Market Wrap

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

Fri 22 Apr 22, 8:24am (AEST)

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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.

Overnight summary

Thu 21 Apr 22, 10:24pm (AEST)

Name Value Chg %
US Indices
S&P 500 4393.66 -1.48%
Dow Jones 34,793 -1.05%
NASDAQ Comp 13,175 -2.07%
Russell 2000 1,991 -2.29%
Country Indices
Canada 21,650 -1.58%
China 3,080 -2.26%
Germany 14,502 +0.98%
Hong Kong 20,682 -1.25%
India 57,912 +1.53%
Japan 27,553 +1.23%
United Kingdom 7,628 -0.02%
Name Value Chg %
Commodities (USD)
Gold 1,952.40 +0.22%
Iron Ore 154.27 -
Copper 4.682 -0.47%
WTI Oil 103.99 +0.19%
Currency
AUD/USD 0.7373 +0.00%
Cryptocurrency
Bitcoin (AUD) 55,291 -2.41%
Ethereum (AUD) 4,077 -3.15%
Miscellaneous
US 10 Yr T-bond 2.917 +2.71%
VIX 23 +11.61%

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

 

US Sectors

Thu 21 Apr 22, 10:24pm (AEST)

Sector Chg %
Communication Services -2.41%
Consumer Discretionary -1.23%
Consumer Staples -0.11%
Energy -3.10%
Financials -1.54%
Health Care -1.11%
Sector Chg %
Industrials -1.00%
Information Technology -1.73%
Materials -1.68%
Real Estate -0.63%
Utilities -1.59%

Industry ETFs

Thu 21 Apr 22, 10:24pm (AEST)

Description Last Chg %
Commodities
Aluminum 68.0993 +1.34%
Copper Miners 45.54 -5.31%
Gold 182.71 -0.36%
Lithium & Battery Tech 71.18 -3.39%
Nickel 44.3211 +0.65%
Strategic Metals 108.82 -5.62%
Steel 69.31 -3.07%
Silver 23.28 -2.10%
Uranium 27.77 -8.39%
Industrials
Aerospace & Defense 112.58 -2.96%
Global Jets 22.18 +2.80%
Healthcare
Biotechnology 129 -2.36%
Cannabis 4.51 -3.55%
Description Last Chg %
Cryptocurrency
Bitcoin 25.74 0.00%
Renewables
CleanTech 15.65 -6.39%
Hydrogen 18.43 -8.36%
Solar 69.83 -6.90%
Technology
Cloud Computing 20.76 -2.89%
Cybersecurity 31.53 -3.17%
E-commerce 20.43 -2.84%
Electric Vehicles 25.82 -2.63%
FinTech 29.55 -3.55%
Robotics & AI 26.17 -1.68%
Semiconductor 431.4 -2.67%
Sports Betting/Gaming 18.58 -3.34%
Video Games/eSports 52.96 -3.70%

ASX Sectors to watch

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.

URA
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

REMX
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.

Today's events

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

 

Written By

Kerry Sun

Finance Writer & Social Media

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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