Market Wraps

Morning Wrap: Wall St rallies on Fed pivot hopes, lithium stocks jump, ASX set to surge

Mon 24 Oct 22, 8:36am (AEST)

ASX Futures (SPI 200) imply the ASX 200 will open 95 points higher, up 1.42%.

Major US benchmarks surged amid renewed hopes of a pivot, Snapchat shares plunge on revenue miss, China's Xi secures third term, the resource sector is set to surge at the open and CEOs are bullish on travel.

Let's dive in.

Overnight Summary

Mon 24 Oct 22, 8:36am (AEST)

Name Value Chg %
Major Indices
S&P 500 3,753 +2.37%
Dow Jones 31,083 +2.47%
NASDAQ Comp 10,860 +2.31%
Russell 2000 1,742 +2.22%
Country Indices
Canada 18,861 +1.52%
China 3,039 +0.13%
Germany 12,731 -0.29%
Hong Kong 16,211 -0.42%
India 59,307 +0.18%
Japan 26,891 -0.43%
United Kingdom 6,970 +0.37%
Name Value Chg %
Commodities (USD)
Gold 1,662.50 +1.57%
Iron Ore 94.86 -
Copper 3.479 +2.01%
WTI Oil 85.14 +0.75%
Currency
AUD/USD 0.6392 +0.53%
Cryptocurrency
Bitcoin (AUD) 30,479 +0.84%
Ethereum (AUD) 2,083 +0.63%
Miscellaneous
US 10 Yr T-bond 4.213 -0.31%
VIX 30 -0.97%

US MARKETS

October is taking another stab at trying to kill the bear market. Major US indices rallied on hopes that the Fed may begin to slow the pace of tightening after the November meeting. The Wall Street Journal reported expectations of one final 75 bp hike in November followed by smaller increases. The US dollar and bond yields, which have weighed on equity market upside, both eased in overnight trade.

  • All 11 sectors advanced

  • Materials led to the upside amid optimism that China may ease quarantine restrictions. An easing US dollar, which generally weighs on commodity prices, was another tailwind for the sector

  • Discretionary, Financials, Energy, Industrials, Tech and Healthcare all rallied at least 2%

  • Defensives including Real Estate, Communications and Staples underperformed benchmarks 

  • 72% of stocks declined

  • 63% of stocks trade below their 200-day moving average (67%  last Friday, 70% a week ago)

STOCKS

  • Pfizer (+4.8%) plans to quadruple US prices for its covid vaccine according to Reuters

  • Twitter (-4.9%) shares tanked after reports that Tesla CEO was planning to slash three quarters of Twitter’s workforce post takeover 

EARNINGS

  • American Express (-1.7%) quarterly earnings beat Wall Street expectations. The bank also raised its full year guidance but increase provisions set aside for potential defaults

    • CFO: "I would point out that we have now seen six consecutive quarters of revenue growth above 24% on an FX adjusted basis as we are now showing strong growth even on top of the strong recovery-led growth in the prior year quarter.”

    • CEO: "We expected the recovery in travel spending to be a tailwind for us, but the strength of the rebound has exceeded our expectations throughout the year.”

  • Snap (-28.1%) shares plummeted after missing revenue estimates and posting its slowest growth since listing in 2017

    • "We are finding that our advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs of capital."

WORLD NEWS 

  • China'x Xi secures third term, escorts predecessor out of congress (Reuters)

  • Boris Johnson pulls out of race for UK PM (Bloomberg)

  • Australia plans tougher penalties for data breaches (Bloomberg)

  • Global climate summit headed for a geopolitical hurricane (Bloomberg)

ECONOMY

  • UK retail sales fell -1.4% month-on-month in September from -1.7% in August

    • Missed consensus expectations of a -0.5% decline

    • Sales were hurt by a one-off holiday for the funeral of Queen Elizabeth

    • Note: UK Inflation came in at 10.1% in September and consumer confidence is at an all-time low 

  • Canada retail sales rose 0.7% month-on-month in September from -2.2% in August

    • Beat consensus expectations of a 0.2% rise

  • Eurozone consumer confidence was -27.6 in October from -28.8 in September

    • Consumer confidence improved against analyst expectations of another decline to -30 but remains very close to all-time lows  

COMMODITIES

  • Iron ore futures rose 0.1% to US$94.5 a tonne

    • Prices fell -1.4% last week

    • Blast furnace utilisation among 247 Chinese steel mills under Mysteel’s weekly survey fell 78 bps to 88.26% between 14-20 October as “some steelmakers had reined in their output either in response to local authorities’ mandate or their own thinning steel margins.”

    • The World Steel Association said global steel demand is likely to fall -2.3% year-on-year to 1.8bn tonnes in 2022 and rise just 1.0% in 2023

    • "High energy prices, rising interest rates, and falling confidence have led to a slowing in steel-using sectors' activities," said Máximo Vedoya, chairman of the World Steel Economics Committee

  • Oil prices inched higher as risk appetite returned to markets

    • “The oil market is still looking tight and that should support crude prices staying above the $80 level. As the war in Ukraine persists, it looks like we might see escalating sanctions on not just Russia but also Iran,” said Oanda senior market analyst, Ed Moya

  • Gold rallied amid another round of growing expectations of a Fed pivot. This was further aided by a pullback for the US dollar and bond yields  

Other commodities of interest (US$):

  • Zinc +1.7% to US$347.8 a tonne

  • Natural gas -4.5% to US$5.4/MMboe

QUICK BITES

  • Consumer confidence and markets: "Consumer confidence might not give us a direct entry, but it sure tilts the odds in your favour for the mid and long term. The worst the confidence, the more it can improve ... At these levels, we are looking at an average 20% return for the next 12 months," said The Short Bear.

