Morning Wrap: Wall St bounces from bear market territory, Labor comes into power, ASX to fall

The Dow Jones and S&P 500 eked out a small gain after a volatile session, China continues to slash interest rates to reduce mortgage costs, US Treasury yields ease as investors return to bonds and Albo secures a majority Labor government.  

Let’s dive in.

Stocks

• The Dow Jones and S&P 500 both rallied in the last hour of trade, bouncing off session lows of more than -2%

• All three major US indices booked another week of losses, now suffering through 7 straight weekly declines

• The Nasdaq selloff has now exceeded the pandemic selloff, but still about 20% above pre-pandemic highs

• Last Friday was the final day of trading before stock and ETF options expire, a potential factor driving outsized volatility during the session 

• 6 out of 11 US sectors were green

• Defensive sectors including healthcare, real estate, utilities and staples outperformed

• Financials, materials, industrial and consumer discretionary were red

• 49% of US stocks declined 

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

• Foot Locker (+4.1%) reported better-than-expected quarterly earnings. The athletic footwear and apparel retailer expects to achieve the upper end of its revenue and earnings guidance for the full year 

• John Deere (-14.1%) stock slumped despite a second quarter earnings beat and profit forecast boost driven by farm equipment demand

• Ross Stores (-22.5%) is another retailer delivering disappointing quarterly results and downgraded its outlook, blaming higher inflation, rising freight and wage costs 

Economy

• Labor will form the next parliament of Australia after winning the 2022 federal election

  • We’ll take a closer look at their policies throughout the day, so watch this space

• China cut its rate on five-year loans to 4.45% from 4.6%, hoping to inspire some activity within its declining property sector

• US existing home sales declined -2.4% in April, falling to the lowest pace since June 2020

  • Home buyers have faced surging mortgage rates and a shortage of homes for sale (1.03m homes for sale in April, down -10.4% from a year ago, representing 2.2 months of supply)

• UK consumer confidence hit -40 in May, the lowest level since 1974

  • Economists warned that such a low reading was consistent with the UK economy falling into recession

  • Consumer confidence has closely tracked UK GDP growth for more than five decades

• UK retail sales rose 1.4% month-on-month in April after a -1.2% drop in March

  • Economists polled by Reuters were expecting a -0.2% fall

  • The bigger picture remains grim, as retail sales in the three months to April fell -0.3% and down -4.9% compared to last year 

Commodities

• Iron ore futures surged 2.5% to US$134.4/t

  • Seaborne iron ore prices jumped on Friday with a good number of physical transactions at higher prices amid China cutting prime loan rates and Shanghai reopening

• Oil choppy around US$110 last week as various forces cancel each other out

  • Weak economic and corporate earnings data, rising US oil rig count

  • Russian oil embargo by the EU, disappointing OPEC+ data, Chinese reopening progress 

• Gold is on a 4-day win streak as bond yields and the US dollar begin to decline after a massive run

Pretty uneventful overnight session with most ETFs +/-1%.

• Winners: Steel, Uranium, Biotechnology, FinTech

• Losers: Jets, Silver, Hydrogen, Rare Earth/Strategic Metals

#1 Labor's policies

Investors will likely tune into or even position for Labor's plan for Australia.

The ones most relevant for ASX-listed companies include:

• Aged care

  • Focuses on five areas including more carers, pay rise for aged care workers, better food for residents and on-site nurses 24/7

• Child care

  • Generous subsidies across the board including raising the maximum subsidy rate to 90% for the first child in care

• Climate change

  • $1bn in investment through loans, equity and guarantees for resources and mining science

  • $15bn National Reconstruction Fund

  • Upgrading electricity grid, installing community batteries, tax breaks for EVs

• Farming

  • New Pacific Australia Labour Mobility scheme to relieve labour shortages

• Defence

  • Defence spending to remain above the target of 2% of GDP

#2 Tech

The US tech sector underperformed last Friday, with notable decliners including:

• Tesla -6.4%

• Block -4.3%

• Affirm -3.5%

• Nvidia -2.5%

• Zoom -1.3%

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: None

• Listing: None

• Issued shares: 5GG, AGE, BSL, DUN, ECF, EMR, GCX, GTI, HCW, HDN, HLX, IOD, KFE, LPD, MFG, MGT, NBI, PRU, PTX, QPM, RAG, RF1, SRN, TMZ, TRJ