Morning Wrap: Wall St falls on unexpectedly strong jobs report, ASX to edge lower

The Fed is poised to continue hiking after an unexpectedly strong US jobs report, oil and gold struggle to bounce, 70% of S&P 500 companies have so far beaten revenue expectations and interesting commentary from Adidas, Mastercard and Lowe’s.

Let’s dive in.

MARKETS

Just some food for thought as we kick off another week of "when's the pullback coming". The S&P 500 is around 1% away from its 200-day moving average, a key price point which could see some resistance.

US inflation data is due on Wednesday night and if history were to repeat itself - the market sells off. Since the beginning of 2021, month-on-month inflation prints have been above consensus 12 times, and below expectation only once in August 2021.

As of this year, the S&P 500 has declined on every single inflation print except January. The average fall is -1.04%.

Interestingly, Fed Governor Michelle Bowman said last week that "I have seen few, if any, concrete indications that support this expectation, and I will need to see unambiguous evidence of this decline before I incorporate an easing of inflation pressures into my outlook."

Anyhow, onto the usual stuff.

• 6 out of 11 US sectors declined

• Energy bounced 2% after two consecutive declines of more than -3%

• Financials, Materials, Real Estate and Industrials were also green

• 52% of US stocks advanced

• 55% of US stocks trade below their 200-day moving average (56% last Friday, 57% a week ago) 

STOCKS

• Beyond Meat (+21.9%) posted a larger-than-expected loss and weak sales for the second quarter. Beyond downgraded its 2022 revenue guidance of US$470m to US$520m from its prior forecast of US$560m to US$620m

• AMC (+18.9%) plans to issue a dividend to all common shareholders in the form of preferred shares. The new shares will list on the New York Stock Exchange under the symbol ‘APE’

• Lyft (+16.6%) shares soared on an unexpected profit for the recent quarter

  • “We generated the highest Adjusted EBITDA in our company’s history and saw COVID highs for Active Riders, drivers and rides,” said CEO Logan Green

• DraftKings (+9.8%) posted a narrower-than-expected loss of US$217m from US$305.5m in the previous quarter. The sports betting company said its seeing “no perceivable impact” from broader macroeconomic issues

• Expedia (+0.3%) sales rose 51% from a year ago to US$3.2bn, ahead of analyst expectations of US$2.99bn

  • “Lodging bookings reached a record high, and we posted our highest ever Q2 revenue and adjusted EBITDA … despite the disruptions during the summer travel season and an uncertain macroeconomic backdrop, travel demand has remained strong,” said CEO Peter Kern 

• Virgin Galactic (-17.3%) issued another delay for its commercial space travel service, now planned for the second quarter of 2023. Virgin posted a net loss of US$110 for the quarter and a -40% decline in cash to US$330m

A few quotes to consider:

• Adidas CFO: "We still saw a significant negative drag of around €600 million from supply chain constraints in the first half of the year, €400 million in Q1 and €200 million in Q2.  In the second half, we do not expect a major impact from supply chain constraints anymore"

• Gold Resource CEO: "Across the industry, we are seeing projects suffer from cost escalation as well as increased cost of capital at a time when commodity prices are declining. It is, unfortunately, a perfect storm, the duration of which is unknown"

• Lowe’s CEO: “As I look at what's going on, I have a hunch that we may be in for what I would call a full employment recession. The current unemployment rate is 3.6% & job growth for the past 1.5 years has averaged 400,000 new jobs per month”

• Mastercard: "The latest retail trends place an emphasis on consumer choice and passion-driven spending – they’re hunting for deals, shopping across channels, and ultimately still spending on experiences and goods that make them feel good"

EARNINGS

70% of S&P 500 companies have beaten revenue estimates since last Friday’s close, which is the lowest percentage since the second quarter of 2020 (65%), according to FactSet.

Year-on-year earnings growth for the second quarter so far sits at 6.7%, which is the lowest growth since the fourth quarter of 2020 (4.0%).

US corporate earnings we’re watching this week:

• Monday: Palantir Technologies, Upstart

• Tuesday: Peloton, Coinbase, Roblox, Unity Software

• Wednesday: Walt Disney

• Thursday: Rivian

• Friday: None

ECONOMY

• German industrial production unexpectedly rose 0.4% month-on-month in June

  • Compared to 0.2% in May and consensus expectations of a -0.3% decline

• Canada unemployment rate was steady at 4.9% in July, unchanged from June

  • Employment decreased around 31,000 but the figure is not considered significant

  • July marks the second consecutive month of slightly higher unemployment in Canada

• US unemployment rate was steady at 3.5% in July

  • Lowest unemployment level since the 1960s

  • The US added 528,000 new jobs in July, well above expectations of 258,000 new jobs

  • Jobs growth was widespread led by gains in leisure and hospitality, business services and healthcare

COMMODITIES

• Iron ore futures rose 2.5% to US$109.1 a tonne

• Oil is trying to stabilise after a rough week driven by global recession fears. The surging US dollar and the risk that the Fed may continue to aggressively raise interest rates continues to outweigh the tight supply narrative

• Gold rallied to session highs of US$1,794 before fading to US$1,774. The stronger-than-expected US jobs report sent Treasury yields higher, which weighs on the non-interest bearing yellow metal

SPI futures flat and not too many interesting overnight developments.

There was some strength in sectors including:

• Rare Earths/Strategic Metals +2.26%

• Copper Miners +2.0%

• Cleantech +1.7%

• Uranium +1.33%

While tech and gold-related ETFs traded lower.

ASX corporate actions occurring today:

• Ex-dividend: FRI

• Dividends paid: GCI, MOT, MXT, PCI 

• Listing: None

• Issued shares: ADD, AML, AR1, AW1, BCN, BIO, BKT, BLZ, BPP, CLA, CYM, DRE, GMD, GOR, HMX, HZR, IHR, IVZ, KWR, LAM, LLO, MSV, NAB, NBI, NC1, NWC, NXG, PSI, RFR, RMD, RUL, SCU, SGLLV, SQ2, STX, SVY, SYR