Market Wraps

Morning Wrap: Wall St climbs on easing producer prices, ASX futures flat

Wed 16 Nov 22, 8:35am (AEST)

ASX Futures (SPI 200) imply the ASX 200 will open 1 point higher, up 0.01%.

US stocks advanced after producer price data signalled further signs of easing inflation, Walmart earnings beat analyst expectations, stray Russian missiles feared to have hit Poland and Warren Buffett loads up on streaming services and semiconductors.

Let's dive in.

Overnight Summary

Wed 16 Nov 22, 8:35am (AEDT)

Name Value Chg %
Major Indices
S&P 500 3,992 +0.87%
Dow Jones 33,593 +0.17%
NASDAQ Comp 11,358 +1.45%
Russell 2000 1,889 +1.51%
Country Indices
Canada 19,995 +0.37%
China 3,134 +1.64%
Germany 14,379 +0.46%
Hong Kong 18,343 +4.11%
India 61,873 +0.40%
Japan 27,990 +0.10%
United Kingdom 7,369 -0.21%
Name Value Chg %
Commodities (USD)
Gold 1,781.60 +0.26%
Iron Ore 92.09 -
Copper 3.813 -0.55%
WTI Oil 86.59 +0.84%
Currency
AUD/USD 0.6770 +1.05%
Cryptocurrency
Bitcoin (AUD) 24,836 +2.44%
Ethereum (AUD) 1,848 +2.03%
Miscellaneous
US 10 Yr T-bond 3.799 -1.71%
VIX 24 +2.19%

MARKETS

It was a volatile overnight session where US stocks gathered momentum thanks to cooler-than-expected producer price data, another sign that inflation is beginning to ease and further validating a downshift in Fed interest rate hikes. Walmart posted a third quarter earnings beat and upgraded its outlook, buoying discretionary and staple stocks. The market was rocked after two Russian missiles flew over Ukraine and into Poland, with two possible civilian casualties. 

  • The US dollar index extended its selloff, but bounced intraday, currently -0.4% from a session low of -1.5%  

  • Technology stocks led to the upside as risk-appetite continues to improve. A fall in bond yields also drove support across growth heavy sectors

  • Staples and Discretionary were major benefactors from Walmart’s stronger-than-expected financial result

  • 69% of US stocks advanced

  • 44% of US stocks trade below their 200-day moving average (45% on Tuesday, 53% a week ago)

STOCKS

Taiwan Semiconductor (+11.2%) shares rallied after Warren Buffett’s Berkshire Hathaway bought a US$4bn stake in the company, adding to its already 1.2% stake in the chipmaker.

  • "First investment in Semis for Buffett in his 91 year career, so it does matter ... Taiwan Semiconductor is as high quality of a long term investment as you can find.” - Mizuho

Walmart (+7.4%) reported better-than-expected third quarter earnings, raised its FY23 adjusted earnings growth guidance and announced a new US$20bn buyback program.

  • Inventory: "We've made good progress to improve our inventory position globally inventory is up 13% for the quarter … Inflation drives the majority of the increase rather than units."

  • High-income consumers return: "...we've continued to gain grocery market share from households across income demographics with nearly three-quarters of the share gain coming from those exceeding $100,000 in annual income"

  • Focus on price: “This quarter, our private brand penetration in food categories increased by about 130 basis points, reflecting customers' increased focus on quality products at value prices.” 

Paramount Global (+5.3%) was another stock rallying on the back of Warren Buffett buying. Berkshire Hathaway increased its stake to 91.2m shares from 78.4m shares

  • Paramount is down -36% year-to-date amid intensifying competition among streaming platforms and a fall in advertising revenue   

WORLD NEWS 

  • The great Russian oil switch is gathering momentum (Bloomberg)

  • China committed to peaceful path, Xi's VP says (Bloomberg)

  • Russian missiles hit Poland, killing two, US officials says (Bloomberg)

  • Russia denies Russian missiles struck Polish territory (Reuters)

ECONOMY

UK’s unemployment rate unexpectedly rose to 3.6% in September from 3.5% in October.

  • Below consensus expectations of 3.5%

  • "Hiring appetite is undoubtedly past its peak, but there isn't much sign that the acute labour shortages are easing. We expect the Bank of England to pivot back to 50 bp rate hikes from December." - ING Economics

Germany’s ZEW economic sentiment index was -36.7 in November from -59.2 in October. 

  • Above market expectations of -50.0 and the highest since June

  • "This is likely to be related above all to the hope that inflation rates will fall soon," said ZEW President Achim Wambach

US producer price index was 0.2% month-on-month in October, unchanged compared to September.

  • A smaller-than-expected increase as analysts were expecting 0.4%

  • Producer prices peaked at 11.7% year-on-year in March and now at 7.97%, the lowest since July 2021 

  • “.. the producer price index this morning was undoubtedly bullish, but it’s now the consensus view that the US economy is in a sustained period of disinflation, which means the ability of stocks to continue spiking on each downside .. reading going forward will dissipate.” - Vital Knowledge Media

COMMODITIES

Iron ore futures rose 0.4% to US$92.85 a tonne. 

