Morning Wrap: US stocks stumble on weak economic data, ASX set to fall

ASX Futures (SPI 200) imply the ASX 200 will open 84 points lower, down -1.2%.

Wall Street gave back early gains, downbeat economic data continues to stoke recession fears, China eases covid restrictions and US earnings season kicks off next month.

Let’s dive in.

Markets

The S&P 500 rallied 1.17% in early trade, bolstered by a relaxing of quarantine restrictions in China. Gains faded following a series of disappointing economic data, which also raised concerns about second quarter earnings season next month. Analysts expect earnings for S&P 500 earnings to grow 4.3% in the second quarter, the slowest pace since the fourth quarter of 2020, according to FactSet. 

• The S&P 500 closed -2% lower, the 4th time this year that it has traded up more than 1% intraday but finished down more than -1% 

• Every sector was lower except for Energy

• Growth-oriented sectors were hit the hardest

• Defensive sectors including Utilities, Financials, Materials and Consumer Staples were relative outperformers

• 68% of US stocks fell

• 74% of US stocks trade below their 200-day moving average (73% on Tuesday, 77% a week ago) 

Stocks

• 6 of the biggest US banks including Morgan Stanley, Bank of America and Wells Fargo said they have enough capital to either maintain or raise dividends

• Occidental Petroleum (+4.8%) rallied on news that Warren Buffet’s Berkshire Hathaway has bought another US$44m in the oil and gas company 

• Volkswagen (+1.40%) CEO Herbert Diess said he expects to narrow the gap with Tesla this year. Diess said the company is earning more than ever despite chip shortages, which are now easing 

• Airbnb (-3.9%) has permanently banned “disruptive parties and events” at holiday homes. This was meant to be a temporary ban due to covid

• Nike (-7%) released its earnings after hours on Tuesday. A lower effective tax rate due to a shift in earnings mix allowed Nike profits to be higher than expected. Nike said it expects low double-digit revenue growth in 2023

• Carvana (-18.5%) shares dipped after investment bank Stifel Nicolaus downgraded the stock, flagging that the cost of capital needed to fund a loss-making business like Carvana has reached all-time highs. The stock is down -91% in the last 12 months 

Economy

• China cut its quarantine period for international travellers

  • Overseas travellers will need to quarantine at a centralised facility for 7 days upon arrival, and then an additional three days at home before they can go out

  • Previously, arrivals had to spend 14 to 21 days in centralised quarantine

• US consumer confidence hit a 16-month low

  • The index fell -4.5 points to 98.7 in June

• US consumer inflation expectations over the next 12 months hit a record high of 8.0% from 7.5% in May

• US Richmond Fed Manufacturing Index was -19, the lowest reading since May 2020

Commodities

• Iron ore futures rallied on Tuesday, supported by positive market sentiment inspired by easing covid quarantine restrictions in China, sources told Fastmarkets

• Oil prices are on a 3-day winning streak, supported by easing restrictions in China, reports the UAE is producing near capacity and OPEC missing its output targets by a wide margin

• Gold continues to edge lower in the face of higher yields and firm US dollar 

The S&P/ASX 200 surprisingly rallied on Tuesday after a weak lead from Wall Street. The local sharemarket is now set to snap a 4-day winning streak and give back some hard earned gains.

Several overnight ETFs held up relatively well (still red but no panic), including:

• Uranium -1.7%

• Lithium & Battery Tech -1.3%

• Rare Earth/Strategic Metals -1%

• Jets -0.76%

• Copper Miners -0.55%

More notable sectors to watch include:

#1 Tech

Growth stocks were hit the hardest overnight, especially in tech. Notable decliners include:

• Affirm -9.5%

• Zoom -5.6%

• Block -5.5%

• Amazon -5.1%

• Tesla -5%

Not a good look for local tech stocks.

#2 Energy

Energy was the only positive sector overnight, up 2.7%. Brent crude is now on a 3-day winning streak, up 7.7% to US$118 a barrel.

Oil prices rallied after China's commitment to its strict zero-covid strategy started to waver. Lowering the quarantine time for overseas travellers was viewed as a boost for oil demand.

The supply side continues to ensure that oil pullbacks remain short-lived. OPEC+ is more than half a billion barrels behind its pledge to pump more oil, according to Bloomberg. OPEC+ compliance has surged to 256% in May, which is 2.7m barrels per day below its targets.

ASX corporate actions occurring today:

• Ex-dividend: AOF, APA, APZ, ARF, BWP, CD3, CDP, CHC, CIP, CLW, CMW, CNI, COF, CQE, CQR, DXC, DXI, DXS, ENN, ERF, FOR, GCI, GDF, GDI, GMG, GOZ, HCW, HDN, HPI, KKC, LFG, MGR, OZF, OZR, PCI, QRI, RCT, REP, RFF, SCP, SFY, SGP, SLF, TCF, TCL, TGP, TOT, WPR

• Dividends paid: PPK

• Listing: None

• Issued shares: 88E, BAT, CEL, E2E, ENA, IVZ, LVH, MAY, MEB, MFG, MGT, NAB, NBI, PNR, REE, RF1, RMC, RSG, SYA, TGA, TSO, VUL

Other things of interest (AEST): 

• Australia Retail Sales (May) at 11:30 am

• US Fed Mester Speech at 8:30 pm

• US GDP Growth Rate (June Quarter) at 10:30 pm