Morning Wrap: Wall St extends gains, Nasdaq breaks above the 200-day, ASX to rise

ASX Futures (SPI 200) imply the ASX 200 will open 39 points higher, up 0.56%.

The V-shaped rally continues, Chinese ADRs apply to delist from Wall St and US consumer sentiment unexpectedly jumps.

Let’s dive in.

MARKETS

The US market continues to rally against all odds. From a technical perspective, momentum is building with all three major benchmarks closing above their 200-day moving averages and the 20-day now above the 50-day, trying to cross the 100-day.

Still, “not surprisingly, after the recent rampage of stock buying, every major market and sector (except for bonds) are extremely overbought. Historically, profit taking will follow,” said Lance Roberts, Chief Strategist at RIA Advisors.

“The bearish case also has teeth given that historically, when the Fed is tightening policy, the market and economy are regularly impacted by recessions and bear markets. Such will also lead to reduced earnings, which have yet to get priced in,” he added.

• All 11 sectors higher

• Growth-oriented sectors outperformed

• Discretionary and Tech both rallied more than 2%

• Defensives were relative underperformers

• 75% of US stocks advanced

• 44% of US stocks trade below their 200-day moving average (48% last Friday, 55% a week ago)

STOCKS

• Peloton (+13.6%) said it plans to cut almost 700 jobs, close a significant number of retail stores and hike equipment prices in an effort to become profitable

  • In simple terms, Peloton sells a patented exercise bike (but it’s basically an exercise bike with an iPad on it). The unprofitable company had a peak market cap of around US$40bn 

• Rivian (-0.13%) posted US$364m revenue for the second quarter, in-line with Wall Street estimates. The EV manufacturer downgraded its full-year outlook, expecting a wider loss of around -US$5.4bn but reaffirmed its production guidance of 25,000 vehicles

• Five Chinese ADRs - China Life Insurance, Sinopec, Aluminium Corporation of China, PetroChina and Sinopec Shanghai Petrochemical shares fell between 2-4% after applying to delist their ADRs in the US 

EARNINGS

We’ve got a few more interesting companies reporting this week but US reporting season has mostly come to an end. 

US corporate earnings we’re watching this week:

• Mon: James Hardie

• Tue: Walmart, Sea, The Home Depot

• Wed: Tencent, Lowe’s, Target, Cisco, Amcor

• Thur: Weibo, Estee Lauder

• Fri: John Deere, Footlocker 

ECONOMY

• UK GDP fell -0.1% quarter-on-quarter in Q2 from 0.8% in Q1

  • Consensus expected a -0.2% decline

  • GDP growth is up 2.9% year-on-year, down from 8.7% in the prior period

  • “In this backdrop, it will be difficult to dodge recession, especially with upside risks to energy prices heading into the winter,” said Hussain Mehdi, Macro strategist at HSBC Asset Management, CNBC reported 

• French inflation rose 6.1% year-on-year in July from 5.8% in June

  • The CPI print was in-line with consensus expectations

  • Services rose 3.9% from 3.3% in June and food - up 6.8% from 5.8%

  • Energy prices slowed down slightly to 28.5% from 33.1%

• Eurozone industrial production rose 0.7% month-on-month in June from 2.1% in May

  • Consensus expected a smaller increased of 0.2%

  • Growth was driven by a surge in capital goods production while consumer and intermediate goods production shrank 

  • “June looked decent in terms of production, the months ahead are likely to see further weakening. That fits our view of a contracting Eurozone economy in the second half of this year,” said ING

• US consumer sentiment unexpectedly jumped to 55.1 in August from 51.5 in July

  • Consensus expected a small improvement to 52.5

  • Consumer sentiment hit a record low of 50 in June

  • "All components of the expectations index improved this month, particularly among low- and middle-income consumers for whom inflation is particularly salient," survey director Joanne Hsu said in a statement, Reuters reported 

COMMODITIES

• Iron ore futures fell -0.8% to US$109 a tonne

  • Chinese iron ore inventories climbed to a 3-month high, up 1.3% week-on-week to 138.9m tonnes between August 5-11, according to Mysteel

• Oil prices prices slumped around -2% after a downbeat week of rising US inventories, higher US output and a global demand growth downgrade from OPEC

• Gold recaptured the key US$1,800 level  

Hello, Kerry here. Just a quick one before we finish Monday's Morning Wrap.

We're kicking off an 'Evening Wrap' this week. It'll have a similar format to the Morning one, with a few different things like US futures, some scans, interesting charts/technicals (if you haven't noticed, I have charts/TA) and a few comments about what to look out for.

On to the usual stuff.

The US market continues to rally with an absurd amount of strength post CPI data. Locally, a lot of leading stocks from sectors like lithium and tech are quite extended, trading 10-15% above their 20-day moving averages. After such a V-shaped move, one cannot help but imagine a pullback is on the cards. But again, the strength continues to be rather extraordinary.

#1 Semiconductors

The iShares Semiconductor ETF has a bit of shape to it. It's trying to break above the 200-day moving average and have a crack at the $430-440 level.

Unfortunately, there aren't many semiconductor-related stocks on the ASX - 4DS Memory (ASX: 4DS) and Brainchip (ASX: BRN) are the main ones that come to mind.

iShares Semiconductor ETF (Source: TradingView, Annotations by Market Index)

#2 Tech

The Nasdaq closed above its 200-day moving average for the first time since 4 April. Specialty ETFs like the Global X Cloud, FinTech and eCommerce ETFs all rallied more than 2%.

The S&P/ASX 200 Info Tech Index struggled on Friday, down -1.8%. Perhaps the surging Nasdaq and positive SPI futures can see some strength return for local tech names on Monday.

#3 Hydrogen

The Global X Hydrogen ETF continues to advance on the back of massive volume (around 150,500 compared to 20-day average of 50,000).

Seeing some strength in local small caps like QEM (ASX: QEM), Sparc Technologies (ASX: SPN) and Frontier Energy (ASX: FHE).

Global X Hydrogen ETF (Source: TradingView, Annotations by Market Index)

#4 Lithium

The VanEck Rare Earth/Strategic Metals ETF rallied almost 11% last week.

Several local mid-small cap lithium names sold off rather sharply last Friday. Will we see strength return, in-line with the ETF or is this the beginning of a pullback after a massive V-shaped bounce?

VanEck Rare Earth/Strategic Metals ETF (Source: TradingView, Annotations by Market Index)

Stocks going ex-dividend:

• Mon: QVE, WOT

• Tue: ASW, GMA, PL8

• Wed: CBA

• Thur: QBE

• Fri: ASW, BWP, CD3, CMW, NEW

ASX corporate actions occurring today:

• Dividends paid: NBI, QRI

• Listing: None

• Issued shares: 1MC, AAU, AMA, ARU, AVL, BIO, CAD, CBE, DLC, DUN, DW8, DXN, GRV, HHI, IR1, KPO, LKE, LTR, MSB, MVP, NBI, PGM, PIC, POD, RUL, SMX, STK, TGA, TGM, TRJ, TSL, WFL, WRM, XTC, YOJ

Other things of interest (AEST): 

• China Industrial Production (Jul) at 12:00 pm

• China Retail Sales (Jul) at 12:00 pm

• China Fixed Asset Investment (Jul) at 12:00 pm