Market Wraps

Morning Wrap: Wall St edges higher, oil gains ground, ASX set to rise

Fri 19 Aug 22, 8:39am (AEDT)

ASX Futures (SPI 200) imply the ASX 200 will open 23 points higher, up 0.32%.

Meme stocks deflate, Apple plans to unveil its iPhone 14 on September 7, one of China’s largest property developers expects profits to drop -70% and we kicked off our first Evening Wrap! 

Let’s dive in.

Overnight Summary

Fri 19 Aug 22, 8:39am (AEDT)

Name Value Chg %
Major Indices
S&P 500 4,284 +0.23%
Dow Jones 33,999 +0.06%
NASDAQ Comp 12,965 +0.21%
Russell 2000 2,001 +0.68%
Country Indices
Canada 20,265 +0.42%
China 3,278 -0.46%
Germany 13,697 +0.52%
Hong Kong 19,764 -0.80%
India 60,298 +0.06%
Japan 28,942 -0.96%
United Kingdom 7,542 +0.35%
Name Value Chg %
Commodities (USD)
Gold 1,772.80 +0.09%
Iron Ore 106.05 -
Copper 3.645 +0.36%
WTI Oil 90.48 -0.02%
Currency
AUD/USD 0.6914 -0.01%
Cryptocurrency
Bitcoin (AUD) 33,794 -0.42%
Ethereum (AUD) 2,701 +1.07%
Miscellaneous
US 10 Yr T-bond 2.88 -0.45%
VIX 20 -1.71%

MARKETS

A few quick bites before we kick things off:

  • The 2-and-10 year Treasury yields - a gauge often seen as a harbinger of a recession - “has inverted to levels last seen when Paul Volcker steamrolled the US economy in the 1980s to tame runaway inflation,” according to Bloomberg

  • The magnitude of this bear market rally has surprised many, including us … equity valuation is now significantly disconnected from fundamentals … which continues to suggest we’re in a late cycle, slowing growth environment,” said Morgan Stanley

  • When commenting on what will drive the next leg lower in stocks, “we think it will be earnings disappointment. Seasonals for earnings revisions worsen materially over the next 8 weeks … the combination of sustained, higher wage costs and slowing end market/consumer pricing loudly signals margin pressure,” the investment bank added 

US yield curve and recessions
Source: Bloomberg
  • 7 out of 11 US sectors higher

  • Energy rallied an outsized 2.5% as oil prices bounced

  • Real Estate and Healthcare underperformed

  • 57% of US stocks advanced

  • 46% of US stocks trade below their 200-day moving average (46% on Thursday, 48% a week ago)

STOCKS

  • Cisco (+5.8%) posted better-than-expected earnings, with revenue at US$13.1bn compared to US$12.8bn expected. Cisco said it expects to grow revenue by 4-6% in 2023, well above analyst expectations

    • “Total revenue exceeded our expectations in Q4 … full-year product orders and backlog are both at record highs and reflect the strong demand ,“ said CEO Chuck Robbins

  • Apple (-0.23%) plans to hold a launch event on September 7 to unveil its iPhone 14 line

  • Kohl’s (-7.7%) downgraded its earnings for fiscal 2022, now expecting sales to fall between 5-6% compared to its previous guidance of flat to 1%

    • In early July, Bank of America said “We are reducing our F22 estimates by 16% on average for the department store group to reflect lower sales, as inflation is pressuring consumption, and the associated gross margin headwind from inventory build-ups. We are also cutting our [targets] by 35% ..."

  • Wild times for meme stocks

    • Bed Bath & Beyond (-19.6%, down -38% from Thursday highs)

    • Invitae Corporation (-9.4%, down -57% since last Wednesday highs)

    • GameStop (-6.4%, down -20.9% from last Monday)

    • Allego NV (-0.85%, down -29.6% since Tuesday)

Interesting quote from Walmart:

  • CEO Doug McMillon: "People are really price-focused now, regardless of income level. And the longer this lasts, the more that’s going to be the case.

EARNINGS

There'll be some bits and pieces reporting on Friday, but that’s pretty much it for US earnings season. 

  • “Cushioned by the elevated nominal growth environment, results are charting earnings growth of around 8% for Q2 compared to the prior year, thanks in large part to one sector: Energy,” said Merrill Lynch

US Q2 earnings growth by sector
Source: FactSet

ECONOMY

  • Eurozone inflation hit a record high of 8.9% year-on-year in July from 8.6% in June

    • In-line with consensus expectations

    • The highest since the Euro was created in 1999

    • Eurostat said that energy contributed to 4.02 percentage points to the overall inflation figure. Another 2.08 percentage points came from food, alcohol and tobacco

  • US jobless claims fell to 250,000 in mid August from 262,000 in early August

    • Suggests that layoffs remain very low and the economy is still expanding at a moderate pace

    • Economists polled by the Wall Street Journal forecast new claims to hit 260,000

