Morning Wrap: Wall St falls on inflation jitters, ASX 200 futures lower, Budget winners and losers

A rather uneventful overnight session ahead of the all-important US inflation print, Fed NY President Williams says they are not done with rate hikes and ready for more if needed, Airbnb shares tumble after earnings offer a cautious outlook for the second quarter, Australia flags its first annual budget surplus in 15 years and UBS talks excessive crowding and stretched valuations for the ASX's 'defensive diamonds'.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 lower and trading within a tight range (Source: TradingView)

MARKETS

• S&P 500 lower in what was its narrowest intraday trading range since November 2021

• Fairly uneventful session against the backdrop of regional bank stocks struggling to bounce, debt ceiling overhang and looming US inflation print

• WTI crude up 8% in the last four sessions but 3% off where it was trading last Tuesday

• Fed NY President Williams stresses they are not done with rate hikes and stands ready to hike again if needed, sees no reason to cut rates this year

• Quants and human traders most split on stocks since 2019 (Bloomberg)

• Fed flags concerns over credit tightening and financial stress (Bloomberg)

• Chinese iron ore prices hit five-month low on weakening demand (FT)

STOCKS

• Airbnb forecasts slower bookings in Q2, shares tumble (Reuters)

• Lucid posts wider loss as demand concerns linger (CNBC)

• Nikola to pause production at Arizona plant amid sluggish EV demand (Reuters)

• Occidental buying back Berkshire's $10bn of preferred stock in March (Bloomberg)

• Palantir soars on earnings beat and full-year profitability guidance (CNBC)

• PayPal slumps after lowering forecast for full-year margins Bloomberg)

ECONOMY

• Wall Street sees 2011 as the closest parallel to the current debt ceiling standoff (NY Times)

• Biden to discuss debt ceiling with House Speaker McCarthy on Wednesday (Reuters)

• Yellen calling CEOs to explain impact US default would have on global economy (Reuters)

• Weakening demand sees China export growth slow and imports plunge (Bloomberg)

Deeper Dive

The Federal Budget 2023-24

The Labour Government boasted its first budget surplus in 15 years thanks to strong jobs growth and high commodity prices, but the surplus will quickly be eaten up by spending on everything from healthcare to renewables and infrastructure.

You can get the rundown and list of ASX companies that could potentially benefit from the budget via The investors' guide to Budget 2023 by Hans Lee.

US Inflation: What to expect

US inflation data will drop at 10:30 pm AEST tonight.

• Headline inflation expected to be 0.4% MoM and 5.0% YoY in April

• Core inflation expected to be 0.4% MoM and 5.5% YoY

Headline and core inflation was 5.0% and 5.6% respectively in March.

The Cleveland Fed Inflation Nowcast has headline April inflation coming in at 5.19% and core at 5.56%. This might reflect the jump in energy prices in April following OPEC's surprise output cut and elevated rents as average home prices rebound.

Expectations aside, the question is whether or not inflation will fall fast enough to justify market expectations of rate cuts in the second half of the year.

Overnight, the likelihood of the Fed hiking by another 25 bps at its June meeting jumped to 18.9%. And guess what a hot inflation print will do to those odds?

Sectors to Watch

An uneventful overnight session ahead of a directional driving catalyst. Resources and tech-related ETFs were under pressure overnight.

Hydrogen: The Global X Hydrogen ETF fell 4.0% overnight weighed by disappointing results from Plug Power, a US-listed $5bn market cap hydrogen fuel cell producer. The stock fell 13.8% after it reported a wider-than-expected loss due to "increased hydrogen molecule cost associated with historically higher natural gas prices and continued supplier disruptions."

Uranium: The Global X Uranium ETF is breaking out of a 2-month base, up 2.2% overnight and closed above its 200-day moving average.

Global X Uranium ETF chart (Source: TradingView)

UBS: Crowding Risks Evident

UBS says recent company trading updates and quarterly results have "generally underwhelmed" analysts, with downgrades to forward earnings estimates outnumbering upgrades by a ratio of 3:2.

"Share price reactions have highlighted the risks of holding certain 'overowned' stocks," UBS said in a note on Tuesday.

"Despite garnering a reputation over recent quarters of being either defensive or higher quality versus their sector peers, Amcor, Super Retail and National Australia Bank have each experienced share price falls that could be considered disproportionally harsh versus their actual result or trading update."

"We believe this illustrates the excessive crowding and stretched valuations which continue to exist through many of the ASX's 'defensive diamonds'."

ASX corporate actions occurring today:

• Trading ex-div: National Australia Bank (NAB) – $0.83, Resmed (RMD) – $0.046, Bank of Queensland (BOQ) – $0.20 

• Dividends paid: None

• Listing: None

Economic calendar (AEST):

• 10:30 am: Westpac Consumer Confidence

• 10:30 pm: US Inflation