Consumer confidene and the stock market
Source: JP Morgan
  • United Airlines CEO: "There has been a permanent structural change in leisure demand because of the flexibility that hybrid work allows. With hybrid work, every weekend could be a holiday weekend. That’s why September, a normally off-peak month was the third strongest month in our history."

  • Tight copper supplies: The copper market’s available inventory is normally marked in weeks. Currently, only 4.9 days of material is available, falling to 2.7 days by the end of the year according to Trafigura.

Copper inventories
  • Sticky part of inflation is falling: "Zillow index shows shelter inflation coming down rapidly Deflation is the risk here, not inflation," said Game of Trades

Zillow rents chart
Source: Zillow, Game of Trades

US Sectors

Mon 24 Oct 22, 8:36am (AEST)

Sector Chg %
Materials +3.46%
Consumer Discretionary +2.92%
Financials +2.92%
Energy +2.76%
Industrials +2.65%
Information Technology +2.65%
Health Care +2.21%
Utilities +1.84%
Consumer Staples +1.55%
Communication Services +0.85%
Real Estate +0.68%

Industry ETFs

Mon 24 Oct 22, 8:36am (AEST)

Description Last Chg %
Commodities
Strategic Metals 83.74 +5.43%
Steel 52.19 +5.29%
Copper Miners 27.99 +4.39%
Silver 17.17 +3.44%
Lithium & Battery Tech 65.96 +3.20%
Uranium 19.73 +3.14%
Gold 151.45 +1.78%
Nickel 28.9884 +0.76%
Aluminum 46.4699 +0.45%
Industrials
Aerospace & Defense 99.64 +2.32%
Global Jets 16.48 +1.52%
Healthcare
Biotechnology 117.58 +2.82%
Cannabis 13.75 +2.05%
Description Last Chg %
Cryptocurrency
Bitcoin 11.74 +0.85%
Renewables
CleanTech 12.89 +2.64%
Hydrogen 10.25 +2.34%
Solar 65.37 +1.81%
Technology
Semiconductor 309.93 +3.72%
Electric Vehicles 20.07 +3.49%
Robotics & AI 18.33 +2.18%
Cloud Computing 15.89 +1.89%
E-commerce 14.75 +1.69%
FinTech 20.26 +1.58%
Cybersecurity 23.83 +1.26%
Sports Betting/Gaming 13.73 +0.58%
Video Games/eSports 39.54 +0.43%

ASX Morning Brief

Hi, Kerry here. Just some quick housekeeping. We recently ran a survey looking for some feedback about the Morning Wrap. A big thank you to all those that participated. You might notice a few tweaks here and there in the coming weeks.

A little copy and paste from something I wrote in last Friday's Evening Wrap about how markets have moved in recent months:

  1. Yields go up and the market sneezes

  2. Depending on how aggressively yields go up, the market stumbles or takes another leg down

  3. Yields plateau and start to trade sideways. The market thinks the Fed's going to pivot and bounces from oversold levels

  4. Yields break out again and we go back to the start

Bond yields pulled back sharply overnight, which inspired broad-based buying on Wall Street. Major US indices are trying to work through a bottom. Volatility remains high but the overnight rally was rather powerful.

US02Y 2022-10-24 08-27-10.png ‎- Photos
US 2-year Treasury yield (Source: TradingView)
Dow Jones chart
Dow Jones Industrial Average (Source: TradingView)

Its worth noting that the Dow Jones has popped to a one month high, while the S&P 500 and Nasdaq are still playing catch up. This might reflect that capital is flowing into blue chip and safe haven names.

SPI futures suggest the ASX 200 will open +1.42% higher. Given the strong close for US markets, it wouldn't be surprising to see growth sectors and resources gap up strongly at the open.

Sectors to watch

Overnight ETF gainers: Rare Earth/Strategic Metals (+5.4%), Steel (+5.3%), Copper (+4.4%), Uranium (+3.1%), Biotech (+2.8%)

Overnight ETF fallers: None

Lithium: The Rare Earth/Strategic Metals ETF rallied strongly overnight. Chinese lithium prices set another record last week of 542,500 yuan a tonne from 500,000 yuan a month ago. This could see more positive flow for local names.

Iron ore: An easing US dollar and risk on attitude for markets helped US-listed BHP surge 4.2% overnight. Its also worth noting that the Global X Steel ETF - which comprises of names like Nucor, Brazil's Vale and Rio Tinto - rallied 5.3% overnight. Expect a strong open for BHP (ASX: BHP).

Uranium: Another sector that's trying to work through an indicative bottom.

Key Events

Stocks going ex-dividend in the next week:

  • Mon: NHC

  • Tue: CLV 

  • Wed: MMS

  • Thu: BOQ, GNP, ACF 

  • Fri: TCF, GCI

ASX corporate actions occurring today:

  • Dividends paid: NCK, ERF, FOS

  • Listing: NGL

Other things of interest (AEDT):

  • 9:00 am: Australia manufacturing and services PMI

  • 9:00 am: RBA Kent speech

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