    • Initial jobless claims hit a low of 166,000 in March 

  • US house prices projected to rise 2.4% between July 2022 and July 2023, according to tech real-estate marketplace company Zillow

    • In July, Zillow forecast US house prices to rise 7.8% across the same time period

Zillow US house price forecast
Source: Lance Lambert

COMMODITIES

  • Iron ore futures rose 0.12% to US$104.6 a tonne

    • China's infrastructure stimulus has not been enough to offset weakness in its construction sector caused by the ongoing property crisis, according to Bloomberg

    • One of China’s largest property developers, Country Garden estimates that first-half profits declined as much as -70%

  • Oil prices rallied after “another round of impressive US economic data boosted optimism for an improving crude demand outlook,” said Oanda senior market analyst, Ed Moya

    • “The US economy still looks good and China’s economy could be ready to bounce back fairly soon.  Momentum from yesterday’s bullish EIA crude oil inventory still lingers, but technical resistance at the $90 a barrel level is capping WTI’s rally for now,” he added

  • Gold is back to struggling against a surging US dollar. The Dollar Index is on a five-day winning streak, capping any upside for the yellow metal

US Sectors

Fri 19 Aug 22, 8:39am (AEDT)

Sector Chg %
Energy +2.53%
Information Technology +0.49%
Utilities +0.34%
Industrials +0.33%
Materials +0.26%
Consumer Staples +0.25%
Financials +0.13%
Consumer Discretionary -0.04%
Communication Services -0.04%
Health Care -0.43%
Real Estate -0.75%

Industry ETFs

Fri 19 Aug 22, 8:39am (AEDT)

Description Last Chg %
Commodities
Copper Miners 30.95 +1.39%
Strategic Metals 99.64 +0.76%
Steel 55.92 +0.64%
Uranium 20.38 +0.64%
Gold 164.35 -0.26%
Aluminum 50.7359 -0.44%
Lithium & Battery Tech 80.31 -0.83%
Silver 18.25 -1.15%
Nickel 29.1758 -1.50%
Industrials
Aerospace & Defense 108 +0.21%
Global Jets 18.77 -0.27%
Healthcare
Biotechnology 130.4 -1.14%
Cannabis 19.13 -3.35%
Description Last Chg %
Cryptocurrency
Bitcoin 14.31 +0.56%
Renewables
Solar 86.63 +1.20%
CleanTech 17.17 +0.15%
Hydrogen 15.83 -2.08%
Technology
Semiconductor 408.87 +2.28%
Cloud Computing 18.81 +0.43%
Electric Vehicles 25.28 +0.32%
Cybersecurity 28.41 +0.25%
Robotics & AI 23.05 0.00%
Video Games/eSports 51.23 -0.43%
FinTech 26.05 -0.88%
E-commerce 19.22 -0.88%
Sports Betting/Gaming 17.18 -1.69%

ASX Morning Brief

Overall, it was a rather quiet session on Wall Street. Major US benchmarks are starting to stall after a powerful rally above the 200-day moving average.

We're seeing volatility pick up for a lot of sectors that led the rally (or bear market rally, whichever you want to call it), notably lithium and tech. Its not a good look if these outperformers and leaders suddenly U-turn into underperformers.

Not too many sectors listed below today. Not many cues from overnight ETFs as most just chopped around.

On a side note, we kicked off the Evening Wrap. A new widget broke half the page, so it came out rather late. They'll be a few tweaks and updates for this piece in the coming days and weeks. Have a whiz, let me know how it flows. My email is always open to feedback, suggestions and questions.

#1 Energy

Energy was the best performing sector on Wall St as oil prices rebound. This could see some positive flows for local oil and gas names.

#2 Semiconductors

iShares Semiconductor ETF finding some strength, wedged between the 20-day and 200-day.

Unfortunately, ASX investors don't really have many options when it comes to semiconductor related stocks.

iShares semiconductor ETF chart
iShares Semiconductor ETF (Source: TradingView)

Key Events

Stocks going ex-dividend:

  • Fri: GWA, RYD, ZIM

  • Mon: AZJ, MFG, SDF, STO, VCX

  • Tue: ACL, DHG, IPH

  • Wed: PGH, SGF, TLS

  • Thu: AGG, BBN, BFG, CDA, DDR, JBH, PMC, REA, RKN, VG1

ASX corporate actions occurring today:

  • Dividends paid: BWP, CD3, CMW, NEW

  • Listing: None

  • Issued shares: AAU, AIQ, AR1, AUN, AVR, BIO, CLA, COB, CPM, CXM, EV1, GMG, GSM, HCT, HIT, LOT, LRS, MGF, MRI, N1H, NAB, NAN, NBI, OCC, OMX, PDI, PHO, PNI, QML, RDY, RUL, SYA, TPD, TYX, WWI

Other things of interest (AEST): 

  • Japan Inflation Rate (July) at 9:30 am

  • UK Retail Sales (July) at 4:00 pm

  • Fed Barkin Speech at 11:00 pm

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.

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