Morning wrap: Wall Street gives back early gains, oil rallies above US$100, ASX set to fall

ASX Futures (SPI 200) imply the ASX will open 7 points lower, down -0.1%. 

What a wild overnight session. 

Major US indices faded after opening at least 1% higher, US inflation rose to a four-decade high, oil prices bounced back above US$100, Russian President Vladimir Putin said peace talks have hit a ‘dead end’ and US earnings season is beginning to ramp up. 

Let’s dive in.

Stocks

• All three major US indices rallied in early-trade after the US Labour Department reported a cooler-than-expected consumer price report

• Headline inflation in March rose 1.2% on-the-month and up 8.5% from a year ago

• Core inflation, which strips out volatile components such as food and energy prices, rose 0.3% on-the-month and up 6.5% compared to last year

• Markets initially rallied as core inflation was below economist expectations of 0.5%

• Markets then came to the realisation that the reading is still damn high and consumers are still experiencing widespread increases in food, energy and shelter 

• 4 out of 11 US sectors were positive

• Energy, utilities, consumer discretionary and materials outperformed

• Healthcare and financials underperformed 

• 49% of US stocks declined

• 64% of US stocks trade below their 200-day moving average (64% yesterday, 60% a week ago)

• Key US earnings to watch this week

  • Thursday: Delta, BlackRock, JPMorgan, Bed Bath & Beyond

  • Friday: Wells Fargo, Goldman Sachs, Citi, Morgan Stanley 

Economy

• There’s a few different ways to interpret the US inflation report

  • Headline inflation is 8.5%, the largest year-on-year reading since December 1981 and accelerating from 7.9% in February

  • Core inflation was 6.5%, suggesting that goods price inflation is potentially peaking

  • Shelter is the biggest component of CPI (33% of the index) and still wildly understated, according to Compound Capital. Rents are up 17% year-on-year and home prices are up 19%. Actual inflation is believed to be much higher than 8.5% 

Commodities

• Iron ore prices rose after the Chinese government assured the market of a smoother logistics chain despite crippling lockdowns across major cities, sources told Fastmarkets

• Oil prices appear to have mostly priced-in the strategic petroleum release plans and China is beginning to lift some of their lockdowns

• Gold rallied as bond yields declined. Core inflation is slowing, which means the Fed might not have to go full-blown aggressive with interest rate hikes

#1 Energy

Energy was the best performing US sector, up 1.7%.

China easing lockdowns is improving oil sentiment and the lack of progress between Russia and Ukraine peace talks is also adding to supply concerns.

OPEC+ released its April oil report overnight. The petroleum organisation downgraded its world economic growth outlook from 4.2% to 3.9%, taking into account the impact of the Ukraine war and ongoing effects from the pandemic.

Global oil demand was also cut by 0.5m barrels per day to 3.7m, in-line with the revisions to economic growth.

"The energy market expects to remain very tight from the summer and if geopolitical risks remain elevated, US$100 oil should easily hold," said Oanda senior market analyst, Ed Moya.

Source: TradingView

#2 Gold

Gold prices gathered momentum overnight, up for a fourth straight session to US$1,960. The cooler-than-expected inflation report drove bond yields lower, which is good for the non-yield bearing yellow metal.

"For gold to rally above the US$2,000 level, US Treasuries need to extend their retreat, with the 10-year yield making a run below the 2.55% level,' said Moya.

"The Fed has a good chance to contain inflation and that should help bond yields stabilize, which is good news for gold bulls."

Higher gold prices is driving gains across local gold miners as they attempt to push early-March highs.

Source: TradingView

#3 Lithium

The VanEck Rare Earths/Strategic Metals ETF fell for a sixth straight session overnight as risk assets struggled to hold onto early gains.

The massive lithium rally is beginning to show cracks in China, staging its first decline in more than a year.

Electric vehicle makers Tesla, Volkswagen and Nio are facing delays amid Shanghai's lockdown.

An optimist might say "lithium prices need a healthy pullback after such a massive run up."

A pessimist might say "lithium stocks are priced-to-perfection and any reversal in spot prices could cause some damage for share prices."

ASX corporate actions occurring today:

• Ex-dividend: D20, FGX, WLE

• Dividends paid: KKC, NWS, SXE, TPG, WOW

• Listing: FTL

• Issued shares: AEI, AO1, BAS, BKL, BRV, BXB, CHK, CNJ, CNU, CXL, CXM, CXZ, DEL, EFE, EUR, GMD, HCD, LKE, LVT, MAN, MAY, MEZ, MGF, MRR, NBI

Things of interest (AEST):

• Australia Consumer Confidence Index (Apr) at 11:30 pm

• China Balance of Trade (Mar) at 2:00 pm

• UK Inflation Rate (Mar) at 5:00 pm