Morning Wrap: Wall St dips on hawkish Fed speak, cannabis stocks surge, ASX to fall

Major US benchmarks were under pressure as Fed officials continue to hammer hawkish views about interest rates, new claims for US unemployment benefits jumps to a four month high, oil prices extend winning streak to five and Biden wants to pardon thousands convicted for marijuana possession.

Let's dive in.

MARKETS

US stocks eased after another round of hawkish comments from the Fed. In summary, policymakers reiterated that a pivot is highly unlikely and more outsized rate hikes are on the horizon as inflation remains both high and risks skew towards the upside.

The Fed's messaging has been consistent but it'll be further validated after the US jobs report that comes out tonight. However, if the job market unexpectedly weakens, then the market may see that as a catalyst to inspire a slowdown for rate hikes.

• 10 out of 11 US sectors declined

• Energy was the only positive sector, up 1.8%

• Communication Services, Discretionary and Tech slightly outperformed on a relative basis

• Defensives like Utilities, Real Estate and Staples led to the downside

• 60% of US stocks declined

• 66% of US stocks trade below their 200-day moving average  (66% on Thursday, 73% a week ago)

STOCKS

• Peloton (+4.0%) shares rallied after announcing plans to cut 500 more jobs or 12% of its workforce 

• General Electric (-1.8%) is laying off 20% of its US onshore wind workforce

  • “We are taking steps to streamline and size our onshore wind business for market realities to position us for future success,” a GE spokesperson told CNBC 

• Shell (-4.4%) signalled a weaker third-quarter performance due to a near halving of oil refining margins, poor chemical margins and weaker natural gas trading

QUICK BITES

• Cost of shipping: A container across the Pacific, according to the Wall St Journal

  • Last September: US$20,586

  • Beginning of this year: US$13,706

  • Now: US$2,265

• Extremely oversold: The McClellan Oscillator is extremely oversold, at levels not seen since the pandemic lows. The indicator measures market breadth based on the difference between the number of advancing and declining stocks

Source: Sentiment Trader

• Forward EPS rolling over: Forward EPS for global stocks are coming down while global stocks are almost back at pre-pandemic levels

Source: Bloomberg

WORLD NEWS 

• Amazon plans to hire 150,000 workers for holiday season (Bloomberg)

• Google unveils new phones and watch that undercut Apple on price (Bloomberg)

• Credit Suisse shares jump after JP Morgan says its worth at least $15bn (Bloomberg)

ECONOMY

• German factory orders fell -2.4% month-on-month in August from 1.9% in July

  • Analysts expected a less severe decline of -0.7%

• Eurozone retail sales fell -0.3% month-on-month in August from -0.4% in July

  • Analysts expected a decline of -0.4%

  • On an annualised basis, retail sales are down -2.0%

• US initial jobless claims rose to 219,000 last week

  • Largest increase in new claims in the past four months

  • Data has been slightly distorted by Hurricane Ian and Fiona, which is impacting states like Florida and the Carolinas 

Fed speeches:

• Minneapolis Fed President Kashkari:

  • “This feels like stagflation, but it’s a transition period. I’m very confident we’ll get through this moment. This moment might be a year or two.”

  • “I’m not comfortable saying we are going to pause” until there is evidence that inflation is cooling

  • “I anticipate cracks in US financial markets, but the bar for a change in Fed policy in response is very high.” 

• Chicago Fed President Evans:

  • “Inflation is high right now and we need a more restrictive setting of monetary policy.”

  • We are headed to 4.5% - 4.75%, likely by springtime

  • Policymakers are looking at 125 bps of rate hikes over the next two meetings

• Fed Board of Governors Cook:

  • We cannot assume the improvement in global supply constraints will be steady 

  • Risks to inflation forecasts are skewed to the upside

  • “High inflation has required this front loading and it’s required to short circuit the potential psychology that can take hold,” which keeps inflation elevated 

COMMODITIES

• Iron ore futures rose 0.05% to US$95.75 a tonne

• Oil prices extended gains, with Brent crude up 11.1% in the last four sessions

  • “It is getting hard to bet against higher crude prices. ​ This week’s OPEC+ decision was a game changer for the oil market, as it signals tight conditions will remain throughout this winter,” said Oanda senior market analyst, Ed Moya

• Gold prices softened in the face of more hawkish Fed speak but still above US$1,700

  • “Gold is entering consolidation mode as traders await nonfarm payrolls. ​ The lead up to NFP Friday saw a mixed round of employment readings that has many bullion investors on standby. A hot labor market and strong wages could keep the bond market selloff going and should decide what will be gold’s next major move,” said Moya 

Other commodities of interest:

• Aluminium -1.3% to US$2,320 

• Newcastle coal futures +0.11% to US$404.95

• Uranium futures -0.4% to US$48.30

We're seeing the beginning of a pullback after a massive rally. The rally was key in defending June lows and right on cue heading into the 'bear market killer' month of October.

The Wraps have talked a lot about how this pullback will be key in showing us if the recent rally was genuine or not. If we begin to see the price action we've witnessed in previous rallies in late August and September (heavy distribution, intraday selling, leading sectors deteriorating etc.) then that may indicate the rally was more-so based on short covering and wishful pivot thinking.

Sectors to watch

Notable overnight ETF gainers: Cannabis (+10.4%)

Notable overnight ETF losers: Hydrogen (-3.85%), Uranium (-3.05%), Copper (-1.95%), Rare Earth/Strategic Metals (-1.64%)

Energy: Oil continues to push higher as prices begin to reflect just how tight physical markets are. Energy was the only green sector on Wall Street, with names like Exxon Mobil up 2.97%. This could see another positive open for local energy names.

Cannabis: The Global X Cannabis ETF has always been on our ETF list but I rarely pay attention. The ETF has done nothing but rally and fizzle since its peak in 2021 and local names are all now tiny microcaps.

In saying that, the ETF rallied 10.4% overnight after Biden said : "As I've said before, no one should be in jail just for using or possessing marijuana. Today I'm taking steps to end our failed approach. Allow me to lay them out." You can read the official statement here.

Stocks going ex-dividend:

• Fri: COS, MFF, ERF 

• Mon: None

• Tue: REH  

• Wed: WGB, HZN, RRL, GOW

• Thu: TI1, D20, CGO 

ASX corporate actions occurring today:

• Dividends paid: AUB, LAU, CWY, AHC, LYL, CLX, TGP, VLS, HUM, LBL, SHJ 

• Listing: None

Other things of interest (AEDT):

• 11:30 am: RBA financial stability review

• 11:30 pm: Canada unemployment rate

• 11:30 pm: US unemployment rate