Morning Wrap: Wall St extends rally with all eyes on Powell's Jackson Hole speech, ASX to rise

US stocks have recouped half of this week’s losses, OPEC president is open to cutting oil production, China issues another infrastructure stimmy and all eyes on Powell’s Jackson Hole speech.

Let’s dive in.

MARKETS

What a weird market eh? A massive month-long rip, a two day dip and now we’re somewhere in the middle. Today’s little interesting snippets come from a JP Morgan note:

• We maintain that inflation will resolve on its own as distortions fade, and likely drive a Fed pivot, while a stronger H2 recovery in China should provide support for the global cycle

• This, in combination with still very low investor positioning, creates a positive environment for cyclical assets

• Incoming CPI releases (e.g. recent declines in gasoline, airfares, used cars etc.) continue to support our call for a large but uneven fall in 2H22 inflation

• European inflation will remain higher  due to Energy prices

• In Chair Powell’s remarks at this week’s Jackson Hole conference, we do not expect him to tip his hand to the size of the next move, which will depend on upcoming [data] releases, but we believe he will push back against the idea that a dovish policy pivot is coming soon

Anyway, onto the usual stuff. 

• All 11 US sectors higher

• Materials and Tech outperformed benchmarks

• Defensive sectors including Staples and Utilities underperformed

• Utilities now trade at a 20% premium to the S&P 500 (on a relative price-to-earnings basis)

• Energy rebound has seen 100% of S&P 500 Energy sector members trade above their 200-day moving average

• 72% of US stocks advanced

• 50% of US stocks trade below their 200-day moving average (53% on Thursday, 46% a week ago) 

STOCKS

• Snowflake (+23.1%) posted US$497m revenue for the quarter, ahead of analyst expectations of US$467m. The largest component of Snowflake’s earnings, product revenue, rose 83% year-on-year to US$466.3m 

• Salesforce (-3.4%) earnings were ahead of Wall St expectations plus a US$10bn stock buyback program was approved. Fiscal 2023 earnings and revenue was downgraded, including a -US$800 foreign exchange impact

• Dollar Tree (-10.2%) quarterly earnings beat Wall St estimates but the discount retailer cut its full year forecast due to a competitive pricing environment

  • Dollar Tree CEO: “We expect the combination of this pricing environment at Family Dollar and the shoppers’ heightened focus on needs-based consumable products will pressure gross margins in the back half of the year. We have therefore reduced our EPS outlook accordingly.”

• Peloton (-18.3%) posted a wider-than-expected loss and falling revenues

  • Peloton CEO: “The naysayers will look at our Q4 financial performance and see a melting pot of declining revenue, negative gross margin, and deeper operating losses … But what I see is significant progress driving our comeback and Peloton’s long-term resilience.”

ECONOMY

• Chinese regional government authorised to issue more than 500 bn yuan (US$73bn) in infrastructure bonds by the end of October, according to Bloomberg

• US second-quarter GDP contraction was revised to -0.6% from -0.9%

• US gross domestic income rose 1.4% in the second quarter

  • Gross domestic income measures the economy’s performance from the income side, including corporate profits and personal income

• US Atlanta Fed’s GDPNow model estimates Q3 2022 GDP growth to be 1.4% after new home sales tanked and durable goods new orders were flat

• Fed Kansas President Esther George interview with Bloomberg: highlights

  • Should rate rates until evidence that inflation is coming down

  • We have more room to go in raising rates

  • Fed rates currently not at a restrictive setting

  • Not out of question that Fed would hold rates above 4% 

• Fed St Louis President James Bullard interview highlights: 

  • Bond markets give a little better of the risk. We will have to do more

  • When asked about the stock market, he said “I don’t want to take too much signal from the stock market”

  • Need to get policy rate to where it pushes downward pressure on inflation

  • I like front loading

COMMODITIES

• Iron ore futures fell -0.3% to US$104.9 a tonne

  • After five consecutive weeks of gains, the steelmaking capacity utilisation rate among electric-arc steelmaking furnaces (EAF) mills started to head south again. Some EAF makers had reined in output due to local power shortages and their increasing production costs, Mysteel reported

• Oil prices fell after reports that OPEC+ was considering lower production

  • Talks between the EU, the US and Iran to revive the 2015 nuclear deal are still in progress, which could potentially bring millions of barrels of oil back into global markets

• Gold was slightly higher after the US dollar softened. The biggest catalyst for gold remains the hawkish or dovish commentary from Powell at Jackson Hole

The ASX 200 posted a similar move as the S&P 500 on Thursday, recouping half of the losses it suffered earlier this week.

The overnight session was one of those strong, broad-based buying sessions led by mostly risk sectors, which is a good sign for bulls.

Another positive sign is that a several individual stocks and ETFs are defending key areas such as the 20 or 50-day moving averages.

Still, it's a choppy market where traders often feel rather bipolar, overly bullish one day and bearish the next. Keep your emotions in check.

Note: Going to get rid of the large sub headings moving forward.

Iron ore miners: US-listed BHP (ASX: BHP) and Rio Tinto (ASX: RIO) rallied 3.1% and 1.8% respectively. Likely in response to more stimulus measures from China as President Xi Jinping attempts to counter the economic blow of zero-covid. The VanEck Steel ETF - which is a good barometer for global industrial and mining stocks - is taking shape.

VanEck Steel ETF (Source: TradingView, Annotations by Market Index)

Copper: Is another sector that'll benefit from more infrastructure related stimulus from China. The Global X Copper Miners ETF is about to revisit the lows of its previous trading range. Can it slice through or will it act as a new area of resistance?

Global X Copper Miners ETF weekly chart (Source: TradingView, Annotations by Market Index)

Another look at uranium: The Global X Uranium ETF closed 0.5% higher, bouncing off session lows of -1.6%. Most ASX-listed uranium stocks have gone nowhere for around 12 months, so will it be any different this time?

Interestingly, Cameco CEO told Bloomberg; "We are as busy as we have ever been market strongest in my 40 years ... We have a lot of new contracts in the pipeline, we have a team in Japan this weekend talking about their needs ... The world needs more uranium."

Stocks going ex-dividend:

• Fri: ARG, AWC, GUD, LLC, NCM

• Mon: ANN, CGF, CRN, GAP, HSN, INA, PCG, PNI, WOR

• Tue: BAP, BPT, DMP, DOW, EVN, NWL, SDG, WTN

• Wed: AX1, BKL, CIN, EDV, IRE, OML, PFP, TAH, TWE, WOW

• Thu: AGL, BHP, CCP, GNG, HMC, MNY, PTM, SXL, WHC

ASX corporate actions occurring today:

• Dividends paid:  DJW, FSI

• Listing: None

• Issued shares: 1MC, AMH, AUN, AVR, BXB, CDA, CTD, DJW, DW8, EMR, FLT, HMC, IVZ, JHX, KGN, LBT, MCP, MEM, MFF, MFG, MGT, MRI, NAB, QVE, RF1, RNU, RUL, RYD, SHP, VTX

Other things of interest (AEST): 

• US Personal Income & Spending (July) at 10:30 pm

• US Jackson Hole Economic Symposium at 10:30 pm

• US Fed Chair Powell Speech at 12:00 am