Morning Wrap: Wall Street rallies as 75 bp hikes are off the table, ASX set to rise

ASX Futures (SPI 200) imply the ASX will open 31 points higher, up 0.4%. 

US stocks ripped higher after Powell said a 75 bps hike wasn’t being actively considered by policymakers, the Fed announced the start of reigning in its US$9tn balance sheet, oil prices rallied on Russian sanction progress and several household US stocks delivered quarterly earnings.  

Let’s dive in.

Stocks

• Wall Street had its biggest rally in 2 years after a less-hawkish-than-expected Fed

• All 11 US sectors were green

• Energy, tech, materials and financials outperformed

• 77% of US stocks advanced

• 66% of US stocks trade below their 200-day moving average (69% on Wednesday, 69% a week ago)

• Advanced Micro Devices (+9.1%) reported a 70% surge in revenue to a record US$5.89bn in the first quarter. AMD said Chinese lockdowns are expected to exacerbate supply-chain disruptions but has not seen a large impact for the company

• Airbnb (+7.7%) beat forecasts and said it surpass 100m bookings in a quarter for the first time and up 26% compared to the first quarter of 2019 

• Moderna (+5.8%) after topping Wall Street’s earnings and revenue expectations as net income swung to US$377m in the first quarter compared to a US$11m loss a year ago

• Marriott International (+4.8%) reported better-than-expected earnings 

• Lyft (-29.9%) had already plunged in after hours trading on Wednesday. The rideshare group reported a better-than-expected first quarter but guidance disappointed

• Etsy (-12.2% after hours) sales rose only 5.2%, marking the first time revenue has grown by single digits. Management said that sales deceleration “worsened throughout the quarter” 

• US corporate earnings to watch this week: 

  • Thurs: Shopify, Doordash

  • Fri: Draftkings, Under Armour 

Economy

• The US Fed hiked interest rates by 50 bps to a range of 0.75% to 1.0%

  • Powell reaffirmed consumers that higher interest rates is the solution to ongoing price increases for fuel and groceries

  • Powell said a 75 bp increase isn’t being considered, perhaps a touch more dovish than what analysts have been expecting

  • A half-point rise remains on the table over the next couple of meetings

  • US interest rates are expected to sit between 2.0% to 2.25% by year end, according to CME’s Fedwatch Tool

• The Fed announced the start of “quantitative tightening” or reducing its US$9tn balance sheet

  • Beginning in September, the Fed will allow a maximum of US$95bn of Treasury bonds and mortgage backed securities to ‘roll off’ without reinvestment each month

• US private payrolls rose by 247,000 in April

  • Economists polled by The Wall Street Journal were expecting a gain of 390,000

  • This is the slowest gain since the beginning of the pandemic

  • US labour market potentially showing signs of slowing as the economy hits full employment

• US trade deficit hit US$109.8bn in March, topping US$100bn for the first time thanks to higher oil prices and inflation 

Commodities

• Iron ore futures dipped to US$142.8 a tonne amid limited trading activity due to the absence of Chinese market participants (Labour Day Holiday 1-4 May) and depressed sentiment, according to Fastmarkets

• Oil prices rallied as the EU makes progress for its proposed phased oil embargo on Russian oil imports. OPEC+ also agreed to another small increase in production targets despite pressures to pump more oil 

• Gold prices bounced thanks to a less hawkish Fed and a weaker US dollar

The S&P 500 bounced off its channel like clockwork. Powell's less-hawkish comments is providing some reprieve for oversold markets.

In the same way that markets sold off in anticipation of more aggressive tightening, the less-hawkish tone could help markets re-calibrate towards the upside.

Source: TradingView, Annotations by Market Index

#1 Tech 

Tech names bounced the hardest as a risk-on attitude returned to Wall Street. Notable gainers include:

• AMD +9.1%

• Affirm +5.5%

• Meta +5.4%

• Zoom +5.3%

• Tesla +4.8%

This could prompt a similar narrative to take place on the ASX, especially following the 4.4% gain from Block.

Etsy share are down -12.2% after hours as eCommerce businesses struggle to sustain high-flying covid-induced growth. The headwinds for Etsy could see some negative flow for local names like Kogan (ASX: KGN) and Redbubble (ASX: RBL).

#2 Energy

Oil prices advanced overnight after OPEC+ is set for another small increase in June production targets.

Source: TradingView, Annotations by Market Index

The European Union has proposed its toughest package of sanctions against Russia, including sanctions on Russian banks and an embargo on crude oil, set to commence in six months.

The EU plans to make exemptions for Hungary and Slovakia until the end of 2023, as those nations are extremely dependent on Russian imports.

While a positive for oil prices, Europe will likely struggle to find excess capacity and suppliers to make up for the loss of Russian imports.

#3 Lithium

Local lithium stocks opened higher on Wednesday before fading into the close, perhaps reflective of a cautious mood heading into the Fed's interest rate decision.

Encouragingly, the Rare Earth/Strategic Metals ETF advanced for a second straight session as US stocks came roaring back.

The ETF is working its way through the previous support area (red band) but has a lot of work cut out for it as it approaches key moving averages.

Source: TradingView, Annotations by Market Index

#4 Uranium 

Uranium is another once bullish sector that was sold off. Its quite trendless at the moment and trying to hold onto its 200-day.

Source: TradingView

The recent weakness in uranium stocks is in-line with the weakness in spot prices, currently trading around US$54/lb compared to US$63/lb just three weeks ago.

The ETF is bouncing where it needs to be, which could provide some relief for local uranium stocks.

ASX corporate actions occurring today:

• Ex-dividend: JMS, VTG

• Dividends paid: ARF, GOR

• Listing: None today

• Issued shares: AEE, AHF, AJQ, AON, BOE, BSL, BXB, CIP, CNU, COF, DUB, ELT, EMR, EPN, GSS, HCH, IKE, IVZ, JHG, LLO, MEL, MFG, MLS, MRZ, MVP, PXX

Other things of interest (AEST):

• Australia Balance of Trade (March) at 11:30 am

  • Consensus is a $8.5bn surplus

• Australia Building Permits (March) at 11:30 am

• China Caixin Services PMI (April)

  • Forecast expects a reading of 42.1

  • Any reading below 50 indicates contraction