  • China’s industrial production rose 5.0% year-on-year in October, which missed analyst expectations of 5.2%

  • More specifically, steel production rose 11.3% compared to a year ago, but cycling rather depressed lockdown induced numbers

Oil prices fluctuated after Ukraine notified Russia’s state-owned pipeline operator that supply to Hungary via the Druzhba oil pipeline was temporarily suspended due to a fall in pressure, according to Reuters.

  • “Oil prices are basically flat on Tuesday, sitting a little below the middle of their recent trading ranges as traders continue to weigh up the global economic outlook, OPEC+ production risks, and China’s Covid approach.” - Oanda senior market analyst, Craig Erlam

Gold inched higher, extending its winning streak to four and up 9.1% in the last eight sessions.

Other commodities of interest:

  • Newcastle coal futures +6.8% to US$330/oz

  • Palladium +3.5% to US$2,095

QUICK BITES

  • Stagflation consensus: The latest Bank of America fund manager survey shows a record 85% of participants expecting global inflation to fall in the next 12 months. But 92% now expect to a 'stagflation' scenario.

  • Russian missile screw-up: The missile event could see NATO invoke Article 4 (parties consult together whenever territorial integrity, political independence or security is threatened) and Article 5 (an armed attack one is considered an attack against all) which could drive more support for efforts in Ukraine.

  • Falling producer price corresponds: To an earnings recession as a result of weak demand.

  • EPS and ppi
    Source: Macrobond and Nordea

Industry ETFs

Wed 16 Nov 22, 8:35am (AEDT)

Description Last Chg %
Commodities
Nickel 38.622 +2.51%
Copper Miners 34.83 +0.86%
Uranium 21.47 +0.84%
Steel 59.8 +0.69%
Gold 164.92 +0.35%
Lithium & Battery Tech 72.74 -1.21%
Aluminum 51.185 -1.44%
Silver 20.24 -1.78%
Strategic Metals 97.87 -3.16%
Industrials
Aerospace & Defense 107.41 +1.70%
Global Jets 18.47 +0.97%
Healthcare
Biotechnology 134.68 +0.32%
Cannabis 15.95 +0.31%
Description Last Chg %
Cryptocurrency
Bitcoin 9.81 +4.69%
Renewables
Solar 79.25 +3.24%
CleanTech 15.71 +2.86%
Hydrogen 12.13 +2.14%
Technology
Video Games/eSports 43.41 +4.45%
E-commerce 16.65 +3.54%
Semiconductor 374.03 +2.90%
Cloud Computing 16.54 +2.72%
Cybersecurity 23.54 +1.61%
Robotics & AI 21.35 +1.50%
FinTech 21.09 +1.47%
Sports Betting/Gaming 15.61 +1.03%
Electric Vehicles 23.06 +0.56%

ASX Morning Brief

Never a dull moment.

A mild producer price index shows more evidence that inflation is heading lower. This means that markets will continue to chase the Fed pivot narrative and eager for more lower CPI prints. The question is, does Powell care? Or does cutting too early pose a risk to refuelling inflation like the 1970s.

Inflation today vs 1970s
Source: Steno Research and Macrobond

SPI futures are pointing towards a rather flat open, but a falling US dollar and Russia-Poland drama has pushed commodity markets higher overnight. Walmart earnings could be another positive driver for local discretionary and staple sectors.

Sectors to watch

Energy: Oil prices briefly jumped on the Russian missile news. Gains are starting to fade after prices rallied around 5:00 am AEDT. Still something to watch out for.

Iron ore: Iron ore futures continue to climb, aided by a weaker US dollar. Its worth noting US-listed BHP and Rio Tinto rose 2.2% and 1.6% respectively overnight.

Lithium: Lithium-related stocks got smashed yesterday after rumours that an unnamed Chinese cathode manufacturer was cutting production targets. The selling was concentrated towards large cap producers like Allkem, Pilbara Minerals and Core Lithium. Can they bounce?

Tech: The Nasdaq outperformed overnight. Several ASX-listed tech names remain rather rangebound/consolidating, can they test for a breakout?

Altium chart
Altium chart (Source: TradingView)
Wisetech chart
WiseTech chart (Source: TradingView)
dtl chart
Data#3 chart (Source: TradingView)

Key Events

Stocks going ex-dividend over the next week:

  • Wed: Challenger (CGF) 

  • Thu: Wam Leaders (WLE), SSR Mining (SSR), Westpac (WBC)  

  • Fri: Coronado Global (CRN), Washington H Soul Pattinson (SOL), Orica (ORI) 

  • Mon: Macquarie Bank (MQG), Elders (ELD)

  • Tue: Amcor (AMC)  

ASX corporate actions occurring today:

  • Dividends paid: None

  •  Listing: None

Other things of interest (AEDT):

  • 12:30 pm: China house price index

  • 6:00 pm: UK inflation rate

  • 12:15 am: Canada inflation rate

  • 12:30 am: US retail sales 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free