ASX 200 to fall, S&P 500 fades on bank downgrades + Is a short-term bounce at play?

ASX 200 futures are trading 17 points lower, down -0.24% as of 8:20 am AEST.

S&P 500 SESSION CHART

MARKETS

• S&P 500 lower and finished near worst levels from session highs of 0.43%
• A relatively uneventful session with Treasury yields slightly higher, commodities mixed
• Disappointing retail earnings renewed concerns about rising credit delinquencies and upcoming student loan repayments
• Treasury yields hit highest level since 2007 elevated rate fears (Bloomberg)
• T-Bill yields to climb further with foreign money steering clear (Bloomberg)
• Soaring US yields cast shadow over risk asset rally (Reuters)
• Strategists see dip-buying opportunity arising from pullback (Bloomberg)
• S&P join's Moody's in cutting US bank ratings (Bloomberg)
• US lawmakers have 12 legislative sessions before government funding expires on 30 September, raising likelihood of a potential shutdown (Washington Post)
• CEOs talk up AI in earnings calls but not in official filings (FT)

STOCKS & EARNINGS

• Microsoft concludes Activision Cloud streaming rights to Ubisoft (Bloomberg)
• Nvidia earnings will be major test for AI demand and market rally (Reuters)
• Nvidia on one of the strongest runs into earnings in past three years (link)
• Charles Schwab sells US$2.4bn bond amid job and real estate cuts (Bloomberg)

• “When you look at consumer sentiment, we noted that we’re seeing a pullback in DIY discretionary spend.” – CEO Marvin Ellison
• “[Consumers] feel good about the amount of equity in their home and they know that there are projects they’re going to have to get done, but they’re just kind of waiting to see what’s going to happen in the macro environment.”

• "We experienced an increased rate of delinquencies within the credit card portfolio across all stages of age balances … the speed at which the increase occurred for us and the broader credit card industry since our Q1 earnings call was faster than planned.” – CFO Adrian V. Mitchell

• “Organised retail crime and theft in general is an increasingly serious issue impacting many retailers.” – CEO Lauren Hobart

CHINA

• Sudden rally in China stocks has traders scratching their heads (Bloomberg)
• China's rate caution shines light on $56tn banking system (FT)

ECONOMY

• Half a million US jobs at risk of vanishing in payroll revision (Bloomberg)
  
  

Deeper Dive: The State of Play

"The Short-Term Equity Sentiment signal rapidly crashed over the last 2 weeks, indicating a potential short-term technical bounce in the market is near; however, the Long-term Equity Sentiment signal is still in the process of rolling over," notes JPMorgan analysts.

The signal has hit levels not seen since October and May 2022. Both of which coincided with short-term bounces for the S&P 500. At the same time, a short-term technical bounce is ... well ... just a short-term technical bounce.

A separate note from Morgan Stanley says this risk-off mood will likely "persist for at least a few more weeks and possibly into the fall or winter if fundamentals deteriorate ... [we] look to the S&P 500 200-day moving average as minimum downside."

For context, the 200-day is about 4-5% below current levels.

Last year, the 10-year peaked at 4.3% in October (the S&P 500 is trading almost 25% higher than last October levels) before falling to around 3.3% by April 2023. So what happens from here if growth continues to surprise to the upside while the labour market remains tight?

For now, the likelihood of another 25 bp hike from the Fed in September sits at just 13%. However, the probability of a November hike is a little over 40%. For more guidance, we turn to Powell's comments at Jackson Hole on Thursday/Friday.