ASX 200 to fall, S&P 500 breaks win streak + Yields spike as US inflation holds at 3.7%

ASX 200 futures are trading 58 points lower, down -0.82% as of 8:30 am AEST.

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S&P 500 SESSION CHART

MARKETS

• Major US benchmarks lower but closed off worst levels
• S&P 500 and Nasdaq break four-day win streak
• US 10-year yield rallied 14 bps after the hotter-than-expected headline CPI print
• Russell 2000 headed for worst one-day decline since March (Barron’s)
• European IPOs fall to lowest since 2008 amid challenging conditions (FT)

STOCKS

• US earnings revision momentum strongest since first quarter 2022 (Bloomberg)
• Microsoft hit by US$28bn bill in back taxes between 2004 and 2013 (CNBC)
• Birkenstock extends selloff, down 6.6% (CNBC)

CENTRAL BANKS

• Fed's Collins says rates at or near peak, more tightening possible (Bloomberg)
• ECB's Vujcic says its too early to say inflation is beaten (Bloomberg)
• ECB's Kazaks says time to discuss ending bond buying early (Reuters)
• BoE's Dhingra says rate cut could come sooner if growth falls sharply (BBC)
• BOJ policy change hinges on next round of talks (Bloomberg)

GEOPOLITICS

• Israel says no humanitarian break to Gaza siege unless hostages are freed (Reuters)
• Biden intensifies diplomatic effort to stop Gaza conflict (FT)
• Gazans endure 'catastrophic' conditions as territory hit by Israeli jets (FT)
• Yellen says all options on the table for new Iran sanctions (FT)
• US rule banning advanced AI chip sales to China under final review (Reuters)

CHINA

• China state fund raises stake in banks, to buy more in next 6 months (Bloomberg)
• China property bondholders face major losses in debt restructuring (Reuters)
• China bans new offshore brokerages accounts to stem capital outflows (Reuters)
• China credit market stress eases after local defaults fall to lowest this year (Bloomberg)

ECONOMY

• US inflation mostly in-line with expectations (Bloomberg)
• UK economy rebounds partially in August driven by services output (FT)
• Israel-Hamas war clouds global outlook says IMF chief (Bloomberg)
  
  

US Inflation: Not Bad, Not Great

US CPI for September was a touch firmer than what the market was expecting.

• Inflation rate MoM up 0.4% vs. 0.3% expected
• Inflation rate YoY at 3.7% vs. 3.6% expected
• Core inflation MoM up 0.3% in-line with expectations
• Core inflation YoY down to 4.1% in-line with expectations

There were a few positive signs in the report but overall inflation remains too hot and even accelerating in some categories. Some of the main pain points for the September data include (below figures refer to month-on-month changes):

• Gasoline prices up 2.1% reflecting higher oil prices
• Electricity prices rose 1.3%
• Shelter rose 0.6%, up from a 0.3% increase in August. Housing is still running hot but the consensus is that lagging rents data will meaningfully slow in the coming months

Goldman Sachs says "we do not expect today's CPI report to affect the outcome of the November FOMC meeting, for which we expect unchanged policy. Recent commentary by Fed officials has also sent a strong signal that the FOMC is likely to keep the funds rate unchanged."

On a more light hearted note, NY Times columnist Paul Krugman notes that CPI ex food, energy, shelter and used cars was below 2.0% in September. What a sensational result for those that don't eat, use energy, pay rent or need to get around.

Charts of the Week

This segment of the morning wrap brings you weekly technical commentary on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations and for illustrative purposes only. Past performance is not a reliable indicator of future return. Always do your own research.

ASX 200 – Bond, James Bond

For anyone who thinks technical analysis is hocus pocus, take a look at the chart above. The index magically respected the 6900 support region, just as it did in January and March earlier in the year. Why did the bulls defend this region? Some would argue happenstance or coincidence. Well, Ian Fleming (creator of James Bond) said “Once is happenstance. twice is coincidence. Three times is enemy action”. That is, three times is on purpose. The bulls defended this level on purpose because they knew what was at stake if they didn’t. That’s the type of analysis you can wrap trades around and that’s what makes technical analysis useful.

Carsales (ASX: CAR) – Driving higher

I’ve covered CAR in the past and it is shaping up once again. After a pullback through late September/early October, the stock has rallied back up the $30 resistance level and is on the verge of breaking higher. A big increase in average volume recently supports the broader rally from $24, whilst right now the RSI is not overcooked. Keep an eye out for the break above $30 – it could be the catalyst for a sharp rally.

Megaport (ASX: MP1) – Mega Momentum

Over the past six months, there aren’t too many stocks with better momentum than MP1. The stock has rallied from $4 to $12 over the period. The price action has uptrend support and there is a neckline just above $12 that, if breached, could provide a ‘go-with’ move. Again, one for the watchlist, but keep an eye out for the break higher into clean air.

ASX corporate actions occurring today:

• Trading ex-div: Harvey Norman (HVN) – $0.12
• Dividends paid: Cash Converters (CCV) – $0.01, XRF Scientific (XRF) – $0.03, Hub24 (HUB) – $0.23, Seven Group (SVW) – $0.23, Fonterra (FSF) – $0.31, BSP Financial (BFL) – $0.15
• Listing: None

Economic calendar (AEDT):

• 12:30 pm: China Inflation Rate
• 2:00 pm: China Balance of Trade
• 1:00 am: US Michigan Consumer Sentiment

This Morning Wrap was written by Kerry Sun and Chris Conway.