Morning wrap: Wall Street slides after Fed signals 50 bps rate hike, ASX set to slide

ASX Futures (SPI 200) imply the ASX will open 65 points lower, down -0.9%.

Wall Street got smashed after Fed Chairman Jerome Powell signalled a half-point interest rate hike in May, markets are expecting pretty much a 100% likelihood of a 50 bps rate hike, all US sectors were red with travel being one of few sectors to push higher.

Let’s dive in.

Stocks

• The market has found a new catalyst for fear after Netflix’s gloomy earnings on Thursday

• Powell indicated his support to “front-end loading” rate hikes, saying “it is appropriate in my view to be moving a little more quickly”, during a discussion hosted by the International Monetary Fund

• Major US indices were pushing higher in early trade, bolstered by strong earnings from Tesla and United Airlines

• Powell’s speech put the focus back on inflation and uncertainty about how fast interest rates will go back up

• All 11 US sectors were red

• Energy and tech stocks were the hardest hit

• 76% of US stocks declined

• 61% of US stocks trade below their 200-day moving average (59% on Thursday, 62% a week ago)

• As of Thursday, 12% of S&P 500 companies had reported Q1 earnings, with 80% beating analyst expectations

• Tesla +3.2% after lifting revenues by 81% to US$18.8bn thanks to strong demand for EVs. Tesla flagged that its factories are expected to operate below capacity for the rest of 2022 

• United Airlines +9.3% after a slightly wider-than-expected loss in the March quarter amid rising fuel costs. The airline expects to turn a profit this quarter as they expect travel demand to generate the highest quarterly revenue in the company’s history

• Used-car retailer Carvana -10.1% after flagging several sales, logistics and inflationary issues. The company posted a US$506m loss in the latest quarter compared to a US$82m loss last year

• Earnings to watch tomorrow: SAP, American Express and Verizon 

Economy

• US first-time claims for unemployment benefits fell by 2,000 to 184,000

• US ongoing claims for unemployment benefits fell by 58,000 to 1.42m in the week ended 9 April, a 52-year low

• CME's FedWatch Tool expects a 97.6% probability of a 50 bps rate hike in May

  • There is also a 60% probability of another 50 bps rate hike in June compared to a 50% likelihood yesterday, 28.4% a week ago and 0% a month ago

Commodities

• Iron ore prices remained stable, just above US$150 a tonne

  • Market participants believe that overall market sentiment remains bearish because of limited iron ore trading activity due to a lack of demand from Chinese steelmakers, according to Fastmarkets 

• Oil inched higher amid reports the EU nearing a framework to phase out Russian oil imports

• Gold is stalling around US$1,950 as hawkish commentary from central banks is weighing on upside

The overnight session was characterised by a broad-based selloff, led by risk sectors.

"Bear market rallies can be convincing and powerful short-term, but they don't have legs. They are characterised by strong opens and weak closes, a selective nature of short lived rotation," said US trader Mark Minervini.

Some interest quotes from Miniervini's short note to members include:

• You will see many breakouts fail and reverse as institutional money sells into retail buying. The opposite is true during a bull market

• One of the most frustrating things to deal with during a bear market is their tendency to suck you in and give you just enough confidence to raise your exposure, only to reverse just around the time you are loaded up

#1 Tech 

You know how the narrative goes.

• Fed gets more aggressive with interest rates

• Tech stocks fold like a chair

Tesla and IBM were the handful of names that managed to close green, bolstered by earnings. Otherwise, most large cap US tech names fell between -3% to -7%.

Local tech shares will likely be in for another difficult session. Especially after a -6% decline from US-listed Block (ASX: SQ2).

#2 Uranium

The Global X Uranium ETF fell -8.4% overnight, closing at session lows on heavy volume.

Source: TradingView

Uranium spot prices slumped around -3.6% to US$60.3/lb, according to fuel brokers Numerco.

Expect local uranium names to fall.

#3 Lithium 

The Rare Earths/Strategic Metals ETF was another risk sector sliding on interest rate fears. The ETF is now down almost 20% since its all-time high on 4 April.

The bad:

• The ETF sliced through the 200-day moving average

• Chinese lithium prices topped out in early April

The good:

• Tesla earnings were strong (although factories expected to operate below capacity through 2022)

• The high $90s level is a key support area for the ETF

Source: TradingView

#4 Travel 

The US Global Jets ETF rose 2.8% but well below session highs of 5.9%.

United Airlines joined Delta in an upbeat outlook for 2022 thanks to a resurgence in travel demand.

Broadly speaking, the narrative so far for US airline earnings is that June quarter capacity is expected to rise to around 80-90% of 2019 levels. While airlines are experiencing a surge in fuel costs, fares are keeping apace.

It will be interesting to see what local travel names do with strong sector news against a weak broader market.

#5 Energy

Energy was the worst performing sector on the S&P 500, down -3.1%.

That said, oil prices inched higher on progress being made for an EU ban on Russian oil imports. This is expected to be a massive blow on both countries, as roughly half of Russian energy exports goes to Europe.

Oil prices continue to stabilise around the mid-point of recent prices, being lows of around US$97 and highs of US$130.

ASX corporate actions occurring today:

• Ex-dividend: MFF

• Dividends paid: ARB, BFL, CII, EDC, GOW, LFS, RBD, SDI, SIG

• Listing: OSM

• Issued shares: AAU, ADS, AHX, AL3, AXE, AZL, BBN, BCN, BKT, BLG, BSL, CHK, CHR, COD, DOU, DOW, EMR, EVZ, FBU, GLL, HAS, HCH, LME, LNU, LPD, LV1, MAY, OSM, WAM