Market Wraps

Morning Wrap: Wall St rallies on easing inflation and smaller hike hopes, ASX to surge

Wed 23 Nov 22, 8:32am (AEST)

ASX Futures (SPI 200) imply the ASX 200 will open 55 points higher, up 0.76%.

The local sharemarket is set to open at a fresh five month high, US stocks rallied on bets of peak inflation and smaller interest rate hikes, Dell downgrades its outlook on expectations of softening PC sales, China tightens covid control measures as cases hit all-time highs and Europe softens its Russian oil price-cap plan.

Let's dive in.

Overnight Summary

Wed 23 Nov 22, 8:32am (AEST)

Name Value Chg %
Major Indices
S&P 500 4,004 +1.36%
Dow Jones 34,098 +1.18%
NASDAQ Comp 11,174 +1.36%
Russell 2000 1,860 +1.16%
Country Indices
Canada 20,220 +1.22%
China 3,089 +0.13%
Germany 14,422 +0.30%
Hong Kong 17,424 -1.31%
India 61,419 +0.45%
Japan 28,116 +0.61%
United Kingdom 7,453 +1.03%
Name Value Chg %
Commodities (USD)
Gold 1,739.10 -0.03%
Iron Ore 91.54 -
Copper 3.61 +1.06%
WTI Oil 81.27 +1.54%
Currency
AUD/USD 0.6648 +0.67%
Cryptocurrency
Bitcoin (AUD) 24,220 +1.06%
Ethereum (AUD) 1,691 +0.98%
Miscellaneous
US 10 Yr T-bond 3.758 -1.75%
VIX 21 -4.43%

US Sectors

Wed 23 Nov 22, 8:32am (AEST)

Sector Chg %
Energy +3.18%
Materials +2.23%
Information Technology +1.93%
Communication Services +1.33%
Consumer Discretionary +1.17%
Financials +1.03%
Health Care +0.88%
Utilities +0.84%
Industrials +0.75%
Consumer Staples +0.72%
Real Estate +0.46%

MARKETS

US stocks continued to rally on hopes of a downshift in the Fed’s tightening path. A pullback in bond yields and the US dollar also supported more growth-heavy pockets of the market.

  • Energy and Materials headlined gains thanks to a weaker US dollar and yesterday’s Saudi rejection on rumours of an OPEC supply boost

  • Tech and Discretionary also outperformed, reflecting an improved appetite for growth and risk assets

  • Defensive sectors including Real Estate, Staples and Industrials underperformed on a relative basis  

  • 65% of US stocks advanced

  • 45% of US stocks trade below their 200-day moving average (47% on Tuesday, 44% a week ago)

STOCKS

Abercrombie & Fitch (+19.9%) beat revenue forecasts and posted a surprise profit. Guidance for the next quarter was also ahead of expectations. Management said it expects holiday sales to ‘probably mirror more pre-pandemic’ levels.

  •  “Abercrombie women's, particular hit another record quarter in denim … What we’re really seeing from the consumer, though, is a move into non-denim bottoms. There’s a lot happening.” - CEO Fran Horowitz 

Dell (+6.6%) beat earnings and revenue expectations but had a weaker-than-expected forecast for the December quarter due to a softer outlook for PC sales.

  • “We expect ongoing global macroeconomic factors including slowing economic growth, inflation, rising interest rates and currency pressure to weigh on our customers, and as a result, their IT spending intentions even as they continue to digitise their businesses.” - CFO Tom Sweet 

  • “And that implies sort of a mid double-digit decline in units year-over-year (referring to PC sales). And I think that would be the single largest percentage decline in recent history.” - COO Chuck Whitten 

Zoom (-4.6%) beat earnings expectations but cut its FY23 outlook as pandemic growth has slowed considerably.

  • “From an operating margin perspective … as we're working on our FY '24 plan, we are being very, very thoughtful about prioritisation of investments.” - CFO Kelly Steckelberg

WORLD NEWS 

  • Chinese cities incl Beijing, Shanghai tighten covid control measures (Yuantalks)

  • EU softens Russian oil price-cap plan ahead of approval (Bloomberg)

  • FTX attorney says 'substantial amount' of assets either stolen or missing (Bloomberg)

ECONOMY

RBA Governor Philip Lowe speaks at CEDA’s Annual Dinner.

  • "It is increasingly problematic to set a narrow range that inflation is always supposed to be within.”

  • "We have not ruled out returning to 50 basis point increases if that is necessary. Nor have we ruled out keeping rates unchanged for a time as we assess the state of the economy and the outlook for inflation."

  • “We will be playing close attention to developments in the global economy, the evolution of household spending and wage and price setting behaviour.”

Eurozone consumer confidence rose to -23.9 in November from -27.5 in October. 

  • Beat analyst expectations of -26.0

  • Highest reading since August but still at historically low levels

Cleveland Fed President Loretta Mester speech:

  • “We’re committed to using our tools to put inflation on a sustainable downward trajectory to 2%.”

  • “At this point, labor demand still exceeds labor supply … n most sectors and categories, wage growth has not kept pace with inflation and longer-term inflation expectations have remained reasonably well anchored, so the dynamics today are different from those in the 1970s.”

COMMODITIES

Iron ore futures fell -0.5% to US$91.75 a tonne.

