Morning wrap: Wall Street falters ahead of US inflation data, ASX set to fall

ASX Futures (SPI 200) imply the ASX will open 22 points lower, down -0.3%.

Wall Street is giving back gains, turning recent euphoria into fear. China remains committed to crippling lockdowns as its covid outbreak worsens, risk assets like tech and cryptocurrency sell off, oil hits a 6-week low and Elon Musk abandons his plan to join Twitter's board.

Let’s dive in.

Stocks

• Remember the Jan-March tech-led selloff where the Nasdaq fell -20%? It seems like the market has all the right ingredients for a round 2

  • The Nasdaq bottomed out on 14 March. On this day, the US 10-Year Treasury yield was trading around 2.15%

  • The 10-Year is now at 2.77%

• The market hates uncertainty, and it's being dealt plenty unknowns including:

  • China’s worsening covid outbreak and commitment to harsh lockdowns

  • A vulnerable oil market (Demand destruction, more Russian sanctions)

  • Escalating Russian war crimes and lack of peace talk progress

  • Increasing likelihood of aggressive 50 bp hikes throughout the year

  • US earnings season is underway this week

• All 11 US sectors declined

• Industrials, materials, staples and financials held up better-than-most

• Healthcare, tech and energy stocks underperformed 

• 64% of US stocks declined

• 64% of US stocks trade below their 200-day moving average (63% yesterday, 58% a week ago)

• Elon Musk has decided not to join the Twitter board after acquiring a US$3bn stake in the company. Twitter shares closed the session 1.7% higher

• Chinese electric-vehicle maker Nio said it would have to suspend production due to disruptions to its supply chain. Nio shares fell -10% in early trade before recovering most of those losses 

Economy

• UK economic growth was weaker-than-expected with GDP rising 0.1% in February compared to a 0.8% rise in January

  • Economists were expecting a monthly growth rate of 0.3%

  • Activity in the manufacturing sector fell -0.4%, led by declines in the production of transport equipment and electronics

• US March Inflation data will be released on Tuesday night

  • Economists are expected year-on-year consumer prices to rise 8.4%

  • US February inflation was 7.9%, a 40-year high

Commodities

• Iron ore prices continue to ease amid depressed market sentiment prompted by the rise of covid cases in China, sources told Fastmarkets. Surging covid cases in several major Chinese cities has prompted provincial governments to impose lockdowns to contain the spread of infection

• Oil prices are now sub US$100 as the market attempts to price in further demand destruction from China’s crippling lockdowns

• Gold prices briefly hit US$1,969.8 in the overnight session as growth concerns and a risk-off attitude led to positive flows for safe-havens 

#1 Tech 

Tech remains one of the most vulnerable sectors amid a backdrop of potentially more aggressive interest rate hikes and a pivot away from risk sectors.

The Nasdaq rallied as much as 16% in the last two weeks of March. But its now down -7.7% in the last 5 sessions.

Notable overnight losers include:

• Nvidia -5.2%

• Tesla -4.85%

• Microsoft -3.9%

• Alphabet -3.4%

• Meta-Platforms -2.6%

Its slightly unusual to see mega cap names fall the most. Usually a big red day for the Nasdsaq is accompanied by a near double digit decline from a name like Block.

Nevertheless, this theme of moving away from tech stocks (again) is something to watch out for.

#2 Gold 

Gold briefly hit session highs of US$1,969.8 before fading back to the US$1,950 level.

Source: TradingView

"Gold was having a strong start to the trading week but exhaustion settled in as expectations remained high that another hot inflation report could continue to send the dollar higher in the short term," warned Oanda senior market analyst, Ed Moya.

"Gold should continue to see strong inflows as uncertainty over inflation and growth will remain elevated over the coming months due to geopolitics and differing views on how aggressive the Fed will need to be with tightening of monetary policy."

Local gold stocks performed strongly on Monday. As most gold miners typically move hand-in-hand with gold prices, the risk-off environment and shift to safe havens could send positive flows for the sector.

#3 Energy 

Oil prices are now feeling the weight of a stronger US dollar, deteriorating demand from China and India alieviating supply concerns by buying Russian oil.

"The oil market is still vulnerable to a major shock if Russian energy is sanctioned, and that risk remains on the table," said Moya.

"Oil prices will play tug-of-war here as crude inventories remain low, but energy traders will struggle to shake off these steady announcements of new Covid restrictions in China."

#4 Lithium 

Lithium took the staircase up but the elevator down.

The VanEck Rare Earths/Strategic Metals ETF is down -13.7% in the last five sessions. After a short-lived breakout, the ETF is now back within its long-standing trading range.

Source: TradingView

The lithium sector is being clumped together with other risk assets, and selling off.

Short-term investors should be weary that many lithium names have had a massive run in the past couple of weeks and vulnerable to a sharp pullback.

#5 Travel

US airlines was one of few pockets of strengths overnight, up 1.2%.

Oil prices are down almost -30% from March highs, allievating potential cost inflation for airlines.

ASX corporate actions occurring today:

• Ex-dividend: DUR, SVW

• Dividends paid: BKL, CNU, CYC, HM1, QBE, REH, SFY, STW, SYI

• Listing: None today

• Issued shares: 5EA, AGY, AKO, ANW, AS2, ASO

Things of interest (AEST):

• Australian Business Confidence (Mar) at 12:30 pm

• US Inflation Rate (Mar) at 11:30 pm