ASX 200 to bounce, oil prices sink more than 5% + Are stocks oversold or set to fail?

ASX 200 futures are trading 31 points higher, up 0.44% as of 8:20 am AEST.

S&P 500 SESSION CHART

MARKETS

• Major US benchmarks bounced and closed near best levels
• Big tech lifted the Nasdaq, with the Magnificent Seven all higher
• US 10-year yield pulled back from a session high of 4.88% to 4.74%
• US 2-year yield also fell 10 bps toward 5.05%
• Oil settles down more than 5% after US data flagged weak demand for gasoline
• Oil tumbles on demand fears, Saudi confirms cuts to year-end (Reuters)
• Strategists say McCarthy ouster raises odds of shutdown (Bloomberg)
• Japan keeps market guessing on yen intervention, warns against sharp falls (Reuters)
• Japan bond slump puts more pressure on BoJ to tweak policy (FT)

STOCKS

• Ford boosts wage increase in a new contract proposal to the UAW (Bloomberg)
• Intel to spin out programmable chip unit in next 2-3 years (Reuters)
• Travel stocks including Carnival, Norwegian Cruise Line and Royal Caribbean shares rally after the steep decline in oil prices (CNBC)
• Apple CEO Tim Cook makes US$41m from biggest stock sale in two years (Reuters)
• Google introduces new Pixel phones and watch (Bloomberg)
• GM secures US$6bn credit line to hedge against rising UAW strikes (Reuters)
• Barclays begins culling 3% of global investment banking workforce (Reuters)

CENTRAL BANKS

• BoJ buys US$12.7bn of bonds as yields hit highest in a decade (FT)
• RBNZ holds rates at 5.5%, says rates may need to stay higher for longer (Bloomberg)
• ECB's Lagarde stocks with ECB's 'sufficiently restrictive' rate stance (Bloomberg)

ECONOMY

• US service sector growth slows modestly (Reuters)
• US companies added 89,000 jobs in September, fewest since 2021 (Bloomberg)
• US mortgage demand hits 28 year low as rates climb toward 8.0% (CNBC)
• Unions representing 53,000 Las Vegas workers in talks, could strike (Reuters)
• Eurozone PMI services show economy likely contracted in Q3 (Reuters)
• Eurozone retail sales fall by much more than expected in August (Reuters)
• UK PMI services show downturn eased after inflation data, BoE pause (Reuters)
• Japan service PMI slows down in September, remains in expansion (Reuters)
• South Korea industrial production shrank at mildest pace in 15 months (Reuters)
  
  

Oversold or Set to Fail?

Only 7% of stocks in the S&P 500 are trading above their 50-day moving averages, the lowest since the October 2022 bottom.

Breadth is extremely low and bearish but historically, when this reading falls below 10%, it results in a rather strong bounce for markets.

A technical piece by Piper Sandler studied how the S&P 500 performs when more than 25% of its stocks have an RSI of 14 or less for 4 or more days.

What the data tells us: Historically, if things don't break (aka the Global Financial Crisis), forward returns over 1-week, 4-week, 13-week and 26-week timeframes are positive at least 85% of the time.

On a separate note, there's been a few Bloomberg charts going around about how the current price action for yields and the Dow look a lot like 1987.

The Oil Market Selloff

Oil markets sold off sharply overnight after an Energy Information Administration (EIA) report flagged that "the implied 4 week average of the gasoline demand is at a 25 year seasonal low," which resulted in a higher-than-expected level of gasoline inventories.

Sectors to Watch: Oil Winners & Losers

Yields down, oil down, US dollar down, VIX down and stocks up. Can the first three continue to trend lower or was the overnight price action just a small pullback?

Energy: Energy was the worst performing sector on the S&P 500, down 3.36%. Let's see how names like Woodside (ASX: WDS), Beach Energy (ASX: BPT) and Karoon Energy (ASX: KAR) perform after the sharp pullback in oil prices.

Travel: Travel stocks have been rather heavy in the face of surging oil prices. Qantas' trading update (25 Sept) said that the company will wear the increased ~$200 million in costs associated with higher fuel prices. The overnight dip in oil prices coincided with a broad-based bounce for travel stocks. The US Global Jets ETF also finished the session 2.0% higher.

Copper: Copper prices dipped another 0.9% overnight and not far from falling below May 2023 and November 2022 lows. The Global X Copper ETF was down 1.05% and closed at a fresh 10-month low.