Morning Wrap: Weaker-than-expected economic data drags Wall St lower, ASX set to rise

Wall Street struggled to finish on a positive note following weak economic data from China and the US, JP Morgan expects China’s economy to fall into contraction, Finland and Sweden are set to seek NATO entry and the Euro is almost at parity with the US dollar.

Let’s dive in.

Stocks

• Major US indices closed towards session lows as weaker-than-expected economic data from China and the US has investors concerned about stagflation risks and a much sooner recession

• 4 out of 11 US sectors were green

• Energy, healthcare, staples and utilities outperformed 

• Discretionary, tech, real estate and financials underperformed 

• 51% of US stocks declined

• 73% of US stocks trade below their 200-day moving average (74% on Monday, 75% a week ago) 

• Saudi Arabia's Aramco profits surged 82% in the first quarter to a record high of US$39.8bn

• Volkswagen (-0.3%) reported a -38% decline in April global sales. Group sales between Jan-April is down -26% to 2.4m vehicles 

• Coinbase (-9.1%) continues to attract buying from Cathie Wood. The stock is up 27% from all-lows but remains -75.6% year-to-date

• Twitter (-8.2%) is down almost -20% in the last three sessions as Elon’s takeover deal is “temporarily on hold”, pending data on the proportion of fake accounts

Economy

• China industrial output fell -2.9% year-on-year in April 

  • Missed estimates of a 0.5% gain

  • Lowest reading since February 2020

• China retail sales slumped -11.1%

  • Wider-than-expected decline as estimates expected a -6.6% fall

• China fixed-asset investment up 6.8%

  • Missed estimates of a 7% gain

• China real estate data including home and property sales values, and new property construction were all down between -20.5% and -32.3% year-on-year in April

• JP Morgan economists have lowered their current quarter Chinese GDP growth forecasts to -1.5% from 1.6%

• US Empire Manufacturing Survey came in lower-than-expected at -11.6 in May, down from 24.6 the previous month

  • Any reading below 0 indicates deteriorating conditions

  • Consensus was expecting a 15 point expansion  

Commodities

• Iron ore prices rose 1.2% to US$132.5 a tonne

• Oil prices recovered earlier losses triggered by China’s economic data

• Gold remains flat after a brief dip below US$1,800. The yellow metal has been vulnerable to a strong US dollar and rising yields  

The Nasdaq and S&P 500 gave back some of last Friday's gains. The indices could get more ugly if they fail to hold recent lows.

On the ETF front, things were rather uneventful.

A small handful of ETFs managed to eke out a small gain, including Copper Mines, Rare Earth/Strategic Metals, Uranium, Silver and Gold.

Most ETFs were red, notably Cloud, Hydrogen, eCommerce, Fintech and Lithium/Battery Tech.

#1 Tech

The Nasdaq rallied 3.8% last Friday under the theme of "the more beaten up the stock, the stronger the rally".

The opposite happened overnight as losses were headlined by the usual suspects like covid winners and meme stocks.

• Coinbase -9.1%

• Zoom -6.3%

• Etsy -5.9%

• Tesla -5.9%

• Block -5.3%

On Monday, local names like Xero (ASX: XRO) and Block (ASX: SQ2) bounced between 3-5%. The rather shaky Nasdaq could see some negative flow follow through for the local tech sector.

#2 Energy

Energy was the best performing sector on the S&P 500 overnight.

Monday was a volatile session for oil after weaker-than-expected numbers from China, triggering a dip to lows of US$108 before rallying to highs of US$114.8.

Source: TradingView

"An EU ban on Russian oil suffered another setback as Hungary stood firm against it, the bloc is continuing to work on an agreement while Germany is reportedly planning to phase it out regardless, which could be helping to support prices today," said Oanda senior market analyst, Craig Erlam.

"China looking to ease restrictions could keep prices more elevated having contributed to them trading at more reasonable levels. A move above US$115 in Brent would be interesting, with that having been something of a ceiling for rallies over the last couple of months."

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: PGG

• Listing: None

• Issued shares: 5EA, AGY, AO1, ARR, ASM, BIR, BKT, BRK, CAR, DOW, DUB, DVP, EBR, EMV, FBU, GSS, HLX, K2F, MCR, MFF, MFG, MXC, NAB, PGO

Other things of interest (AEST):

• RBA Meeting Minutes at 11:30 am

• UK Unemployment Rate (April) at 4:00 pm

• US Retail Sales (April) at 10:30 pm

• US Industrial Output (April) at 11:15 pm