Morning Wrap: Wall St bounces, BHP and Rio Tinto set to rally, ASX to rise

ASX Futures (SPI 200) imply the ASX will open 77 points higher, up 1.07%.

Wall Street continues to dip one day and rally then next, Microsoft downgraded its earnings, iron ore rallies past US$140 and oil surges after a modest OPEC+ boost. 

Let’s dive in.

Markets

• It was a broad-based rally for Wall Street as investors remain divided between recession calls and aggressive interest rate hikes, and hopes that inflation has peaked and a possible soft landing for the economy

• 10 out of 11 US sectors advanced

• Discretionary, materials and tech outperformed 

• Energy and utilities were the worst performing sectors

  • They also happen to be the only two sectors that are up year-to-date

• 76% of US stocks advanced

• 67% of US stocks trade below their 200-day moving average (69% on Thursday, 70% a week ago) 

Stocks

• 97% of S&P 500 companies have reported first quarter earnings

  • Earnings per share growth is down -14% compared to the fourth quarter of 2021 and down -0.4% year-on-year

• GameStop (+10.4%) delivered its March quarter earnings, with revenue slightly up compared to a year ago. The meme stock posted a quarterly loss of -US$158m, up from -US$66 a year ago

• Microsoft (+0.8%) shares bounced off session lows of -4% after downgrading its earnings guidance, blaming unfavourable foreign exchange rates (surging US dollar is bad for earnings)

• Hewlett Packard (-5.2%) after missing analyst earnings expectations

  • Margins have been under pressure due to higher freight costs and component pricing

  • A strong US dollar is also taking a toll on profits 

Economy

• Australian retail sales rose 0.9% on-the-month in April 

  • In-line with expectations

  • Cafes, restaurants and takeaway segment rose the most, up 3.3%

  • Department stores and household goods retailing segments dipped around -2.6% 

• US private-sector payrolls rose by 128,000 in May

  • Economists polled by The Wall Street Journal had forecast a gain of 299,00

• US first-time jobless claims fell 11,000 to 200,000

  • Applications for unemployment benefits are falling again after reaching a 4-month high in early May 

Commodities

• Iron ore rallied past US$140/t on hopes of a recovery in demand after Shanghai reopened from covid lockdowns and the government rolled out a series of measures to drive economic growth

• Oil rallied, trying to reclaim US$120 after a larger-than-expected draw from the US Energy Information Draw

  • OPEC+ plans to increase production from 430,000 bpd to 648,000 bpd to meet demand

• Gold is pushing a 1-month high as investors begin to shift towards safe-havens amid ongoing inflation fears and economic growth concerns 

#1 Iron Ore

US-listed BHP and Rio Tinto rallied 5.6% and 3.5% respectively amid higher iron ore prices and optimism surrounding Chinese stimulus.

Its worth noting that local BHP (ASX: BHP) and Rio Tinto (ASX: RIO) were -0.1% and -1.7% respectively on Thursday.

#2 Uranium

Uranium spot prices have reclaimed US$50/lb, compared to:

• April 14: US$64/lb

• May 23: US$47/lb

The Global X Uranium ETF rallied 5.3% thanks to firmer spot prices and the broader risk-on attitude for equities. The overnight moves could send some positive flows for local uranium names, especially after a rather challenging past two days.

#3 Lithium

The VanEck Rare Earth/Strategic Metals ETF rallied 5.1%, but still down -2% since the string of bad news on Wednesday.

Rare Earth/Strategic Metals ETF (Source: TradingView)

The chart looks rather intact compared to most ASX lithium companies, many of which experienced a demoralising 10-20% selloff on Wednesday and failed to bounce on Thursday.

The magnitude of the selloff (in terms of % decline and relative volume) for a name like Pilbara Minerals (ASX: PLS) is quite damaging for the stock. To remain bullish, the stock needs to, at the very least, stabilise around Wednesday (close) levels.

#4 Copper

Copper prices rallied 5.2% overnight to US$4.55.

Copper prices have been trading sideways for more than a year. The overnight rally brings copper back to the mid-point of its longstanding trading range.

The price surge was again bolstered by China's reopening and stimulus optimism, and shortage concerns.

Copper spot price (Source: TradingView)

#5 Tech

The usual US tech suspects topped the leaderboards, including:

• Affirm +8.6%

• PayPal +7.1%

• Nvidia +7%

• Block +6.8%

• Tesla +4.7%

The S&P/ASX 200 Info Tech is on a 3-day losing streak, down -5.8%. The rebound for US tech names and positive SPI futures will look to turn things around for local tech names.

ASX corporate actions occurring today:

• Ex-dividend: PPK

• Dividends paid: QVE, UOS

• Listing: None

• Issued shares: AHX, AKO, ASP, BIO, BTH, DAF, GRL, GSM, IR1, JHG, KNI, LAM, LIT, LPD, MQG, MTB, NBI, NXS, OEX, OIL, OPY, PNT, PPC, PXX

Other things of interest: 

• Aus Home Loans (April) at 11:30 am

• EU Retail Sales (April) at 7:00 pm

• US Unemployment Rate (May) at 10:30 pm