Market Wraps

Morning Wrap: Wall Street red after rollercoaster session, ASX set to extend losses

Mon 09 May 22, 8:34am (AEDT)

ASX Futures (SPI 200) imply the ASX will open 51 points lower, down -0.7%. 

Wall Street was red again after a choppy session, US employment data reaffirmed a strong labour market, iron ore prices slammed after China commits to the current zero Covid strategy and Bitcoin hits a 10-month low.  

Let’s dive in.

Overnight Summary

Mon 09 May 22, 8:34am (AEDT)

Name Value Chg %
Major Indices
S&P 500 4,123 -0.57%
Dow Jones 32,899 -0.30%
NASDAQ Comp 12,145 -1.40%
Russell 2000 1,840 -1.69%
Country Indices
Canada 20,633 -0.30%
China 3,002 -2.16%
Germany 13,674 -1.64%
Hong Kong 20,002 -3.81%
India 54,836 -1.56%
Japan 27,004 +0.69%
United Kingdom 7,388 -1.54%
Name Value Chg %
Commodities (USD)
Gold 1,883.70 +0.05%
Iron Ore 136.91 -
Copper 4.235 -0.75%
WTI Oil 109.56 -0.19%
Currency
AUD/USD 0.7056 -0.13%
Cryptocurrency
Bitcoin (AUD) 48,507 -3.38%
Ethereum (AUD) 3,599 -4.04%
Miscellaneous
US 10 Yr T-bond 3.123 +1.86%
VIX 30 -3.24%

Stocks

  • Major US indices whipsawed from positive to negative territory as investors weighed the continued signs of a strong economy against aggressive interest rate hikes

  • The US employment report eased concerns of a looming recession as the job market remained strong

  • Interest rates remain at the forefront of ongoing risks

    • There is an 84% probability of a 50 bps rate hike in the Fed's June meeting, and a 16% chance of a 75 bps hike, according to CME's Fedwatch Tool

  • Bitcoin fell as much as -5% to a 10-month low of US$33,700

    • Crypto has been a useful leading indicator for risk-assets like the Nasdaq

    • The sharp decline in crypto markets could indicate a volatile start to the week

  • 9 out of 11 US sectors were red

  • Materials, discretionary, real estate and tech underperformed

  • Energy and utilities sectors were green

  • 67% of US stocks declined

  • 71% of US stocks trade below their 200-day moving average (70% last Friday, 70% a week ago)

  • Square (+0.7%) missed earnings expectations but the company provided upbeat signals about its Cash App business

  • Cloudfare (-15.7%) even though its quarterly results beat Wall Street expectations. The cybersecurity company’s bottom-line forecast indicates a likely miss in its next report 

  • Draftkings (-8.9%) reported a first-quarter loss of -US$467.7m compared to a -US$346.3m loss a year ago. The widening loss narrative outweighed the slight revenue beat and new customer momentum 

Economy

  • US economy added 428,000 new jobs in April

    • Economists polled by The Wall Street Journal had forecast 400,000 new jobs

  • US unemployment rate was unchanged at 3.6%, just above a 54-year low

  • US average hourly earnings rose 0.3% in April

    • Economists  were expecting a 0.4% increase

    • Wage pressures are showing slight signs of easing. Though, the labour market remains tight, meaning wage pressures aren't ready to post a meaningful decline 

Commodities

  • Iron ore futures fell to US$138.4 a tonne last Friday after Chinese authorities reaffirmed their commitment to the current ‘zero-covid’ strategy, against a pessimistic outlook for downstream steel demand, according to Fastmarkets 

  • Oil prices remain tenacious as Ukraine-Russia conflicts and the EU embargo risks help keep prices elevated

  • Gold is still trying to stabilise amid the bond market selloff (which pushes yields up)

 

US Sectors

Mon 09 May 22, 8:34am (AEDT)

Sector Chg %
Energy +2.91%
Utilities +0.80%
Consumer Staples -0.04%
Health Care -0.30%
Industrials -0.65%
Financials -0.72%
Information Technology -0.79%
Real Estate -1.02%
Consumer Discretionary -1.31%
Communication Services -1.31%
Materials -1.37%

Industry ETFs

Mon 09 May 22, 8:34am (AEDT)

