Morning Wrap: Wall St falls as hot jobs data pressures Fed, ASX to open flat

US stocks sold off after job openings data unexpectedly jumped in September, the Fed is expected to hike rates by another 75 bps on Thursday, Uber shares rally on better-than-expected earnings, copper prices bounce and the Dow posts its best October since 1975.

Let's dive in.

US MARKETS

Wall Street struggled to justify a rally after job openings data unexpectedly accelerated, which could embolden the Fed for more aggressive tightening through to year end. The market's recent rally has been banking on the Fed to deliver one final 75 bp hike in November and begin slowing the pace of increases in December. The robust labour market seems to suggest otherwise.

• Energy led to the upside as oil prices pushed higher on rumours of a potential reopening for China early next year

• Financials continue to extend gains thanks to better-than-expected earnings from banks and investment banks in the past two weeks

• Growth heavy sectors including Discretionary and Tech led to the downside

• US 2-year Treasury yield - which reflects short-term interest rate expectations - rallied from session lows of 4.4% to 4.55%, not far off recent highs of 4.64%

• 66% of stocks advanced

• 53% of stocks trade below their 200-day moving average (59% a week ago)

EARNINGS

Uber (+12.3%) posted better-than-expected earnings alongside an upbeat December quarter guidance. Revenue was up 72% YoY and earnings hit a record $516m.

• "With over US$1B in adjusted EBITDA and US$693 million in free cash flow so far this year, we have demonstrated how our global scale and the unique advantages of our platform are combining to generate meaningful profits.” - CEO Dara Khosrowshahi 

• “Mobility active drivers were on par with September 2019 levels. That recovery continued into Q4, with the number of active drivers in nearly all of our largest markets growing MoM in October, consistent with a broad-based trend we are seeing around the world.” - CFO Nelson Chai

Marathon Petroleum (+4.9%) reported third quarter earnings that beat analyst expectations. This follows an earnings beat from heavyweight Exxon Mobil last Friday  

• "Market demand for our products remains strong and our Q3 results reflect our improving operational and commercial execution. We completed our US$15B share repurchase commitment and announced an increase to our quarterly dividend of ~30%" - CEO Michael J. Hennigan

Pfizer (+3.2%) beat third quarter earnings expectations and raised its 2022 earnings guidance. The drugmaker said it expects to generate US$34bn in sales from its covid vaccine, US$2 above previous expectations

•  "Over the next 18 months, we expect to have up to 19 new products or indications in the market – including the five for which we have already begun co-promotion or commercialization earlier this year.” - CEO Albert Bourla 

WORLD NEWS 

• UK house prices fall the most since start of pandemic (Bloomberg)

• China markets rally on reopening speculation (Bloomberg)

• Wheat soars as Russia exits pact allowing Ukraine exports (Bloomberg)

• US job openings post surprise increase, keeping pressure on Fed (Bloomberg)

ECONOMY

US ISM manufacturing PMI eased to 50.4 in October from 52 in September.

• The lowest reading since May 2020 but in-line with consensus expectations

• A reading above 50 signals expansion in manufacturing activity, which accounts for approximately 12% of the US economy

• A measure of prices paid by manufacturers fell to 46.6 from 51.7 in September and the lowest reading since May 2020

• Overall, the PMI flags significant slowing but not yet in contraction

US job openings improved to 10.7m in September from 10.3m in August.

• Well ahead of consensus expectations of 10.2m job openings

• The Fed expects this number to ease as the economy slows

• The unexpectedly strong job openings data makes it difficult for the Fed to pivot

• Bond yields rallied after the data was released and traders are beginning to lean towards a fifth straight 75 bp hike from the Fed at its December meeting

COMMODITIES

Iron ore futures rose 0.45% to US$80.2 a tonne.

• “Iron ore prices are expected to soften due to the falling demand, impacted by the domestic real estate slowdown and the covid-19 outbreaks and lockdowns, upon the shrinking profits of steel mills,” according to Mysteel’s weekly market outlook

Oil prices rallied after unconfirmed reports about China reopening in March 2023.

• Oil posted its first monthly gain in October after a four straight months of decline

• “The global economic outlook remains very fragile to a swathe of risks and that should keep crude demand forecasts vulnerable to getting slashed, but for now, energy traders remain fixated on how tight the market remains,” - Oanda senior market analyst, Ed Moya

Gold inched higher but eased from session highs of US$1,657. 

• “Gold prices pared gains after the JOLTS report rattled December Fed downshift calls … Gold’s rally was gaining momentum on hopes that the Fed was going to deliver a 75 basis point hike and a dovish press conference. After today’s labor data, it seems the press conference might have to be hawkish.” - Moya 

Other commodities of interest:

• Natural gas -6.9% to US$5.89/MMboe

QUICK BITES

• Morgan Stanley on the bear market rally: "Breadth is improving with 55% of S&P members trading above their 100-day moving average despite the S&P not yet trading above its 100-day ... All in all, we think this is supportive of further upside in this tactical bear market rally.

• Dow posts its best October: The Dow rallied 14.0% in October, for the best October since 1975 and best month overall since January 1976. Since WWII, the 11 other times the Dow rallied more than 10% were followed by an average 15.9% gain a year later, according to Ryan Detrick, Chief Market Strategist of Carson Group

• US debt ceiling: The US debt ceiling is currently around US$31.4tn and expected to cover borrowing needs until late 2022 to early 2023. The debt ceiling is fast approaching, which means we will likely see it get lifted again

• All eyes on unemployment: A spike in unemployment has coincided with big market drawdowns. But the US labour market refuses to budge.

Source: GameofTrades, TradingView

Learn more about our overnight ETFs.

Yes, the "Wrap guy" took a day off yesterday. I’m back now :)

US markets pulled back a little in the last two days, even then we continue to observe the relative outperformance of the Dow, perhaps reflecting a rotation or demand for 'safe haven' stocks.

The ASX 200 closed above its 200 day moving average on Tuesday, for the first time since 26 August.

Still, the market will face its next hurdle: the Fed's interest rate decision at 5:00 am AEDT on Thursday. The consensus is for a fourth consecutive 75 bp hike and a dovish press conference. But after job openings data came in much stronger than expected, the dovish views might have to wait for a later date, which could then rattle the markets again.

XJO chart (Source: TradingView)

Sectors to watch

Today was one of those days where the US market pulled back but our ETF watchlist was rather strong.

Copper: Copper spot prices snapped a two-day losing streak and bounced 2.7% to US$3.47. Likewise, the Global X Copper Miners ETF rallied 4.9%. Copper remains choppy, but the overnight strength could sees some positive flow for local names.

Copper futures (Source: TradingView)

Energy: Higher overnight oil prices could see some strength follow through for oil energy names like Woodside (ASX: WDS).

Stocks going ex-dividend over the next week:

• Wed: Event Hospitality and Entertainment (EVT) 

• Thu: EZZ Life Science (EZZ)

• Fri: None 

• Mon: Australia and New Zealand Bank (ANZ), Champion Iron (CIA), Macquarie (MQG) 

• Tue: Reckon (RKN)

ASX corporate actions occurring today:

• Dividends paid: None

• Listing: None

Other things of interest (AEDT):

• 11:30 am: Australia building permits

• 11:30 am: Australia home loans

• 6:00 pm: Germany balance of trade

• 11:15 pm: US ADP employment change