Morning wrap: Wall Street gives back gains in tech led reversal, ASX set to slide

ASX Futures (SPI 200) imply the ASX will open 58 points lower, down -0.8%.

US stocks pulled back as energy prices eased and risk-sectors like technology and cryptocurrencies sold off.

Stocks

• A risk-off attitude echoed the US market as tech stocks tumbled while defensive sectors like utilities, real estate and consumer staples outperformed

• Major US indices were pulled lower by outsized declines from heavyweight stocks like Facebook-parent Meta (-2.5%), Amazon (-2.7%) and Tesla (-4.6%)

• The probability of a 25 bps hike from the US Federal Reserve is almost certain, sitting at 99.8% according to CME’s FedWatch Tool 

• The focus will now shift to what the Fed will do in the next few months, especially if the 25 bp hike in March has no impact on inflation

• 58% of US stocks declined

• 62% of US stocks trade below their 200-day moving averages (62% yesterday, 68% a week ago) 

Economy

• Australia’s balance of trade for January hit $12.9bn compared to consensus expectations of $9.1bn 

• • The rise in exports was driven by metals and minerals 

  • Lower iron ore prices were offset by higher coal prices and other commodities

• First-time applications for unemployment benefits in the US fell to a two-month low of 215,000 in the last week of February 

• • Indicates a pickup in hiring and declining layoffs as the economy rebounds from earlier omicron concerns

  • Economists polled by The Wall Street Journal had forecast 225,000 applications

Commodities 

• Russia-Ukraine related commodities continued to lift overnight including palladium and nickel 

• Iron ore is retesting February highs of US$150 a tonne

• Oil prices pulled back after reports that the US-Iran nuclear deal was near. This could bring up to 1.3m barrels a day back into the market very quickly

From yesterday's morning wrap - “the market is in an extremely bipolar state where investors are feeling immensely bullish one day, and running for the hills the next”. 

After a strong rally on Thursday, US markets have now pulled back, led by tech stocks. The only sector that appears immune to recent volatility is commodities.

Russia, as a major exporter of several commodities, is stress testing the rest of the world. Prices across the board are surging amid an already supply tight market.

It goes without saying, local miners and explorers are poised to benefit.

#1 Aluminium 

Aluminium prices are on a tear as Russia’s invasion of Ukraine enters into a second week.

Aluminium prices hit US$3,800 a tonne, up almost 20% in March alone.

Source: TradingEconomics

Russian exports of aluminium account for circa 4.2% of global production, according to JPMorgan. 

See a list of aluminium stocks here. 

#2 Nickel

Nickel is another metal facing the Russian stress test. Nickel prices hit US$26,500 a tonne compared to US$25,000 at the end of February.

Prices have rallied almost 30% year-to-date.

Source: TradingEconomics

Nickel stocks are LME-registered warehouse inventories are below 80,000 tonnes, an almost three year low, according to Reuters. It is said that 52% of those stocks have been booked for delivery.   

See a list of nickel stocks here.

#3 Steel

The VanEck Steel ETF broke out last Friday, marking a fresh 6-month high. The ETF has since gained 8.7% since its breakout.

This plays into the narrative of tight iron ore supplies given Ukraine's position as the world's 6th largest producer. In addition, local iron ore majors like BHP (ASX: BHP) and Rio Tinto (ASX: RIO) both missed production estimates for 2021.

Iron ore players and ports in northern WA could be at risk of a tropical cyclone over the next few days. This would only exacerbate current supply tight conditions.

VanEck Steel ETF breaks above 6-month trading range (Source: TradingView)

Notable ASX-listed players include:

• BlueScope Steel (ASX: BSL)

• Sims (ASX: SGM) 

#4 Copper 

The Global X Copper Mines ETF has its eyes set on previous all-time highs set last May.

Source: TradingView

Copper prices are currently trading near all-time highs of US$4.79/lb.

See a list of copper stocks here.

#5 Tech

Wall Street’s tech led selloff could weigh on local names, notably the BNPL sector. 

This follows sharp declines from: 

• Block -8.8% 

• Affirm -7%

This means that local Block (ASX: SQ2) will open sharply lower. This could also impact other names such as:

• Xero (ASX: XRO)

• WiseTech Global (ASX: WTC)

• Altium (ASX: ALU)

ASX corporate actions occurring today:

• Ex-dividend: ALD, ALI, LIC, MLD, MPL, NCK, PFG, PFP, SSR, UNI, VGI

• Dividends paid: GUD, GWA, HPI, KOV, QVE

• Issued shares: AD8, AHI, AOU, ARN, BEX, BKT, BUD, CDT, CNU, CPH, CXO, EFE, ESS, FLT, GLL, GLV, IDT, IEC, PEX, PSC, RF1, RXL, SDV, SLM, SMR, TSO, VOR

Economic news:

• US Non Farm Payrolls (Feb) on Saturday, 12:30 am AEDT 

• US Unemployment rate (Feb) on Saturday, 12:30 am AEDT