Morning Wrap: Wall St bounces on solid retail sales and China reopening, ASX poised to rally

ASX Futures (SPI 200) imply the ASX will open 70 points higher, up 0.98%.

Wall St rebounded as investors digest a stream of positive news across the world. China is taking its first steps to bring Shanghai out of lockdown, US retail sales data was solid, the Chinese government is showing support for its tech sector and Warren Buffet bought the dip.

Let’s dive in.

Stocks

• Major US indices are trying to bottom after an abysmal start to the year. In the last three days:

  • Dow Jones +2.9%

  • S&P 500 +4.1% 

  • Nasdaq +5.5%

• Chinese Vice-Premier Liu He said the government supports the development of digital platform companies and their public listings

  • Large cap tech names like Alibaba and Tencent rallied more than 5% on Tuesday

  • JP Morgan raised ratings for 7 Chinese tech stocks, after calling the region “uninvestable” a few months ago

• Bank of America’s monthly fund manager survey reported that investors have increased their cash holdings to the highest level in two decades

  • Hawkish central banks (31%) and global recession (27%) are considered to be the “two biggest tail risks among investors”

  • Commodities, healthcare and consumer staples were the top picks

  • Technology, Europe and emerging markets were shunned

• 10 out of 11 US sectors were green

• Tech, materials, financials and discretionary outperformed

• Consumer staples was the only red sector

• 79% of US stocks advanced

• 70% of US stocks trade below their 200-day moving average (73% on Tuesday, 75% a week ago)

• Home Depot (+1.7%) beat first quarter earnings expectations, with surprise growth in same-store sales, up 2.2%

• Warren Buffett is buying the dip as Berkshire Hathaway added:

  • US$2.9bn in Citigroup (+7.5%)

  • US$2.6bn in Paramount (+15.4%)

Economy

• US retail sales rose 0.9% in April

  • Economists surveyed by The Wall Street Journal expected a 1.0% gain

  • Most major retail categories posted gains

• US industrial production rose 1.1% in April

  • Beat expectations of a 0.5% gain

  • Capacity utilisation rose to 79% in April from 78.2% in March

• India wholesale inflation rose to 15.08% in April

  • Led by higher energy, oil and food prices

  • Headline CPI hit 7.8%, the highest level since May 2014

Commodities

• Iron ore prices eased slightly, holding above US$130 a tonne

  • Seaborne cargo demand has been steadily improving in the last two weeks, with more inquiries from Chinese steelmakers, industry sources told Fastmarkets 

• Oil initially rallied as China’s fight against covid appears to be taking a step in the right directions and US officials signalled a potential switch from a Russian oil embargo to tariffs

• Gold remains muted, hovering US$1,800

It feels odd to see such strength come back into the market after a prolonged period of underperformance and pessimism.

It's encouraging to see broad-based buying across US sectors as well as slightly better market breadth (70% of stocks below 200-day vs. >70% in the past week).

Its important that indices and individual stocks hold their gains over the next few days - otherwise things might look a little more like a suckers rally.

Most ETFs were up 2-5%, but the gains are rather inconsequential relative to the recent selloff - more is needed and the gains need to hold up. Some notable movers include:

• Jets (Airlines) +5.7%

• Copper Miners +4.7%

• Uranium +4.4%

#1 Tech

The past three trading sessions has been an absolute rollercoaster for tech. We're finally seeing some strength came through for mega cap names including:

• Tesla +5.1%

• Amazon +4.1%

• Apple +2.5%

• Microsoft +2.0%

• Alphabet +1.8%

The Global X FinTech and Cloud ETFs rallied 3.7% and 3.5% respectively. The Cloud ETF lagged, up just 1.1%.

On the BNPL front, Affirm rallied 10% and Block closed 6.4% higher.

#2 Lithium

The Rare Earth/Strategic Metals ETF topped the leaderboards overnight, up 5.9%.

Several lithium-related companies in China rallied strongly on Tuesday, with Ganfeng Lithium up 9% and Zhejiang Huayou Cobalt up 4.8%.

Tesla's Shanghai factory is back up producing EVs. Though, the factory is only running at approximately 45% capacity, according to the South China Morning Post.

ASX corporate actions occurring today:

• Ex-dividend: None 

• Dividends paid: None

• Listing: 1AE

• Issued shares: 1AE, AUB, AUK, BCN, CXO, EBO, FBU, GL1, GMR, HCD, LCL, LRS, MCM, MGF, NAB, PGO, PHO, QRI, SLS, TMZ, TPD, UWL, VRC, WAA

Other things of interest (AEST):

• Japan GDP Growth Rate (Q1) at 9:50 am

• UK Inflation Rate (April) at 10:30 pm

• Canada Inflation Rate (April) at 10:30 pm

• US Housing Starts (April) at 10:30 pm