Morning Wrap: Wall St gains fizzle, Nvidia issues revenue warning, ASX to fall

The S&P 500 briefly touched the 200-day moving average for the first time since 19 April, the Senate passes a historic $700bn Inflation Reduction Act and Nvidia earnings missed expectations by a mile.

Let's dive in.

MARKETS

The S&P 500 touched the 200-day moving average for the first time since 19 April. Though, the 1.0% rally faded pretty quickly and turned into a -0.12% close.

Markets remain skittish ahead of the US CPI print on Wednesday,  where consensus expects inflation to slightly ease to 8.7% in July from 9.1% in June. The focus will be on core inflation, which is expected to rise to 6.1% from 5.9% in June.

Nvidia earnings was another drag on Wall St, reminding investors of the troubling macro and supply chain environment. 

• 7 out of 11 US sectors higher

• Growth-heavy sectors underperformed

• REITs, Materials and Energy outperformed

• 62% of US stocks advanced

• 53% of US stocks trade below their 200-day moving average (55% on Monday, 57% a week ago) 

STOCKS

• First Solar (+4.8%) was upgraded by Goldman Sachs from Neutral to Overweight. The investment bank said the solar tech company should benefit from the Inflation Reduction Act (climate and healthcare bill)

• Nvidia (-6.3%) posted a -19% fall in second quarter revenue to US$6.7bn, well below the US$8.1bn expected. The miss reflects weaker-than-expected gaming revenue, which fell -33% compared to a year ago

  • "Our gaming product sell-through projections declined significantly as the quarter progressed. As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our Gaming partners to adjust channel prices and inventory,” said CFO Colette Kress

  • "We have slowed operating expense growth, balancing investments for long-term growth while managing near-term profitability. We plan to continue stock buybacks as we foresee strong cash generation and future growth"

• BioNTech (-7.5%) posted a -40% decline in revenue to 3.2bn euros for the second quarter due to lower vaccine demand

  • “The development of the pandemic has been and remains dynamic, causing a rephasing of orders, with this leading to fluctuations in quarterly revenue,” said CFO Jens Holstein

• Palantir Technologies (-14.2%) lowered its annual revenue forecast to below analyst expectations due to uncertainty surrounding government contracts and foreign exchange headwinds

  • Palantir was co-founded by billionaire entrepreneur Peter Thiel in 20023 to support US counter-terrorism operations but has expanded into commercial businesses

EARNINGS

The market has so far rewarded positive earnings surprises more than the average (2.1% vs. 0.8% 5-year average) and punishing negative surprises less (0.0% vs. -2.4% 5-year average), according to FactSet. 

US corporate earnings we’re watching this week:

• Tuesday: Peloton, Coinbase, Roblox, Unity Software

• Wednesday: Walt Disney

• Thursday: Rivian

• Friday: None

ECONOMY

• US Senate approved a $700bn healthcare and climate bill which seeks to lower the cost of some medicines, increase corporate taxes and reduce carbon emissions. On the climate and energy side:

  • Up to $7,500 subsidy to buy an electric vehicle

  • 30% off home rooftop solar

  • $27bn clean energy technology accelerator initiative to help advance renewable technologies

  • $4bn to help address climate change-fueled drought in the southwest

  • $1.5bn to support oil companies cut down on greenhouse gas emissions

  • The bill is poised to more than triple clean energy production and add up to an additional 550 gigawatts of electricity from wind, solar and other clean energy sources

  • Independent analysis shows the bill, combined with other ongoing emissions reductions, could cut as much as 40% of US greenhouse gas emissions by 2030

COMMODITIES

• Iron ore futures 1.7% to US$111.2 a tonne

  • Over the first week of August, China’s domestic steel prices increased in both physical and future markets. Chinese steel market fundamentals showed signs of improvement, according to Mysteel Global

• Oil prices rebounded after a -13% selloff last week. A note from Goldman Sachs made a case for higher oil prices, with the view that the oil market is stuck in a larger deficit

• Gold is trying to rally towards US$1,800, supported by a fall in Treasury yields and waning risk appetite ahead of US inflation data

We're starting to see some resistance for the S&P 500 around the 200-day moving average. If we get a pullback, it'll be interesting to see what kind we get - a constructive 3-5% or something ugly where the market retests lows.

#1 Lithium

The Rare Earth/Strategic Metals ETF is really starting to get a move on, rallying past the 200-day moving average thanks to the landmark climate change bill.

Global X Rare Earth/Strategic Metals ETF (Source: TradingView, Annotations by Market Index)

Local battery metal stocks got the first mover advantage as the bill was passed on Sunday. It'll be interesting to see if big winners from yesterday like Arizona Lithium (ASX: AZL), Cobalt Blue (ASX: COB) and Mincor Resources (ASX: MCR) can extend gains. And if they pullback, will they do so in an orderly manner.

#2 Energy

"Oil prices are rebounding as the recession riddled outlook and crude demand destruction calls were overdone. A slightly weaker dollar also provided a boost for commodities, but that might not last," said Oanda senior market analyst, Ed Moya.

#3 Copper

The Copper Miners ETF rallied 3.9% as spot prices inched higher.

BHP's (ASX: BHP) attempt to buy Oz Minerals (ASX: OZL) at a 32.1% premium might've also buoyed the sector.

Global X Copper Miners ETF (Source: TradingView)

Some comments from BMO about the takeover offer:

• BHP prefers to buy amid-sized producer in safe jurisdictions

• BHP prefers to buy a producer rather than a project - should help all the growing producers

• BHP is paying 9x EBITDA versus 6.4x on average for the peer group indicating real value in the second

• BHP is paying 1.1x NPV, a significant premium to most of the multiples out there

• BHP can easily afford it. We estimate BHP has net debt of 0.1x at the end of FY22

#4 Tech

Nvidia's crappy earnings spooked a lot of US tech stocks, that have had a rather euphoric rally from June/July lows.

The reminder that the macro environment and supply chain remains troubling could see some negative flow for local tech names.

ASX corporate actions occurring today:

• Ex-dividend: BKI

• Dividends paid: None 

• Listing: None

• Issued shares: 4DX, AGY, AHI, AMC, AVH, BCN, BIO, CXZ, CY5, CYM, DVL, ENX, FIJ, GLN, IMU, JAN, KSN, MGF, MRI, MX1, MXC, NBI, NMR, NVX, OPN, ORI, PCI, PHO, PNR, PPC, RAC, RHY, RNU, RUL, SNG, SUV

Other things of interest (AEST): 

• Australia Consumer Confidence (Aug) at 10:30 am