Morning wrap: Wall Street feels the wrath of a hawkish Fed, ASX set to fall

ASX Futures (SPI 200) imply the ASX will open 21 points lower, down -0.28%. 

Major US indices dipped for a second-consecutive session after the Fed minutes showed a willingness to aggressively hike interest rates and reduce its massive bond holdings, the European Commission has proposed broad new sanctions on Russia, including a ban on Russian coal imports and covid is taking a massive toll on China. 

Let’s dive in.

Stocks

• Equity markets are experiencing a knee-jerk reaction to the hawkish wrath of the Fed

• Covid cases in China continue to surge. The 26m residents in Shanghai remain in a harsh lockdown, which will likely further squeeze global supply chains

• Ukraine’s Zelensky calls for removing Russia from the UN security council after alleged war crimes

• 5 out of 11 US sectors advanced

• Defensive sectors like utilities, real estate, healthcare and staples outperformed

• Materials and tech stocks underperformed

• 66% of US stocks fell

• 62% of US stocks trade below their 200-day moving averages (60% on Wednesday, 58% a week ago)

• Cannabis producer Tilray rose 3.1% after delivering an unexpected profit for its latest quarter

• Twitter shares fell -0.4%, but up almost 30% this week. Elon Musk admitted that he invested in the company with the intent to drive ‘significant improvements’ to the social media platform

Economy

• Activity in China's services sector nosedived to 42.0 in March from 50.2 in February. A reading below 50 indicates contraction

• Takeaways from the Fed minutes 

  • Reduce its bond holdings at a maximum pace of US$95bn a month

  • Preferred to deliver a 50 bps increase in March but Russia-Ukraine uncertainty prevented them

Commodities

• Iron ore prices were slightly lower but still above US$160 a tonne

  • Sources told Fastmarkets that there was limited demand for imports in the Chinese market

• Oil prices declined after the US Energy Information Agency (EIA) showed that US stockpiles posted a surprise build. The International Energy Agency (IEA) members will deliver an additional 60m barrels from reserves. Both pieces of news are keeping the supply tight narrative at bay

• Gold was stable around US$1,925 even after the Fed’s hawkish view on monetary policy

  • The lack of price-action indicates that gold might have almost fully priced in impact of 225 bps in Fed rate hikes this year

#1 Tech

Tech stocks fell again overnight as investors rotated out of the sector where rising interest rates undermine their rich valuations. Notable losers include:

• Draftkings -7.2%

• Affirm -6.8%

• Nvidia -5.9%

• Block -5.3%

• PayPal -4.4%

The Global X FinTech, Cloud and eCommerce ETFs all fell at least -3%.

This could flag another challenging session for local tech shares, especially companies those that fall under FinTech and Cloud categories. Local Block (ASX: SQ2) shares will likely drag the S&P/ASX 200 Info Tech Index lower, given the sharp decline from its US-listed counterpart overnight.

#2 Lithium

The VanEck Rare Earth/Strategic Metals ETF fell in-line with the broader market.

Rare Earths/Strategic Metals ETF (Source: TradingView, Annotations by Market Index)

As the Morning Wrap on Wednesday mentioned, investors should watch how the ETF behaves around the 20-day moving average (red). A bounce off the 20-day would indicate that the strong upward trend remains intact.

See a full list of ASX lithium stocks here.

#3 Travel 

The US Global Jets ETF was down -5.3% in early trade before closing -3.4% lower.

Besides the broader market selling off, I could not pinpoint why airlines were underperforming. It will be interesting to see whether or not this impacts local airline and travel stocks.

#4 Energy 

Oil prices are now trading around the US$100 level as Western nations begin tapping into emergency stockpiles.

Crude oil prices (Source: TradingView)

"That won’t last as supply constraints will remain given the production outlook for most OPEC+ nations," said Oanda senior market analyst, Ed Moya.

"Pockets of severe supply disruptions for gasoline, diesel, and jet fuel will start to emerge, which should suggest the downside with oil prices should be limited."

Despite the overnight declines in oil prices, the US energy sector managed to close 0.54% higher.

#5 Uranium

Uranium spot prices rose to another fresh 11-year high of US$62.50, according to fuel brokers EvoMarkets.

The Global X Uranium ETF managed to eke out a small gain of 0.3% overnight as the broader market retreated.

Local uranium stocks will likely face the same push-pull narrative as higher spot prices try to outweigh the weakness of the broader market.

See a full list of ASX uranium stocks here.

ASX corporate actions occurring today:

• Ex-dividend: ARB, GOW, IAF, IGB, IHD, ILB, ILC, IOZ, OMH, RBD, RIC, SDI

• Dividends paid: BWF, CGC, CIW, EPY, FBU, HMC, ILU, ING, LYL, NWH, PCI, PFP, PRU, S32, SEK, SHM, SNL, SXL, TCF, VLS

• Listing: IG6, LRD

• Issued shares: 3MF, ACW, ADT, AMC, ARR, AS2, BNZ, CAM, CIW, CNU, CSE, CWY, CXM, CYL, CZL, FIJ, GBR, HDN, HPC, LCL, LKO, LLO, LRS, MGF, MM1, NBI, NEA, NWS, NXG, OPN, PEK, PIC, PRL, PVL, PXX, RTG, SEQ, SLM, SND, TMR, URW, VRC, VRS

Things of interest (AEDT): 

• Aus Balance of Trade (Feb) at 12:30 pm