Morning Wrap: Wall St fades early gains, Treasury yields rip higher, ASX to fall

ASX Futures (SPI 200) imply the ASX 200 will open 37 points lower, down -0.54%.

The US 10-year Treasury yield hits 3.35% and the 30-year yield jumps to an 8 year high, triggering a selloff across risk assets. UK readies at 170 bn euro energy bailout plan, Germany plans to keep its nuclear power plants and oil prices tumble.

Let's dive in.

MARKETS

All three major US benchmarks were up around 0.5% in early trade but failed to hold onto gains.

An interesting observation from Bespoke Invest: "The S&P 500's rally off the June low came from huge intraday gains, and the decline since the August high has come from intraday losses. After hours has been mostly flat."

Separately, here's the average performance of the S&P 500 during mid-term election years since World War 2.

Source: Bespoke Investment

• 4 out of 11 US sectors advanced

• Real Estate, Utilities, Industrials and Healthcare sectors were green

• A theme of defensive and value sectors outperformed

• Staples was the odd one out and lagged

• Tech and Energy sectors underperformed

• 64% of US stocks declined

• 65% of US stocks trade below their 200-day moving average (64% on Monday, 60% a week ago)  

STOCKS

• FedEx (-2.2%) shares were downgraded by Citi. The investment bank expects parcel volumes to slow ahead of macro headwinds and challenges in the freight industry 

• Alibaba (-3.7%) shares slipped after China announced new covid restrictions around the tech hub of Shenzhen and extended Chengdu lockdowns

• Bed Bath & Beyond (-18.4%) shares are now down -77% from August peaks. The company’s chief account officer was appointed as interim CFO after his predecessor died by suicide last week

WORLD NEWS 

• Germany to keep 2 of 3 remaining nuclear power plants on standby (Reuters)

• UK plans for a 170bn euro energy bailout plan (Bloomberg)

• Why a price cap on Russian oil won’t work (Zerohedge)

• Europe’s top aluminium plant to cut output by 22% on energy costs (Bloomberg)

• Energy trading stressed by margin calls of $1.5tn (Bloomberg) 

ECONOMY

• Germany factory orders fell -1.1% in July from -0.3% in June

  • Consensus expected a decline of -0.4%

  • Orders have fallen for a six consecutive month amid an unprecedented energy squeeze

• US non-manufacturing PMI up to 56.9 in August from 56.7 in July

  • Economists polled by Reuters expected a fall to 54.9

  • The services sector accounts for more than two-thirds of US economic activity

• Bank of America says customers spent 10% more in August than the previous year

COMMODITIES

• Iron ore futures fell -0.5% to US$97.1 a tonne

  • “During the week of 29 August to 2 September, participants in the steel and iron ore markets felt less confident about steel demand improving in the short-term, as new COVID-19 cases were identified more frequently in more regions across the country,” said Mysteel

  • The report notes the Chinese government is determined to continue pursuing its zero-COVID policy and expressed concerns about contracting demand for bulk commodities as central bank raise rates to contain inflation

• Oil prices faded as another wave of Chinese lockdowns and a risk-off session weighed

  • “Despite some better-than-expected US services data, global growth isn’t looking good at all and that is trouble for crude prices,” said Oanda senior market analyst, Ed Moya

• Gold continues to stall around US$1,700 as both Treasury yields and the US dollar index climb higher

Treasury yields power ahead: The US 10-year Treasury yield rallied 12 bps to 3.35% overnight. So far this year, equities have struggled when yields push past 3.0%.

Quick one on risk: Barometers for risk-appetite like cryptocurrency and the ARK Innovation ETF are both selling off. ARK is down -25% from its 11 August high. Bitcoin tumbled -4.2% overnight to US$18,960 and at risk of breaking below this key area of support. Higher yields has further validated and intensified the risk-off mood.

Bitcoin price chart (Source: TradingView, Annotations by Market Index)

Lithium and uranium: Local stocks from both sectors rallied strongly in the past few sessions. The VanEck Rare Earth/Strategic Metals ETF closed 2.4% higher overnight, down from session highs of 4.7%. Likewise, the Global X Uranium ETF closed 2.2% higher, down from session highs of 5.8%. This reflects potential profit taking as well as the broader risk-off sentiment (above). Let's see how local names hold up on Wednesday.

Energy pendulum swings back to demand concerns: Oil prices rallied on Monday after OPEC's production cut. Now, the pendulum is swinging back to demand concerns from China and Europe. The rallies are struggling to stick and now its revisiting late August lows.

Brent crude oil price chart (Source: TradingView, Annotations by Market Index)

Stocks going ex-dividend:

• Wed: AMC, ASB, AUB, AVJ, BXB, CVW, HLS, IEL, IFL, MEZ, MPL, PAC, PBP, SEK, UNI, VEA 

• Thu: APM, ASX, BLX, CEN, CLX, EBO, EHL, GEM, GLB, LBL, MHJ, MND, MVF, OCL, PME, PPT, PWR, RMC, RWC, SFC, SIQ, SKT, SRG, WDS

• Fri: ALI, AMO, NEC, NTD, SEQ, WTC

• Mon: CNU, DSK, DUR, DVR, HUB, JYC, LSF, MTO, PGC, PRU, SND

• Tue: FOS, GRR, IGL, ING, NWS, OCL, PSI, TPG

ASX corporate actions occurring today:

• Dividends paid: CDA, PCI, SSR

• Listing: None

• Issued shares: ADT, AFL, AVL, BCB, BEM, BIR, CAR, CCA, COL, CPT, D2O, DBF, DDR, DGL, DVR, EAI, EPM, FLT, IDX, IVZ, LLO, LRS, LV1, MFG, MNY, MRM, N1H, NAB, NOL, NVA, ODA, PEN, PKO, PNN, PNT, PRN, PSI, PWN, RHY, RNU, SFR, SLM, SPT, SRG, TEE, THR, TMR, TYX, URW

Other things of interest (AEST): 

• Australia Q2 GDP Growth at 11:30 am

• China August Balance of Trade at 1:00 pm

• Germany July Industrial Production at 4:00 pm

• US July Balance of Trade at 10:30 pm

• Canada Interest Rate Decision at 12:00 am