Morning Wrap: Wall Street in wait-and-see mode ahead of expected Fed hike, ASX set to rise

Wall Street was green for a second straight session ahead of the Fed’s pivotal interest rate decision, the RBA surprised investors with a 25 bps rate hike, Beijing braces for a spike in covid cases, ride-share stocks slide on Lyft earnings and Citi traders caused a Swedish stock flash crash.

Let’s dive in.

Stocks

• Wall Street is in wait-and-see mode for tomorrow’s Fed decision that will deliver the largest rate hike in more than 20 years

• The Fed is expected to announce balance-sheet runoff tomorrow, meaning its plans to let its bond holdings expire to reduce the size of its balance sheet. The outlook on tightening and size of the runoff could rattle markets

• Citi said one of its traders was behind a flash crash that sent Swedish stocks down -8% in a matter of minutes

  • “On Monday, one of our traders made an error when inputting a transaction. Within minutes, we identified the error and corrected it," a Citi spokesperson said

• 9 out of 11 US sectors were green

• Energy, financials, real estate and materials outperformed

• Consumer staples and discretionary sectors fell

• 61% of US stocks advanced

• 69% of US stocks trade below their 200-day moving average (71% on Tuesday, 69% a week ago)

• Livent (+17.7% after hours) beat profit expectations and lifted its 2022 outlook on the back of higher demand for lithium products. The fully integrated lithium company posted a net profit of US$53.2m in the first quarter compared to a US$800,000 loss a year ago

• Pfizer (+2%) posted better-than-expected earnings thanks to covid vaccine and antiviral Paxlovid sales. The company said its on track to deliver at least 2 bn doses to low and middle-income countries in 2021 and 2022

• Starbucks (-1.4%) managed to top analyst expectations as US sales growth offset a sharp decline in China. Net sales rose 14.5% to US$7.64bn, masking a sharp -23% decline in Chinese same-store sales 

• Airbnb (-5.1%) reported better-than-expected results and narrowed its net loss to US$19m from US$1.2bn in the same quarter a year ago. Airbnb reported 102.1m nights and experiences bookings in the first quarter, surpassing pre-pandemic levels

• Lyft (-25% after hours) beat revenue expectations but missed profit and sales guidance. The company is said to be avoiding questions about spend on driver incentives 

• What to look out for this week:

  • Wed: Moderna, Marriott, Uber Etsy

  • Thurs: Shopify, Doordash

  • Fri: Draftkings, Under Armour 

Economy

• The Reserve Bank hiked interest rates for the first time since November 2011

  • The cash rate was increased by 25 bps to 0.35%

  • Consensus was widely in favour of a 15 bps hike

  • The RBA said it expects “a further lift in interest rates over the period ahead”

• US job openings hit a record 11.5m in March while the number of resignations also hit an all-time high

• US manufactured goods orders rose 2.2% in April

  • Economists surveyed by the Wall Street Journal were expecting a 1% increase

  • The data is in nominal terms and doesn’t account for inflation. The figure is realistically closer to 1% 

Commodities

• Iron ore futures fell to -1.9% to US$143.5 a tonne, reflecting persistent weakness in import demand for high-grade iron ore fines in China, according to Fastmarkets

• Oil prices declined after Beijing tightened covid controls in anticipation of a major spike in covid cases

• Gold is still trying to price-in the recent bond selloff. Thursday could be a wild night for gold, depending on how aggressive the Fed will be with rates and balance sheet normalisation  

Stocks are steadying ahead of the Fed's decision and closely watched commentary. It feels like anything could happen.

Investors shouldn't get too excited about these small green days. "Rallies have been nothing more than oversold counter trend snap backs. Volatility risk remains high. Put volume and sentiment may support a rally off the lows, but a reliable bottom has not yet to be established," said US trader Mark Minervini.

Nothing too exciting happened on the ETF front, as most were up or down between 2% and trying to stabilise after the market's recent selloff.

#1 Lithium

The VanEck Rare Earths/Strategic Metals ETF is trying to stabilise after an almost -30% correction from April highs.

The ETF tracks the performance of companies mining, refining and recycling rare earths and other strategic minerals. Its top 5 holdings include local names like Lynas, Pilbara Minerals and Allkem.

The sector was bolstered by a positive earnings release from US-listed lithium company, Livent. The company said it had no new capacity coming online this year, and all the upside was coming from pricing.

The Biden administration announced on Tuesday that it will provide US$3.1bn in funding to support efforts to make EV batteries and components in the US. Separately, the Department of Energy said an additional US$60m will be available to support the reuse and recycling of used EV batteries.

The ETF is in a rather fragile position, previously slicing through key support areas like the 200-day and $96 level (red band) with ease. Until the ETF can reclaim such support areas, small green days shouldn't be taken too seriously.

Source: TradingView, Annotations by Market Index

Nevertheless, the small overnight bounce could see some positive flow for local names.

#2 Energy

OPEC+ is due to meet on Thursday to discuss oil output. The petroleum organisation is widely expected to rubber-stamp next month's output increase (that they probably won't hit anyway).

China remains a key risk to oil sentiment as the nation sticks to its strict 'zero-covid' approach that mass tests and shuts down entire cities on just a small handful of cases.

New cases in Beijing climbed to 62 on Monday and around 450 in the past two weeks.

Other near-term risk factors for oil prices include:

• EU challenges with pushing sanctions on Russian oil

  • Nations like Hungary and Slovakia are heavily dependent on Russian oil

• A more hawkish than expected Fed could push the US dollar higher, which typically weighs on commodity prices

ASX corporate actions occurring today:

• Ex-dividend: BOQ, WAT

• Dividends paid: CIP, COF, NHC

• Listing: KOB

• Issued shares: 92E, ALY, ATC, AUC, BDX, CEL, CNU, COB, DGL, EMN, FBU, GRL, KOB, LGM, MAM, MAY, MFG, MX1, NBI, PDN, RBX, SUV, SW1, SYR, TOP, TRP, VML, WAA

Other things of interest (AEST):

• Australia Retail Sales (March) at 11:30 am

• Australia Home Loans (March) at 11:30 am