Morning Wrap: Wall St bounces but books another week of losses, ASX set to rise

Wall Street closed a miserable week on a more positive note, Fed Chair Jerome Powell reiterates half-point hikes are likely in June and July, the US faces a baby formula shortage and Saudi Aramco overtakes Apple as the world’s most valuable company. 

Let’s dive in.

Stocks

• Major US indices were sharply higher last Friday but still booked another week of losses. Last week's performances:

  • Dow Jones -1.76%

  • S&P 500 -2.4% 

  • Nasdaq -2.8%

• The Fed seems to favour half-point rate hikes at the next two meetings

  • Cleveland Fed President Loretta Mester backs half-point rate hikes. Adding that the Fed can speed up or slow down depending on inflation

• All 11 US sectors were green

• Discretionary, tech, energy and real estate stocks outperformed

• 76% of US stocks advanced

• 74% of US stocks trade below their 200-day moving average (76% last Friday, 71% a week ago)  

• Affirm (+31.4%) reported a smaller-than-expected loss and beat top-line estimates in the March quarter. Management said that despite the market’s poor performance, Affirm customers are spending healthily 

• Robinhood (+24.9%) rallied after Sam Bankman-Fried, the CEO of cryptocurrency exchange FTX Trading, took a 7.6% stake in the trading platform 

• Twitter (-9.7%) shares sold off after Elon Musk tweeted that the deal to buy the social-media company was temporarily on hold, pending details that spam and fake accounts represent less than 5% of users

Economy

• The Australian Housing Industry Association (HIA) reported a -1.2% over-the-month decline in new home sales in April

• US import prices were unchanged in April

  • Economists were expecting a 0.6% gain

  • Prices from overseas goods have risen 12% over the past year

• University of Michigan’s consumer confidence reading fell to 59.1 in May from 65.2 in April

  • In the last 70 years, the only time consumer sentiment was this low without the US being in a recession was a brief period during the 2011 bear market

  • The other three occasions 1973-75, 1980 and 2008-09 were all recessions

• Goldman Sachs cut US Q2 GDP forecasts by 0.4 percentage points to 2.5%. The investment bank cited:

  • Slower US auto production

  • A “pickup” in core CPI

  • A potential “slowdown in consumer spending in late April and early May - perhaps in response to tighter financial conditions and higher consumer prices”

Commodities

• Iron ore futures up 0.6% to US$130.9 a tonne. According to Fastmarkets: 

  • Sentiment improved due to rumours that property rules will be eased in the key financial centre Hangzhou along 

  • Growing interest in mid-grade fines across China

• Oil prices were modestly higher after Russia rolled out gas sanctions on some European importers, raising a potential spillover into oil markets

• Gold continues to fall as investors seem to favour other safe haven assets like the US dollar and US bonds 

The market got the bounce it was looking for. We've seen plenty of tragic rallies this year, so let's see if this one can hold.

Another Mark Minervini reminder that "a deeply oversold market can produce a short-term rally. However, considering the damage in stocks and fundamental headwinds, there's still a relatively high level of complacency. Expect volatility as the market searches for a bottom."

#1 Tech

The Nasdaq rallied an outsized 3.7% last Friday. It seemed like the bounce went something along the lines of "the more beaten up the stock, the stronger the rally."

Notable gainers include:

• Affirm +31.4%

• Coinbase +16%

• Zoom +11.6%

• Block +11.1%

• Nvidia +9.5%

Local tech stocks also rallied strongly last Friday, with names like Xero (ASX: XRO) and Megaport (ASX: MP1) both rallying more than 9%.

The Nasdaq bounce and SPI futures could see more positive flow follow through for local tech stocks. But again, let's see if these gains can hold.

#2 Energy

Energy was another top performing S&P 500 sector last Friday, up 3.4%.

This was on the back of higher oil prices, reclaiming the US$110 mark.

Source: TradingView

"Crude prices rallied on optimism that China’s COVID situation was not worsening and as risky assets rebounded. The crude demand outlook is not going to fall apart as the US enters peak driving season and as European air travel remains solid," said Oanda senior market analyst, Ed Moya.

"The focus for much of the week has been on the EU’s inability to reach agreement on a Russian oil ban, which suggests we won’t have an immediate shock to the oil market."

Large cap energy names like Santos (ASX: STO) and Beach Energy (ASX: BPT) have been trading sideways for the past 2-3 months. Eyes on whether or not they can break above (or below) their recent trading ranges.

#3 Uranium

Uranium is one of several beaten up sectors that rallied last Friday. Though, the Global X Uranium ETF remains -28.5% from mid-April highs.

The ETF is trying to reclaim the bottom of its longstanding trendline. It won't be a good look if the ETF fails to hold above it in the next few sessions. (If the chart was inverted, it looks like its breaking out)

Global X Uranium ETF (Source: TradingView, Annotations by Market Index)

In-line with uranium's weakness, spot prices have slumped from year-to-date highs of almost US$65/lb to US$51/lb.

Source: TradingEconomics

#4 Lithium

The Rare Earth/Strategic Metals ETF is another chart clinging on to dear life.

The ETF staged a solid bounce last Friday, which could see some positive follow through for local names.

Much like the Uranium ETF, it needs to stabilise at these levels.

VanEck Rare Earth/Strategic Metals ETF (Source: TradingView, Annotations by Market Index)

ASX corporate actions occurring today:

• Ex-dividend: MQG, PL8, QVE, RHI, SNC, WAA, WGB

• Dividends paid: QRI

• Listing: SXG

• Issued shares: AML, AR1, BIO, CLW, D2O, EQT, FZO, GLV, GTE, GVF, LKE, MFG, NAB, NBI, NRZ, PIL, PYR, QFE, RWD, SHP, SRJ

Other things of interest (AEST):

• China Industrial Production (Apr) at 12:00 pm

• China Retail Sales (Apr) at 12:00 pm

• China Fixed Asset Investment (Apr) at 12:00 pm