  • “Asia gears up for an influx of Indian iron ore and steel after export duties lifted.” - Fastmarkets 

  • “Chinese traders are less willing to build steel inventories this winter as they expect that demand among end-users will stay weak in the first half of next year.” - Mysteel Global

Oil prices remain choppy, falling from session highs of around 2.7% and currently up 0.75%

  • “Oil is having a tug-of-war with China’s Covid demand concerns getting countered with what appears to be a motivated Saudi Arabia to keep the oil market tight.” - Oanda senior market analyst, Ed Moya

  • “The recent oil price slide was overdone and given global economic activity excluding China won’t completely fall off a cliff, prices should continue to stabilise here.” - Moya

Gold is trying to snap its four day losing streak but gains of 0.7% quickly faded and currently around breakeven.

  • “The Fed is likely to stick to the hawkish script for a while and unless we see a major improvement in China’s COVID situation, gold should struggle to muster up a meaningful rally.” - Moya 

QUICK BITES

  • First-ever fall in money supply: "Since 1959, the US Money Supply (M2) has gone up each and every year ... 2022 is on pace to be the first calendar year in which the Money Supply has fallen in the last 60+ years, down 0.3% year-to-date." - Charlie Bilello

US m2 supply
Source: Charlie Bilello
  • December macro data is key: "If December macro data surprises on the hawkish side and pushes the terminal rate higher, calling the step down into question, the equity market is exposed to a quick derating. That's a risk to our tactical upside call."

Morgan stanley charts
Source: Morgan Stanley

Industry ETFs

Wed 23 Nov 22, 8:32am (AEST)

Description Last Chg %
Commodities
Nickel 33.3618 +3.07%
Copper Miners 33.33 +3.06%
Uranium 20.06 +3.04%
Aluminum 49.9449 +2.21%
Steel 59.22 +2.20%
Strategic Metals 90.11 +1.93%
Silver 19.2 +1.15%
Gold 161.88 +0.12%
Lithium & Battery Tech 67.28 -0.42%
Industrials
Aerospace & Defense 110.38 +0.40%
Global Jets 18.05 +0.33%
Healthcare
Biotechnology 133 +0.79%
Cannabis 14.62 -0.21%
Description Last Chg %
Cryptocurrency
Bitcoin 9.59 +1.93%
Renewables
CleanTech 15.6324 +1.46%
Hydrogen 11.75 +1.11%
Solar 80.81 +0.94%
Technology
Semiconductor 366.52 +2.98%
Robotics & AI 20.68 +1.40%
Sports Betting/Gaming 15.18 +1.38%
Electric Vehicles 22.19 +1.31%
FinTech 19.6 +1.02%
Video Games/eSports 42.75 +0.73%
Cloud Computing 15.6 +0.26%
E-commerce 15.88 -0.06%
Cybersecurity 22.91 -0.31%

ASX Morning Brief

Chinese lockdowns? What Chinese lockdowns? The market doesn't seem to care even as cases climb to new all-time highs, with 28,000 new cases reported on Tuesday. We have yet to see many full-blown lockdowns besides Guangzhou, but Beijing shut down non-essential businesses in its largest district and told residents to work from home.

Major US benchmarks are pushing higher after a brief pullback. The recent pullback has been constructive, meaning low volatility and low distribution. Unlike those face ripping selloffs we've been seeing for most of this year.

Dow Jones chart
Dow Jones chart (Source: TradingView)

SPI futures suggest the ASX 200 opens +0.76% or another fresh five month high. The local market continues to see a Dow like performance and that's been further boosted by how well Materials and Energy have held up since China's covid breakout.

Sectors to watch

Materials: The easing US dollar and risk-on tone across markets boosted commodity prices. Nickel futures rose 4%, the Global X Copper Miners ETF rallied 3.2% and US-listed BHP finished the overnight session 2.6% higher.

Uranium: The Global X Uranium ETF was one of the top performing ETFs on our overnight watchlist, up 2.94%. This could see some positive flow for local names. However, the ETF has largely gone nowhere in the last 18 months and continues to chop around the 200-day moving average.

Global X Uranium ETF
Global X Uranium ETF (Source: TradingView)

Tech: The Nasdaq led US indices higher (for once). Still, you look at a risk barometer like the ARK ETF and its only just getting by. The good thing about tech is that most charts have remained relatively range bound. However, have struggled to move out. Let's see if easing bond yields and improved risk appetite can change that.

ARKK ETF chart
ARK Innovation ETF (Source: TradingView)

Key Events

Stocks going ex-dividend over the next week:

  • Wed: Embark Education (EVO), US Student Housing REIT (USQ)

  • Thu: ALS (ALQ), Nufarm (NUF), Australian Vintage (AVG), TerraCom (TER)

  • Fri: None

  • Mon: None

  • Tue: 360 Capital Enhanced Income Fund (TCF), Infratil (IFT), Red Hill Iron (RHI), Graincorp (GNC), My Food Bag (MFB) 

ASX corporate actions occurring today:

  • Dividends paid: Brickworks (BKW), Janus Henderson Group (JHG)

  •  Listing: None

Other things of interest (AEDT):

  • 9:00 am: Australia manufacturing PMI

  • 9:00 am: Australia services PMI

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free