Morning wrap: Wall Street retreats on hawkish Fed comments, ASX set to fall

ASX Futures (SPI 200) imply the ASX will open 48 points lower, down -0.64% .

All three major US indices were red as Russian sanctions, looming interest rate hikes, recession concerns and covid finally triggered a small pullback.

Europe and the US continue to pile sanctions against Russia, Europe is reluctant to pull Russian energy imports, Fed policymakers will meet in the early hours of tomorrow morning and Goldman thinks the RBA will begin hiking rates in June.

Let’s dive in.

Stocks

• The more contagious omicron BA.2 subvariant is now the dominant strain making up 72% of covid variants in the US, according to the CDC

• China has extended its lockdown of Shanghai to the entire city of 25m people. Initially, there were separate measures for the eastern and western sides of the city

  • China reported more than 13,000 new covid infections on Monday - a new all-time high

  • Residents in some areas are not allowed to leave their homes, even for essential goods

• 4 out of 11 sectors were green, including utilities, healthcare, consumer staples and real estate

• Tech, energy and industrial stocks underperformed

• 74% of US stocks declined, indicating a broad-based selloff

• 60% of US stocks trade below their 200-day moving average (58% on Tuesday, 55% a week ago)

• Twitter shares rose 2% after Elon Musk was appointed to the company’s board

• Cruise line operator Carnival briefly rallied 9% after reporting the seven-day period from 28 March to 3 April was the busiest week in new cruise bookings in the company’s history

Economy

• US Federal Reserve Governor Lael Brainard said that policy makers could begin to aggressively shrink the size of the central bank’s balance sheet as early as May

  • “I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19,” Brainard said in a speech on Tuesday

• Brainard noted that the US economy had good momentum, but added that the inverted yield curve and other data might suggest some downside risks to growth

Commodities

• Iron ore prices remain stable amid limited trading activity, market sources told Fastmarkets

• Oil prices slip lower as the release of strategic reserves has helped take some pressure off of Russian supply disruptions

• Gold continues to hold above US$1,900 albeit without much direction

Sectors making a recent comeback or breaking out headlined the losses overnight. Notable ETF losers include:

• Rare Earths/Strategic Metals

• Tech (FinTech, eCommerce and Cloud)

• Copper

• Hydrogen

Before investors feel awash with a bearish feeling, many of these ETFs are up 15-30% since mid-March.

The market is still far from a correction. Though, investors should observe how individual stocks and/or ETFs behave around key moving averages or support areas, and if a higher low can be formed.

#1 Tech

The tech sector seems to always find itself sitting at the top or bottom of the sector leaderboards. Notable overnight losers include:

• Affirm -8.1%

• Block -6.4%

• Tesla -4.7%

• PayPal -3.5%

The Global X FinTech, eCommerce and Cloud ETFs fell between -2% and -3%.

The overnight weakness in US tech stocks and negative SPI futures could see some negative flow for local names.

Local Block (ASX: SQ2) shares will be set to slide at open. Eyes on other major tech names like Xero (ASX: XRO) and WiseTech Global (ASX: WTC).

#2 Lithium

Most local lithium and green metal stocks rallied within the first few minutes of trade on Tuesday before staging an ugly reversal. While share price performance varied, most stocks reversed at least -5% from intraday highs.

I was getting far too excited about the VanEck Rare Earths/Strategic Metals ETF breaking out that an interesting trendline completely crossed my mind.

Rare Earths/Strategic Metals ETF (Source: TradingView, Annotations by Market Index)

The ETF is now taking a breather after running more than 30% since mid-March.

Eyes on how the ETF will behave as it approaches the 20-day moving average (red) - which is around $115 or another -5% from today's close.

See a full list of ASX lithium stocks here.

ASX corporate actions occurring today:

• Ex-dividend: CLV, TRA

• Dividends paid: ANG, BOL, BRI, CSL, CUP, CWY, DHOF, EHL, HUM, LIC, MAH, MTO, NEW, PGH, PSI, QIP, SRV, VNT

• Listing: None today

Things of interest (AEDT): 

• US Federal Reserve meeting minutes at 5:00 am (Thursday)