Morning wrap: Wall Street bounces against all odds, iron ore plunges, ASX set to fall

ASX Futures (SPI 200) imply the ASX will open 25 points lower, down -0.34%.

The local sharemarket will have a lot of news to digest after being closed on Monday for Anzac day. Major US indices plunged last Friday as the US Federal Reserve signalled its plans to front-load interest rate hikes to combat inflation, Wall Street staged a massive against-all-odds rebound overnight, China’s stock market is in freefall, Macron won the French election and iron ore is on thin ice.  

Let’s dive in.

Stocks

• Major US indices experienced a massive decline last Friday after Fed Chair Jerome Powell added his support for more aggressive interest rate hikes

  • Dow Jones -2.82%

  • S&P 500 -2.77%

  • Nasdaq -2.55%

• All three major indices managed to stage an epic reversal overnight, possibly due to: 

  • Expectations of a robust earnings season

  • A technical bounce from oversold levels

  • Bouncing off resistance levels and/or March lows

  • Lack of liquidity

• Tech stocks posted strong gains after Twitter's board agreed to sell the company to Elon Musk in a deal valued at almost US$44bn

• China’s covid situation continues to worsen, as Beijing is now testing millions of residents and implementing lockdowns. China’s CSI 300 slumped -4.9%, its lowest close since April 2020

• 7 out of 11 US sectors were green

• Tech, discretionary and healthcare outperformed

• Materials, real estate, utilities and energy stocks underperformed

• As of last Friday, 99 companies in the S&P 500 had reported first quarter earnings. 77.8% of them have beat market expectations, according to Refinitiv

• 51% of US stocks advanced

• 66% of US stocks trade below their 200-day moving average (65% last Friday, 63% a week ago)

  • This indicates that market breadth is poor and price charts are beginning to plateau/downtrend 

• 175 S&P 500 companies are due to report first quarter earnings this week (companies report both before and after market close) 

  • Mon: Coca Cola, Philips, Activision Blizzard

  • Tue: GE, Microsoft, Alphabet, Visa, GM

  • Wed: Spotify, T-Mobile, Meta, PayPal, Ford, Boeing

  • Thurs: Twitter, Mastercard, McDonalds, Amazon, Intel, Apple

  • Fri: ExxonMobil, AstraZeneca, Chevron

Economy

• It's a massive week for economic data, most notably quarterly GDP growth rates from most European countries and the US

Commodities

• Iron ore plunged after a spike in covid cases in Beijing

• Oil slid on China concerns

• Gold sold off as an even more hawkish Fed weighed on inflows

#1 Iron ore 

Iron ore has broke below the symbolic US$150 a tonne level as covid has now spread to Beijing after crippling the financial hub of Shanghai.

According to Fastmarkets, benchmark iron ore prices were trading around US$136/t on Monday, down -9%.

The US-listed counterparts of BHP (ASX: BHP) and Rio Tinto (ASX: RIO) have declined -10.6% and -8.2% in the last two sessions. This could flag a very challenging session for local majors on Tuesday.

#2 Energy

Energy was the worst performing sector on Wall Street overnight as China concerns weighed.

Source: TradingView

"The hit from Chinese lockdowns is over a million barrels a day and the testing of 12 districts over the next five days will determine the next major move for crude prices," said Oanda senior market analyst, Ed Moya.

"The oil market could easily become very tight if China shows they are close to reversing their stance on lockdowns, but right now that doesn’t seem to be happening anytime soon."

#3 Lithium 

The Rare Earth/Strategic Metals ETF has rapidly deteriorated as risk appetite is struggling to rebound across commodity-related stocks.

Source: TradingView, Annotations by Market Index

Things are not looking pretty for the ETF:

• Down -25% since 4 April

• Sliced through the 200-day (blue)

• Gapped below the high $90s support area (red band)

Chinese lithium carbonate prices were trading at around 465,000 yuan a tonne on Monday, down from a record high of 502,500 yuan earlier this month.

The broad-based weakness across the resources sector and freefalling ETF could flag a difficult open for local lithium names.

#4 Copper

Copper is another commodity that went from breaking out to breaking down.

The Global X Copper Mines ETF was trying to push a fresh 10-year high earlier this month, but now down -6.7% in the last two sessions. Over the same time period, copper spot prices declined -5.4% to a near 2-month low of US$4.45/lb.

Source: TradingView, Annotations by Market Index

What's interesting is that the Copper ETF experienced its highest ever volume since listing in 2010. Clearly someone is buying the dip.

Nevertheless, the broad-based weakness in commodities, sharp pullback for spot prices and China concerns could flag a weak session for local miners.

#5 Uranium

Uranium is another risk-commodity experiencing a sharp pullback.

Uranium spot prices have fallen almost -10% in the past few days, down to US$54.13/lb, according to fuel brokers UxC.

Source: TradingView

The Global X Uranium ETF managed to close above session lows and above the key 200-day moving average.

Regardless, the ETF is down -6.4% in the past two sessions. As local uranium stocks fell sharply last Friday, it will be interesting to see if they will continue to decline or stabilise.

ASX corporate actions occurring today:

• Ex-dividend: None today

• Dividends paid: ADA, DVR, PGC, VTS

• Listing: HAL, LPM