Morning Wrap: Wall St bounces as oil prices tumble, Apple unveils iPhone 14, ASX to rise

US stocks bounced as surging bond yields take a break, Apple unveils its iPhone 14 which includes satellite messaging features, the Bank of Canada hikes rates by 75 bps and Terra Uranium makes its ASX debut at 11:00 am AEST.

Let’s dive in.

MARKETS

US stocks bounce but the macro picture looks as grim as ever. Overnight, more than 40 CEOs of European metal groups warned of an "existential threat" to the industry due to sky rocketing gas and electricity prices.

"50% of the EU's aluminium and zinc capacity has already been forced offline ... as well as significant curtailments in silicon and ferro-alloys production and further impacts felt across copper and nickel sectors," the letter said.

"In the last month, several companies have had to announce indefinite closures and many more are on the brink ahead of a life-or-death winter for many operations."

In-line with the macro doom and gloom, Sentiment Trader points out that in the last week, institutional traders bought US$8.1bn worth of put options and less than US$1bn in calls - three times more extreme than 2008.

Source: Sentiment Trader

"There is a huge short position on the market currently which will provide fuel for a significant rally when it reverses. For now, there is no sign hedgers are lifting short exposures," said Lance Roberts, Chief Strategist at RIA Advisors.

• 10 out of 11 US sectors advanced

• Utilities and Discretionary sectors rallied more than 3%

• Energy was the only red sector

• Tech, Industrials, Healthcare and Staples slightly underperformed benchmarks

• 74% of US stocks advanced

• 62% of US stocks trade below their 200-day moving average (65% on Wednesday, 61% a week ago)

STOCKS

• Twitter (+6.6%) shares rallied after a Delaware court rejected Elon Musk’s request to postpone the trial about his terminated takeover

• Apple (+0.9%) unveiled several new products including:

  • iPhone 14 & iPhone 14 Plus

  • Apple Watch Ultra

  • New AirPods Pro

  • Apple Watch Series 8

  • Satellite emerging service for iPhones

• GameStop (-4.3%, after hours: +10.6%) posted US$1.14bn net sales for the quarter, a slight year-on-year decline. Losses widened and inventory levels surged. The company  also disclosed a new partnership with crypto exchange FTX 

WORLD NEWS 

• Apple suppliers caught up in Chengdu COVID lockdown extension (Nikkei Asia)

• Samsung warns the semis industry could be in for a rocky close to 2022 (Bloomberg)

• EU to propose mandatory cut in electricity use (Bloomberg)

• Bank of England says Truss energy plans could slow inflation (Reuters)

ECONOMY

• US balance of trade was -US$70.7bn in July from -US$80.9bn in June

  • The US traditionally runs a trade deficit for goods and a surplus for services

  • The deficit has eased to a nine month low

• Canada raised interest rates by 75 bps to 3.25%

  • In-line with consensus expectations

  • This follows a surprise 100 bp hike in July and brings the cumulative policy tightening to 300 bps since February

  • “Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further.”

  • “Further hikes are coming, but likely at a slower pace with the policy rate set to hit 4% before year-end,” said ING, adding that “With inflation also expected to gradually subside through 2023, we are looking for BoC rate cuts in late 2023.”

• Fed Cleveland President Loretta Mester speech highlights:

  • Sees funds rate somewhat above 4% early next year

  • Inflation likely to cool to between 5-6% by next year

  • Not convinced inflation has peaked yet

  • Will determine the preferred size of rate increase at the September meeting at the meeting itself

• Fed Vice Chair Lael Brainard speech highlights:

  • Fed in it for ‘as long as it takes’ to curb inflation

  • Monetary policy will need to be restrictive ‘for some time’

  • ‘At some point in the tightening cycle, the risks will become more two-sided. The rapidity of the tightening cycle and its global nature … create risks associated with over-tightening.’

• Fed Beige Book: “Economic activity was unchanged, on balance, since early July, with dive Districts reporting slight to modest growth in activity and five others reporting slight to modest softening.”

  • Link to full Beige Book

COMMODITIES

• Iron ore futures rose 0.6% to US$97.7 a tonne

  • “China’s iron ore market is likely to see demand remain steady this month, with support derived from steelmakers resuming production, now that their margins are positive,” according to Mysteel’s monthly report

  • “But any growth in ore demand will hardly be significantly”, the report added

• Oil prices plummeted to levels not seen since late January

  • Reuters: “The spectre of a demand-sapping recession across the Western world is closer to becoming reality as soaring inflation and rising interest rates dent consumption,” said PVM analyst Stephen Brennock

  • Oil is now down -9.9% since Russia invaded Ukraine

• Gold prices rallied as Treasury yields and the US dollar eased

My quick two cent spiel: There's no denying that the broader ASX 200 is in a rather dire place from both a technical and macro perspective. Still, the sectors that led and outperformed during the July to mid August rally have held up pretty well.

I'm talking about sectors and sub-sectors including healthcare, tech, lithium and coal. Several stocks from these sectors have managed to withstand the recent selloff, defend key price levels and even push higher.

The predicament here is do you listen to the individual stock or the index?

Moving on.

A bounce is in play but so what: A Wall St bounce and firmer SPI futures could position the local sharemarket for a bounce on Thursday. A much needed one after we got smashed -1.4% on Wednesday. Separately, most of the ETFs we track rallied between 1-3%. But most of their charts look like the Nasdaq, with the recent selloff wiping off roughly 50% of the July/August rally. We've bounced, but so what? The charts in no man's land and it feels like a coinflip scenario as to what happens next.

Strength from solar and renewables: The Solar and Cleantech ETFs both managed a sizeable rally off key inflection points.

Invesco Solar ETF chart (Source: TradingView, Annotations by Market Index)

Jets bounce: US Global Jets ETF bounced 3.5%. Local travel stocks like Flight Centre (ASX: FLT) and Webjet (ASX: WEB) are trading around the lows of their recent 3-4 month trading ranges. Could we see them bounce off lows?

US Global Jets ETF chart (Source: TradingView, Annotations by Market Index)

Expect more weakness from energy stocks: Energy stocks should see some weakness following the deterioration of oil prices.

Brent crude oil chart (Source: TradingView, Annotations by Market Index)

Stocks going ex-dividend:

• Thu: APM, ASX, BLX, CEN, CLX, EBO, EHL, GEM, GLB, LBL, MHJ, MND, MVF, OCL, PME, PPT, PWR, RMC, RWC, SFC, SIQ, SKT, SRG, WDS

• Fri: ALI, AMO, NEC, NTD, SEQ, WTC

• Mon: CNU, DSK, DUR, DVR, HUB, JYC, LSF, MTO, PGC, PRU, SND

• Tue: FOS, GRR, IGL, ING, NWS, OCL, PSI, TPG

• Wed: BRG, CAF, CGC, LOV, MCY, MGH, NZM, PPM

ASX corporate actions occurring today:

• Dividends paid: BWF, GCI, QAL, SGF, TGA, ZIM

• Listing: T92

• Issued shares: ABP, AII, AQI, BNZ, BOD, BRG, CBA, EBR, ENX, ERW, FPC, K2F, KLL, KP2, KYK, LGP, LOT, MFG, MND, MYS, NAB, NET, NHC, NOL, NTI, OFX, T92, WQG

Other things of interest (AEST): 

• Australia Balance of Trade at 11:30 am 

• RBA Governor Lowe Speech at 1:05 pm

• Eurozone Interest Rate Decision at 10:15 pm