Morning wrap: Wall Street rebounds, US airlines rally on upbeat earnings, ASX set to rise

ASX Futures (SPI 200) imply the ASX will open 17 points higher, up 0.22%.

Wall Street recouped yesterday’s losses, inflation is expected to peak, US quarterly earnings season is underway and consumers don’t seem to mind higher airfares. 

Let’s dive in.

Stocks

• Major US indices closed at session highs, recouping Wednesday's sharp reversal but still down the week

• Federal Reserve Governor said that March levels of inflation could be the peak

• Earnings season has kicked off and so far showing that consumers are ok with widespread price increases

• Surging bond yields have taken a pause, supporting equity markets, notably tech stocks

• 9 out of 11 US sectors were positive

• Consumer discretionary, tech, materials and energy stocks outperformed

• Financials and utilities were red 

• 74% of US stocks advanced, indicating a broad-based rally

• 62% of US stocks trade below their 200-day moving average (64% yesterday, 62% a week ago)

• Delta Airlines rallied 6.2% after delivering a smaller-than-expected quarterly loss and revenue beat. Delta said that March was a great month with customers accepting higher fares which helped offset higher fuel prices

• JPMorgan fell -3.2% after flagging a $524m hit from Russian sanctions. The bank posted better-than-expected earnings, but profit fell -42% compared to last year

• Key US earnings to watch this week:

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

Economy

• UK inflation hit 7% in March, the highest reading since 1992

• The Bank of Canada has raised interest rates by 50 bps to 1.0% as it tries to reign in rising prices. The central bank will also kick off the process of ‘quantitative tightening’ this month, meaning it will unwind its bond purchases

  • When Government of Canada bonds mature, the bonds will no longer be replaced and as a result, shrink the size of the central banks’ balance sheet

• US producer-price index, which measures the cost of wholesale goods and services, rose 1.4% in March due to higher energy and food prices

  • Economists polled by The Wall Street Journal had forecast a 1.1% gain

Commodities

• Iron ore prices fell amid downtrends in both futures and swap markets, according to Fastmarkets

  • China’s Central Commission for Discipline Inspection announced on Wednesday that the government will increase its scrutiny of iron ore markets alongside other commodities and capital markets to crack down on illegal activities

• Oil prices were unfazed after the US Energy Information Agency (EIA) posted a 9.4m barrel jump in oil stockpiles - the biggest build since March 2021

• Gold extends its winning streak to five consecutive days

#1 Travel

The US Global Jets ETF rallied 5.3% after Delta earnings lifted airline and travel stocks.

• American Airlines +10.6%

• Airbnb +7.3%

• Delta Airlines +6.2%

• United Airlines +5.6%

Delta said it expects to turn a profit this quarter as capacity is expected to bounce back to 84% of 2019 levels.

The return to pre-covid is easier said than done as airlines face surging fuel prices, labour shortages and other costs associated with ramping back up. Even excluding fuel prices, Delta expects costs to rise 17% in the June quarter as it increases flying and hiring.

Higher costs are being offset by by higher airfares. According to CNBC, Domestic US airfares increased 20% in March compared to 2019, but customers seem happy to pay for higher prices after more than two years of the pandemic.

The bullish performance of US travel stocks could poise local names for a positive session.

#2 Uranium

The Global X Uranium ETF added 3.5% overnight to a 5-month high.

Uranium spot prices rose to another fresh 11-year high of US$63.88, according to fuel brokers Uranium Markets.

The uranium sector has been bolstered by several catalysts including countries delaying their exit from nuclear power, the US pushing a ban for Russian nuclear fuels, an increasing number of countries investing in new nuclear capacity and a growing demand/supply deficit.

Local uranium names like Lotus Resources (ASX: LOT) and Vimy Resources (ASX: VMY) have run ahead of the pack, rallying to multi-year highs in the past few days.

Whereas a large cap name like Paladin Energy (ASX: PDN) is testing near-term highs and attempting push above the trend line.

Source: TradingView, Annotations by Market Index

#3 Copper

Copper spot prices haven't been up to much, trading mostly sideways as it has for the past 12-months.

(Source: TradingView)

Even though copper prices have yet to get a move on, the Global X Copper Mines ETF added 3.5% overnight, closing in on a new 10-year high.

(Source: TradingView)

Earlier this week, Goldman Sachs analysts doubled their forecasted refined copper deficit to 374,000 tonnes for 2022 and enlarged projected deficits for 2023 and 2024.

"Without any apparent softening adjustments already underway, we believe higher prices are an inevitability - required to stimulus substantially more scrap supply as well as accelerate demand destruction to balance this market.”

#4 Gold

Gold seems to have plenty of momentum behind its back after logging a five day win streak.

Source: TradingView

"The inflation story is setting up for a few months of stubbornly high prices that will lead to inflation hedges and safe-haven bets for bullion," said Oanda senior market analyst, Ed Moya.

"This earnings season will likely be filled with a wrath of cautious commentary and that could be the catalyst that keeps stocks grounded, which is good news for gold."

Plenty of local gold names are pushing near-term highs as gold has a crack at US$2,000 again. Another positive session for gold spot prices could see gold names trend higher.

ASX corporate actions occurring today:

• Ex-dividend: DVR, NHC, SEC

• Dividends paid: ADH, BBL, BCN, BXB, CCV, CDM, CDO, COS, FSF, GAP, GDF, IGL, PAC, PPC, PPM, QRI, SUL, VRT, WAR, WAX, WMA, WMI, WQG

• Listing: NYM

• Issued shares: CXO, EEG, GBZ, GSS, GTR, HM1, JBH, LIT, MQR, NBI, NZM

Things of interest (AEST):

• Australia Unemployment Rate (Mar) at 12:30 pm

• European Central Bank Interest Rate Decision at 10:45 pm

• US Retail Sales (Mar) at 11:30 pm