Morning Wrap: Wall St slumps ahead of Fed rate hike, ASX set to tumble

US stocks sold off as traders brace for an aggressive Fed, Ford reminds us that supply chain issues and inflation remains a challenge, China whips out more stimulus and another record lithium auction for Pilbara Minerals.

Today's wrap is 1,207 words, 5.5 minutes. Let's get into it.

MARKETS

• All 11 US sector declined

• Tech, Staples and Energy were relative outperformers

• Real Estate, Materials and Discretionary led to the downside

• 73% of US stocks fell

• 65% of US stocks trade below their 200-day moving average (63% on Tuesday, 62% a week ago)

STOCKS

• Nike (-4.5%) was downgraded by Barclays to Equal Weight from Overweight. The broker said demand weakness in North America and volatility in China could weigh on earnings

• MicroStrategy (-4.7%) continues to buy the Bitcoin dip, adding another 301 Bitcoin for approximately US$6m. It’s the company smallest purchase of Bitcoin in two years

• General Motors (-5.6%) shares were likely weighed by the Ford news. GM said it plans to sell up to 175,000 electric vehicles to Hertz through to 2027

• Ford (-12.3%) said it expects to incur an additional US$1bn in costs during the third quarter due to inflation and supply chain issues

QUICK BITES

• US PMI earnings indicator: “Is currently pointing to the sharpest downward pressure on earnings since the global financial crisis, excluding the initial pandemic lockdown months," according to S&P Global

Source: S&P Global

• Goldman Sachs on bounces: "Until the economy either enters a clear recession or shows sustained signs of progress on inflation, the pressure for tighter financial conditions is unlikely to abate and periods of relief are unlikely to be sustained."

• Taiwan trade also sinking: "Output and new orders fell sharply during August, with rates of decline the sharpest since the global financial crisis," said S&P Global, adding that "Taiwan is often seen as a good guide to the health of global trade and global demand conditions given how integrated it is in global supply chains."

Source: S&P Global

• Another record lithium auction: Pilbara Minerals spodumene auction closed with a highest bid of US$6,988 a tonne, up 10% from its previous $6,350 a tonne auction on 3 August

WORLD NEWS 

• Shanghai unveils US$257bn in projects in infrastructure push (Reuters)

• Citigroup’s Fraser and JPMorgan’s Dimon warn of economic risks (Bloomberg)

• Treasury two-year yields head for 4% ahead of big Fed rate hike (Bloomberg)

• Apple to raise App store prices in some countries in EU and Asia (Reuters)

ECONOMY

• Sweden raised interest rates by 100 bps to 1.75%

  • Swedish CPI accelerated to 9% annually in August, the highest level since 1991

  • The Riksbank said it expects more rate hikes over the next six months as it tries to reign in surging consumer prices

• Germany's producer price index rose 45.8% year-on-year in August from 37.2% in July

  • Consensus expected a reading of 37.1%

• Canada’s inflation rate eased to 7.0% year-on-year in August from 7.6% in July

  • Consensus expected a fall to 7.3%

  • Falling gasoline prices and slowing shelter costs were the main drivers of cooler-than-expected inflation

  • Not all was good news, with grocery prices rising at their fastest pace since 1981

• US housing starts unexpected increased to 1.58m in August from 1.4m in July

  • Rising rents has boosted the construction of multi-family housing to the highest level in more than 36 years, according to Reuters

COMMODITIES

• Iron ore futures fell -0.5% to US$98.2 a tonne on Tuesday

  • “High-frequency indicators show that China’s policies are boosting construction even as they hamstring the consumer-side of the economy,” Bloomberg reported

  • “Higher steel output and falling rebar inventories show the positive impact of infrastructure investment.” 

• Oil prices are lower ahead of the Fed’s interest rate decision

  • The US said on Monday it will release an additional 10 million barrels of oil from its strategic reserves in November

• Gold is trading close to levels not seen since April 2020

  • “Gold will be in trouble if Powell is able to convince markets that not only will they remain aggressive with tightening, but that they will hold rates even as the economic downturn worsens,” said Oanda senior market analyst, Ed Moya

The ASX 200 bounced on Tuesday, up 1.29%. But given the sheer downside momentum after last week's US inflation report, a lot more is needed.

SPI futures point towards a rather steep fall of -1.14%, which would erase most of yesterday's gains. Volatility remains high especially as we head into the Fed's interest rate decision.

On a side note, the ASX will be closed on Thursday for the Day of Mourning for Queen Elizabeth II. We won't get to react to the Fed's news until Friday. Even then, liquidity might be constrained as Victoria takes another day off for the Grand Final.

XJO chart (Source: TradingView, Annotations by Market Index)

ASX sectors to watch

Most of the ETFs we watched underperformed US benchmarks like the Nasdaq and S&P 500. It's just one of those days.

Hydrogen sinks into no man's land: The Global X Hydrogen ETF has gone full circle, back to where it was before the US Inflation Reduction Act was passed.

Global X Hydrogen ETF chart (Source: TradingView)

Solar struggles: The Invesco Solar ETF was largely unphased by the recent selloffs. Now it's starting to cave in, closing below the 50-day moving average.

Invesco Solar ETF chart (Source: TradingView)

Copper can't hold up: The recent rallies for copper spot prices have struggled to stick, down another -0.33% overnight to US$3.49/lb. This weakness followed through for Global X Copper Miner ETF constituents, which could see some negative flow for local copper names.

Global X Copper Miners ETF chart (Source: TradingView)

Divided tech: Tech is in a weird spot. The Global X FinTech ETF is another one that's gone full circle. It fell another -2.3% overnight into no man's land. At the Index level, the US Tech sector outperformed the S&P 500, down -0.51% versus -1.13%.

Global X FinTech ETF chart (Source: TradingView)

Lithium pulling lower: The VanEck Rare Earth/Strategic Metals ETF fell -1.40% after a 2.33% rebound on Tuesday. This could see some likewise weakness for local lithium names.

VanEck Rare Earth/Strategic Metals ETF chart (Source: TradingView)

Stocks going ex-dividend:

• Wed: ABC, AHX, ALX, CAJ, CCV, COG, CUP, KPG, LAU, LYL, MAH, NWH, SHJ

• Thu: KPG

• Fri: BFL, LFS, VLS

• Mon: IMD

• Tue: PIC, SXE

ASX corporate actions occurring today:

• Dividends paid: AFG, AVJ, AZJ, CGF, CUV, DRR, HLS, HSN, INA, LGL, LLC, MAF, NSC, SHL, SIV, SUN, TLS, TPC, VEE

• Listing: None

• Issued shares: ARO, AZY, BXB, CAR, CLA, DDH, EBO, ERW, EVE, GDI, GGG, HGH, IMD, IMU, IRI, KFM, LRS, MFG, MOM, MRR, MXI, NAB, NHE, PFT, RAC, RCR, SGH, SPN, WAT, XRO

Other things of interest (AEST):

• RBA Bullock Speech at 12:00 pm

• US Fed Interest Rate Decision at 4:00 am