Morning Wrap: Wall St rallies on dovish Fed, Meta logs first ever sales fall, ASX to jump

Wall Street rallied on a widely expected 75 bps interest rate hike and dovish comments from the Fed, the Nasdaq is having its best day since March 2020 and Facebook-parent Meta reports a steeper-than-expected revenue drop.

Let’s dive in.

MARKETS

US stocks rallied after the Fed signalled that it will likely be appropriate to slow the rate of interest rate hikes at some point. The market is beginning to see the light at the end of this tightening cycle, with the Nasdaq having its best day since 6 March, 2020.

• All 11 US sectors advanced

• Risk and growth-y sectors outperformed

• Communication Services rallied an outsized 5.1% thanks to Alphabet

• Traditional defensives underperformed

• Utilities, Real Estate, Health Care and Staples rose less than 1.0%

• 77% of US stocks higher

• 64% of US stocks trade below their 200-day moving average (67% on Wednesday, 69% a week ago) 

STOCKS

• Chipotle Mexican Grill (+14.7%) quarterly earnings were ahead of expectations as higher prices helped offset inflationary pressures

  • “The low-income consumer definitely has pulled back their purchase frequency,” CEO Brian Niccol said in the earnings conference call. “Fortunately for Chipotle, you know, the majority of our customers are a higher household income consumer.”

• Spotify (+12.2%) reported 433m monthly active users in the second quarter, up 19% year-on-year and 5m above guidance. Spotify reported a wider-than-expected loss but revenue was ahead of analyst expectations

• Shopify (+11.7%) shares somehow rallied after posting weaker-than-expected earnings, a gloomy outlook and plans to lay off 10% of its workforce 

• Alphabet (+7.7%) reported a better-than-feared quarterly result that missed both top and bottom expectations. Google Cloud and advertising revenues were the main culprits

  • Ad revenue rose 12% to US$56.3bn, a massive slowdown compared to last year. The Youtube division reported sales growth of 5%, down from 84% a year ago and the lowest since coverage for the division began in 2018

• Microsoft (+6.7%) shares rallied after a similar ‘better-than-feared’ result. Revenue growth was at its slowest since 2020, at 12% year-on-year. The tech giant reaffirmed its 2023 guidance despite the economic headwinds 

After hours earnings include:

• Meta Platforms (+6.6%, after hours: -3.7%) reported a -1% decline in quarterly revenue to US$28.82bn, below expectations of US$28.94bn, according to Refinitiv

  • Meta expects sales in the current quarter to be US$26bn to US$28.5bn, a 2-11% decline compared to last year

• Ford (+5.2%, after hours: +6.4%) second quarter earnings beat Wall Street expectations, with operating income more than triple compared to last year, at US$3.7bn

  • Ford reaffirmed its full year guidance despite inflation headwinds and a pivot towards EVs 

EARNINGS

US corporate earnings we’re watching this week:

• Thursday: Pfizer, Mastercard, Amazon, Intel, Apple

• Friday: Exxon Mobil, Chevron, Procter & Gamble 

ECONOMY

• Australia Inflation rose to 6.1% in the June quarter, up from 5.1% in the March quarter

  • Below expectations of a 6.2% increase

  • Most significant contributors were new dwellings (+5.6%) and automotive fuel (+4.2%)

  • "Shortages of building supplies and labour, high freight costs and ongoing high levels of construction activity continued to contribute to price rises for newly built dwellings. Fewer grant payments ... also contributed to the rise," the ABS said

• Germany consumer sentiment plunges to an all-time low of -30.6

  • "In addition to concerns about disrupted supply chains, the war in Ukraine and soaring energy and food prices, there are now worries about sufficient gas supplies for businesses and households next winter," said GfK consumer export, Rolf Burkl

  • To add some perspective, the index hit a trough of around -25 during covid and was still positive during the 2008 Global Financial Crisis

• US durable goods orders jumped 1.9% month-on-month in June, up from 0.8% in May

  • Economists polled by the Wall Street Journal had forecast a -0.4% decline

  • The better-than-expected numbers was largely thanks to a 1.5% increase in new car and truck orders, and a 81% spike in orders for fighter jets and other military planes

• US pending home sales fell -20% year-on-year in June, down from -13.8% in May

  • Consensus was expecting a -9% decline 

  • Excluding the first two months of the initial pandemic, this is the slowest pace of contracts to purchase existing homes since September 2011

• US raises interest rates by 75 bps to 2.50%, in-line with expectations

Key points from Fed Chair Jerome Powell’s speech:

• Housing and business fixed investment have weakened, but job growth at a 50 year high, and wages continue to increase. Labor supply remains subdued. Strength of labor market shows aggregate demand remains solid

• Another unusually large hike could still be in the cards for the next meeting, but will depend on economic data. Will likely become appropriate to slow the pace of increases afterwards as the Fed monitors the impact of its actions

• Since June SEP, inflation has come in hotter and economic data has come in weaker. The Fed thinks it will get to a moderately restrictive level by year end of 3.0% to 3.5%

• “I do not think the US is currently in a recession” 

COMMODITIES

• Iron ore futures rose 0.1% to US$106.5 a tonne

  • Chinese iron ore futures on the Dalian Commodity Exchange rose 2.8% on Wednesday

• Oil prices rallied after US inventories posted a wider-than-expected draw. White House Middle East coordinator Brett McGurk said its “highly unlikely” that the Iran nuclear deal will be revived in the near-term

• Gold welcomed the Fed’s commentary that it could be getting close to peak tightening

Wall Street has handballed us some rocket fuel. The market is awash with bullishness after dovish comments from the Fed, better-than-feared earnings from US tech giants and optimistic earnings from other names like Chipotle and Ford.

Most of the ETFs we track posted outsized gains, including:

• Uranium +6.95%

• FinTech +5.6%

• Rare Earth/Strategic Metals +4.5%

• eCommerce +4.4%

• Cloud +4.35%

• Jets +3.1%

On a side note, US-listed BHP (ASX: BHP) and Rio Tinto (ASX: RIO) rose 1.4% and 0.5% respectively. Rio reported a -29% drop in first-half profit and more than halved its dividend, hurt by weaker iron ore prices, higher costs and labour shortages.

The main thing for ASX investors to look out is how stocks open. Will they:

• Gap up too much (aka the open is the session high) or;

• Open a little higher and push from there

US second quarter GDP data is due tonight, which could cause some fireworks over the definition of a recession.

ASX corporate actions occurring today:

• Ex-dividend: EZL, GCI, KKC, PCI, TCF

• Dividends paid: AOF, CAM, SDG, TRA

• Listing: CBH

• Issued shares: AEV, BIO, CBH, CWY, EDE, EMS, ENT, LKO, MAY, MDR, NBI, NIM, NUH, PCG, PDI, PE1, QVE, RES, RF1, RHY, SMI, SYA, VMY, ZIP

Other things of interest (AEST): 

• Australia Retail Sales (June) at 11:30 am

• Germany Inflation Rate (July) at 10:00 pm

• US GDP Growth Rate (Q2) at 10:30 pm