ASX 200 futures flat, China's property crisis + Morningstar's high-risk calls

ASX 200 futures are trading flat as at 8:15 am AEST.

S&P 500 SESSION CHART

MARKETS

• S&P 500 +0.57%, Nasdaq +1.05%, Dow +0.07%, Russell 2000 -0.24%
• S&P 500 finished higher and at best levels
• Nasdaq outperformed as tech stocks bounced – catching a bid off oversold conditions and a rotation out of the energy sector
• Treasury yields were higher, with the 2-year up for a fourth straight session and not far off March 2023 highs and the 10-year up for a third straight session to a 9-month high
• A relatively uneventful session ahead of a massive data dump (China, RBA Minutes, US Retail sales etc) as well as the Fed’s Jackson Hole Conference next week
• The market’s recent tone has been more risk-off with a focus on stretched long positioning, upward pressure on yields, negative operating risks to earnings, a rebound in energy prices, BoJ policy tweak, China’s recovery headwinds and seasonality
• Hedge funds pile into equities after missing this year’s rally (FT)
• Biggest Treasury ETF sees largest outflows since 2020 meltdown (Bloomberg)
• Yen slides to 8-month low as Japan-US yield gap widens (Bloomberg)

STOCKS

• US Steel rejects US$7.3bn takeover offer from Cleveland-Cliffs (Bloomberg)
• Tesla cuts prices for select Model Y versions in China (Reuters)
• PayPal announces Intuit’s Alex Chriss would take over as CEO (CNBC)
• Nikola recalls 209 EV trucks following an independent investigation of a June fire, which follows disappointing second quarter earnings (CNBC)

EARNINGS

• Blended growth rate of -5.0%, above the -7.0% expected at the end of Q2
• 80% of results have topped earnings expectations vs. 77% five-year average
• Earnings are coming in 7.5% above expectations, below the 8.4% five-year average

CENTRAL BANKS

• Fed is playing a waiting game to try and avoid a recession (Bloomberg)
• Goldman Sachs expects first Fed rate cut mid-2024 after forecasting no more hikes this year (Bloomberg)
• ECB still seen delivering one last hike in September (Bloomberg)
• Argentina's central bank devalues peso and hikes rates by 21% to 118% following a shock far-right primary election victory (CNBC)

CHINA

• China finance giant Zhongzhi missed payments on high-yield investment products, triggering fresh anxiety about the country's shadow banking industry (Bloomberg)
• Property developer Country Garden suspends trading in at least ten onshore bonds on Monday (FT)
• China market turmoil amps up on bearish investor sentiment (Bloomberg)
• China's central bank expected to keep rates unchanged despite slowing economy and weaker yuan (Reuters)
• Huge inflow into China ETFs prompt speculation about state buying (FT)
  
  

DEEPER DIVE

Morningstar (and Ord Minnett)'s 4 high-risk calls

• Avita Medical (ASX: AVH) - HOLD - "Shares now appear fairly valued. We expect product pipeline and high gross margins to provide a path to profitability. However, a near-term transition to profitability is unlikely, and we concede there is a wide range of potential outcomes based on the success of its pipeline. We expect Avita won't be cash flow-positive before 2026." (Uncertainty rating: VERY HIGH)

• News Corporation (ASX: NWS) - HOLD - "The result vindicates the 20%-plus stock price rally over the last three months, and shares in no-moat-rated News are trading broadly in line with our intrinsic assessment." (Uncertainty rating: HIGH)

• REA Group (ASX: REA) - LIGHTEN (Ord Minnett for "trim your holdings") - "The key risk we see for REA Group in the medium term is that its annual double-digit price hikes start attracting regulatory scrutiny. We believe REA Group has been riding a residential property boom as well as a secular shift towards online property listings over much of the past decade. We expect these tailwinds to have mostly dissipated ... At current prices, REA Group shares screen as materially overvalued." (Uncertainty rating: HIGH)

• Star Entertainment (ASX: SGR) - ACCUMULATE (Ord Minnett for "buy slowly") - "While there remains considerable uncertainty around the quantum of the Austrac fine, we now think Star's $150 million provision for the fine is beginning to appear optimistic. (Uncertainty rating: VERY HIGH)

The great rate cut debate

In the US, the debate just got kicked up a notch after Goldman Sachs economists said they expect the first rate cut to come in the second quarter of 2024.

“The cuts in our forecast are driven by this desire to normalise the funds rate from a restrictive level once inflation is closer to target,” economists led by Jan Hatzius wrote. “We are penciling in 25 basis points of cuts per quarter but are uncertain about the pace.”

The rates market tends to agree, with traders expecting cuts from May 2024 onwards. And while that's great news for lots of investors (especially bond investors who have been waiting for the cuts to signal a new bull market for that asset class), someone has already found the cynical side of the rate-cutting cycle ... George Takei of Star Trek fame.

KEY EVENTS

• Trading ex-div: QV Equities (QVE) – $0.013, Advanced Share Registry (ASW) – $0.05, Flagship Investments (FSI) – $0.049
• Dividends paid: None
• Listing: None
  
  

• 9:50 am: Japan Q2 GDP
• 11:30 am: RBA Minutes
• 12:00 pm: China Industrial Production, Retail Sales, Unemployment Rate and Fixed Asset Investment for July
• 4:00 pm: UK Unemployment
• 10:30 pm: Canada Inflation
• 10:30 pm: US Retail Sales