Morning Wrap: Wall St claws back early losses, iron ore plunges, ASX set to rally

Wall Street closed higher last Friday, shaking off earlier weakness that came from disappointing manufacturing activity data. Eurozone inflation is showing no signs of slowing, iron ore prices plunged and Facebook joins in on the tech hiring slowdown. 

Let’s dive in. 

Markets

That was a rather odd session. Major US indices fell in early trade after the ISM manufacturing index came in at a 2-year low, further fueling fears that rising interest rates will lead to a recession.

Stocks rallied off session lows, likely thanks to encouraging views from the ISM index “that shortages are easing more rapidly.” In addition, the closely watched US 2-year and 10-year Treasury yields have fallen sharply from the 3.0% level as fixed income traders begin to price in potential rate cuts for when the market falls into a downturn next year. 

• All 11 US sectors advanced

• Defensives and cyclicals including Utilities, Discretionary and Real Estate outperformed

• Tech, Materials and Industrials underperformed benchmarks

• 67% of US stocks were higher

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

Stocks

• General Motors (+1.4%) said its second-quarter earnings could miss expectations as vehicle volumes were hurt by the timing of semiconductor shipments and other supply chain related disruptions

• Meta Platforms (-0.8%) plans to slow its hiring for engineers by at least 30% this year. CEO Mark Zuckerberg said “one of the worst downturns we’ve seen in recent history” is on the horizon, Reuters reported

• Micron Technology (-3%) shares fell after the chip company issued a weak fourth-quarter guidance. It warned that the chip boom is over and a downturn is likely in the face of poor consumer demand

  • Other chipmaker stocks including Intel, Nvidia and AMD fell between 3-4%  

Economy

• EU inflation hit a record 8.6% year-on-year

  • Beat expectations of 8.4% in a Reuters poll of economists

  • The ECB said it will likely hike rates by 50 bps in September

  • Interest rates in the Eurozone are currently negative

• US ISM manufacturing index fell to 53 in June, a fresh 2-year low

  • Down from 56.1 in May 

  • The 50 point market separates expansion from contraction

  • “There is no indication here on the manufacturing side of a pending recession,” said Timothy Fiore, chairman of the ISM survey

  • Fiore suggested that companies over-ordered earlier this year and orders have been scaled back amid excess inventories

Commodities

• Iron ore prices fell sharply as China’s steel PMIs plunged to levels not seen since the 2008 Global Financial Crisis. Steel output declined while new steel orders fell

• Oil supply remains tight, which is cushioning the recent demand-related concerns. OPEC+ said it will raise production by 648,000 barrels per day again in August, with no further forward looking comments

• Gold continues to edge lower towards US$1,800 amid a strong US dollar and aggressive tightening  

In the last three sessions, the S&P 500 has traded flat while the ASX 200 fell -3.3%.

SPI futures are pointing towards a 1.5% rally at open, which seems fair given our recent underperformance.

The session might struggle for direction as the US market is closed on Monday in observance of Independence Day and the RBA is due to hike interest rates again on Tuesday - consensus expects a 50 bps hike to 1.35%.

#1 Copper

Copper is in a very ugly place, down another -2.9% on Friday to US$3.61/lb.

Copper prices (Source: TradingView)

#2 Energy

Oil prices stabilised around US$110 on Friday after steep declines.

OPEC+ said it will raise production by 648,000 barrels per day in August, with no further output comments. The uncertainty surrounding supply seems to cap the downside for oil prices.

Supply tightness has been further exacerbated by outages in Libya. Libya's National Oil Corporation declared a force majeure after weeks of protests, closures and port blockades. Oil exports from Libya have declined by around two-thirds compared to normal.

#3 Uranium

Uranium spot prices rose to US$50.50/lb according to fuel brokers EvoMarkets.

The Uranium ETF rose 2.5% on Friday. It's still in a downtrend but trying to stabilise around recent lows.

There was plenty of positive news buoying the sector, including:

• Spot prices reclaiming US$50/lb

• IEA report that global nuclear capacity needs to double to meet net-zero goals

• Japan plans to promote the restart of nuclear power plants

• South Korea reverses plans to phase-out 25 reactors

Global X Uranium ETF (Source: TradingView)

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: ALQ MQG

• Listing: None

• Issued shares: 3DA, ADN, AGE, AMA, ATX, AZL, BIO, BPP, BWX, CBA, CKF, CLZ, CTD, DVL, DXC, DXI, EMN, FZO, GDI, GOR, GOZ, GT1, HAS, HCH, HPC, HZR, IDX, IMA, JAT, MBH, MDX, MGH, NAB, NNL, NSC, NUF, NUH, ORA, PAM, PCK, PPS, RML, RNU, SBW, SEQ, SI6, SPX, TEG, TGH, TLX, TOP, TRJ, WBE, WOA, X2M

Other things of interest (AEST): 

• Australia Building Permits (May) at 11:30 am

• Australia Home Loans (May) at 11:30 am