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

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