETFs

Thu 27 Jan 22, 9:37pm (AEST)

Description Last Chg %
Commodities
Aluminum 64.8453 +0.98%
Copper Miners 38.23 -1.36%
Gold 169.79 -1.26%
Lithium & Battery Tech 77.73 -3.74%
Nickel 30 -1.22%
Strategic Metals 101.27 -3.33%
Steel 52.07 +0.17%
Silver 21.72 -3.22%
Uranium 19.97 -3.71%
Industrials
Aerospace & Defense 100.77 -1.94%
Global Jets 20.68 -1.45%
Healthcare
Biotechnology 126.22 -2.01%
Cannabis 4.76 -3.36%
Description Last Chg %
Cryptocurrency
Bitcoin 23.25 -4.04%
Renewables
CleanTech 14.23 -3.58%
Hydrogen 15.26 -6.68%
Solar 62.49 -3.76%
Technology
Cloud Computing 21.48 -0.42%
Cybersecurity 26.92 -0.67%
E-commerce 23.76 -1.94%
Electric Vehicles 27.6 -2.86%
FinTech 31.9 -2.85%
Robotics & AI 28.75 -2.33%
Semiconductor 467.27 -4.45%
Sports Betting/Gaming 20.93 -2.48%
Video Games/eSports 59.85 -2.29%

ASX Sectors to watch

#1 Hydrogen

The Hydrogen ETF hit another all-time low, down -31% year-to-date and down 51% since November all-time highs. 

During this time, local names like Hazer (ASX: HZR), Pure Hydrogen (ASX: PH2) and Lion Energy (ASX: LIO) have all collapsed, breaking key areas of support like 200-day moving averages and price points. 

With the ETF showing no signs of consolidation, who knows when the selling will stop.  

#2 Lithium 

The Lithium ETF is starting to roll over, posting a sharp -3.9% decline overnight. It broke below its 200-day moving average earlier this week. 

Conversely, lithium carbonate prices lifted to fresh all-time highs this week ahead of the Chinese New Year holiday. According to Shanghai Metals Mark, the rush to install electric vehicle batteries and a substantial expansion in the lithium battery sector by year end could see a raw material supply deficit of up to 28%

Will the increasingly bearish market pull lithium stocks lower, or will underlying fundamentals prevail? 

#3 Gold

Gold was pushing near-term highs of US$1,850 on Wednesday, after the Fed decision, its trading at just US$1,795.

“It seems that weeks of traders embracing gold like an old friend that offers inflation protection have quickly unwound and it’s been quickly cast aside,” said OANDA senior market analyst, Craig Erlam, adding that “while it has found some support around US$1,800 today and may remain supported to some extent out of fear that even five hikes won’t do it, it’s certainly fallen out of favour and may have peaked for now.”

Local gold stocks sold off sharply on Thursday and the overnight move for spot prices is offering little consolidation.

#4 Tech

The FinTech and eCommerce ETFs marked another session of fresh 16-month lows. 

Notably, US-listed BNPL stocks including Block and Affirm sank -4.8% and -8.5%.

This could flag further negative flow for local names.

Can you believe that Zip (ASX: Z1P) is now sub $3?


Today's events

ASX corporate actions occurring today:

  • Ex-dividend: GCI, PCI, QRI, TCF

  • Dividends paid: AOF, CAM, CIP, COF, MTS, REP, VTS

  • IPOs: BRX, FRE

  • Issued shares: 1MC, AGH, ARR, AVR, BRK, BXB, CQE, CRR, CTD, EMT, ESS, IVO, IVZ, LNY, MFF, NAB

Other things of interest: 

  • China will release its manufacturing purchasing manager index (PMI) figures for January on Sunday, 12:30 pm AEDT

 

Written By

Kerry Sun

Finance Writer & Social Media

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.

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