Morning Wrap: Wall Street fades ahead of Fed interest rate decision, ASX set to fall

The S&P 500 gave back early gains ahead of the all-important Fed interest rate decision, Biden plans to sell more strategic oil reserves to US oil companies, OPEC expects to see global oil demand slow in 2023 and US tech layoffs begin to pile.

Let’s dive in.

Markets

Wall Street struggled to hold onto gains after modest producer price data provided little relief for consumers. Overall stock movements were rather muted as traders are in wait-and-see mode ahead of the Fed's interest rate decision on Thursday morning.

• 2 out of 11 US sectors advanced 

• Tech and energy shares traded higher

• Defensives including utilities, consumer staples, health care and real estate sectors fell by more than -1%

• 54% of US stocks declined

• 77% of US stocks trade below their 200-day moving average (77% on Tuesday, 64% a week ago)   

Stocks

• FedEx (+14.4%) after raising its quarterly dividend by more than 50% to US$1.15 per share

• Oracle (+10.4%) announced its earnings after hours on Tuesday. The cloud company crushed earnings, experiencing a “major increase in demand” for cloud infrastructure

• MicroStrategy (+3.1%) has nearly US$4bn worth of Bitcoin exposure at an average price of US$30,700. The company is now at risk of a massive margin call if prices hit US$21,000 again

• Coinbase (-0.8%) CEO Brian Armstrong said “we appear to be entering a recession,” which “could lead to another crypto winter, and could last for an extended period.”

  • In past crypto winters, trading revenue “declined significantly”

  • Admittedly, “it is now clear to me that we over-hired”

  • In the past few weeks, tech companies including Coinbase, Compass, RedFin, Stitch Fix, Carvana, Crypto.com, BlockFi and Robinhood have all announced layoffs

Economy

• Investors expect the Fed to hike its benchmark interest rate by 75 bps on Thursday

  • CMEs Fedwatch tool indicates a 95.8% probability of 75 bps, up from 34.6% a day ago

• US producer-price index rose 10.8% year-on-year in May

  • Measures the cost of wholesale goods and services

  • Down from a 10.9% reading in April

  • Higher energy prices accounted for most of the increase, but the cost of steel, chicken, transportation and autos are also on the rise

Commodities

• Iron ore is on a 5-day losing streak with buying interest in the seaborne market waning in response to market fluctuations and an uncertain demand outlook due to rising covid numbers in Beijing and Shanghai, sources told Fastmarkets  

• Oil dipped below US$120 after the US Department of Energy announced plans to sell up to 45m barrels of crude oil from the Strategic Petroleum Reserve

• Gold is trying to stabilise around US$1,800 ahead of Thursday’s Fed interest rate decision 

#1 Iron ore

Iron ore prices were trading around US$145 a week ago, now down to US$138.

Iron ore futures price (Source: TradingView)

We could see some pressure come through for local iron ore miners because:

• US-listed BHP and Rio Tinto fell -1.4% and -2% respectively overnight

• US materials sector -0.84%

• Total iron ore tonnage dispatched to global destinations from 16 mining companies in Australia and Brazil increased to 26.4m tonnes - a new high since last December, according to Mysteel

• The Chinese capital Beijing must race against time to block the spread of a COVID-19 outbreak linked to a local bar, said Beijing government spokesperson Xu Hejian

#2 Uranium

Uranium spot prices continue to ease, down -0.5% to US$48.75, according to fuel brokers Numerco.

The Global X Uranium ETF underperformed most commodity-related ETFs, falling an outsized -3.7%.

#3 Energy

US natural gas prices fell -16.2% on expectations that an extended outage at one of the largest US export plants could bolster domestic stockpiles, according to Reuters.

A potential win for US consumers will come at the cost of European consumers, where Dutch Natural gas futures up 15.9%.

Year-to-date natural gas prices (Source: TradingView)

Oil prices experienced a small pullback, back below US$120 a barrel. The US Department of Energy said it will sell up to 45m barrels of oil from the Strategic Petroleum Reserve.

Oil contracts from a May sale were awarded to nine companies including Chevron, Exxonmobil and Marathon Petroleum.

“Energy traders are bracing for some type of action to come from the Biden administration to help Americans at the pump, even if it will have little long-term effect,” said Ed Moya, senior market analyst at Oanda.

ASX corporate actions occurring today:

• Ex-dividend: PL8, TWR

• Dividends paid: IFT, PIA, QRI, WAT

• Listing: None

• Issued shares: 4DS, ADA, ADO, AII, AVR, CAI, CE1, CEL, DOW, DUB, EEG, EPY, GOW, GTR, IEC, KMT, KZA, LDX, LRS, LYN

Other things of interest (AEST): 

• Westpac Consumer Confidence (June) at 10:30 am

• China Industrial Production (May) at 12:00 pm

• China Retail Sales (May) at 12:00 pm

• China Fixed Asset Investment (May) at 12:00 pm

• US Retail Sales (May) at 10:30 pm