Description Last Chg %
Commodities
Nickel 39.32 +0.89%
Gold 175.13 +0.17%
Lithium & Battery Tech 67.04 -0.15%
Silver 20.78 -0.58%
Steel 60.09 -1.43%
Uranium 22.38 -1.83%
Copper Miners 38.69 -1.84%
Strategic Metals 94.97 -3.33%
Aluminum 61.45 -3.37%
Industrials
Aerospace & Defense 103.89 -0.66%
Global Jets 20.97 -2.67%
Healthcare
Cannabis 3.95 -2.28%
Biotechnology 117.36 -3.57%
Description Last Chg %
Cryptocurrency
Bitcoin 22.61 -0.97%
Renewables
CleanTech 14.36 -3.90%
Solar 67.44 -3.96%
Hydrogen 15.4 -5.06%
Technology
Semiconductor 412.775 -0.89%
Electric Vehicles 24.44 -1.76%
Video Games/eSports 49.91 -1.90%
Robotics & AI 23.79 -2.40%
Sports Betting/Gaming 17.38 -2.59%
Cloud Computing 18.85 -3.24%
E-commerce 18.6 -4.03%
Cybersecurity 27.68 -4.08%
FinTech 26.12 -4.13%

ASX Morning Brief

It seems like the outlook for stocks rests on inflation and the need for consumer prices to begin plateauing.

UBS was right on the money, expecting March US inflation to come in at 8.5%. The investment bank expects annual inflation figures to fall to 8.0% in April and progressively ease to 3.4% by year-end.

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UBS thinks the top is in for inflation

#1 Crypto 

Cryptocurrency markets sold off sharply on Sunday as a risk-off attitude gathered momentum and governments attempted to ban bitcoin and other cryptocurrencies.

This week, New York was progressing a ban on bitcoin mining with a bill calling for a two-year suspension on cryptocurrency mining operations unless the company uses 100% renewable energy.

Bitcoin has emerged as a leading indicator for risk assets this year. If Bitcoin is rallying, then its likely the Nasdaq will rally too.

The divergence over the weekend could flag another volatile week for equities.

2022-05-09 08 05 22-BTCUSD 2022-05-09 08-05-04.png ‎- Photos
Bitcoin vs. Nasdaq Composite (Source: TradingView)

#2 Tech

The prospect of aggressive interest rate hikes continue to deflate tech valuations.

Notable Wall Street losers on Friday include:

  • Coinbase -9.2%

  • Draftkings -8.9%

  • Affirm -7.7%

  • Etsy -5%

  • Zoom -4.4% (back to February 2020 levels)

With SPI futures pointing to a -0.7% decline at open, its likely that decline will be lead by tech names.

#3 Lithium 

Lithium stocks are trying to stabilise against the tide of deflating valuations.

Over the weekened, BHP (ASX: BHP) President of Minerals Americas said they're staying out of the lithium bandwagon, wrote the Australian Financial Review.

“We recognize that at the moment there’s short-term supply-demand conversations,” Ragnar Udd said in an interview this week. “How that plays out over the next 20 or 30 years, I don’t think it will last.”

Back to the Rare Earth/Strategic Metal ETF - the previous $96 support area (red band) is turning into resistance. The ETF is really struggling to bounce and China's stance on zero covid, easing lithium prices and the underperformance of growth stocks could continue to weigh on lithium names.

2022-05-09 08 15 10-REMX 2022-05-09 08-14-55.png ‎- Photos
Source: TradingView, Annotations by Market Index

#4 Energy

The S&P 500 Energy sector massively outperformed last Friday, up 2.91%.

Oil prices are somewhat rangebound, trading around US$95 to US$110 in the past few weeks.

"With OPEC+ compliance at over 160%, there is zero chance of certain members filling that quota anywhere as production challenges impact Nigeria and other African members," said Oanda senior market analyst, Jeffrey Halley.

"That leaves oil at the mercy of the Ukraine/Russia conflict and the EU oil ban supporting the downside, while China slowdown fears, with some OPEC members noting much-reduced demand from the mainland, acting as a cap on upside price moves."

The S&P/ASX 200 Energy Index sold off with the market last Friday, down -2%. Energy stocks could see some positive flow given firm oil prices.

Key Events

ASX corporate actions occurring today:

  • Ex-dividend: ANZ, NAC, NSC

  • Dividends paid: GCI, MOT, MXT

  • Listing: None 

  • Issued shares: 360, A2B, ADT, AFP, AGY, AIS, AIZ, AMC, AT1, AVL, AVR, BEN, CG1, COB, COH, CXM, CXO, D2O, DTZ, ECF, EMR, ESS, ICI, INR, JAV, JGH, KNI, KP2, KZA, LAW, LKE, MFG, MGF, NBI, NVU, NWE, NXG, PCI, PPE, RNO, RTG, SRN, TEM, VMY, XTC

Other things of interest (AEST):

  • China Balance of Trading (Apr) at 1:00 pm

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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