ASX 200 to fall, S&P 500 gives back early strength + JPMorgan scraps recession call

S&P 500 WEEKLY CHART

MARKETS

• S&P 500 -0.53%, Nasdaq -0.51%, Dow -0.43%, Russell 2000 -0.20%
• S&P 500 finished lower and sold off from session highs of 0.85%
• US Treasury yields sold off – The 10-year fell 14 bps to 4.04%
• WTI crude settled 1.1% higher, marking its sixth straight weekly
• Bullish focus points for the week: Macro surprise momentum remains elevated, peak Fed view remains intact, US earnings beat rate continues to run above 5-year average, upbeat tech results, labour market loosening but not crashing
• Bearish focus points for the week: Upward pressure on yields, Disinflation headwinds (hotter-than-expected US average hourly earning sand ISM services prices), stretched sentiment, underwhelming revenue beat rate, widening gap between S&P and Treasury yields
• US stocks stage big turnaround 2023 but doubts linger on inflation and higher-for-longer risks (FT)
• Treasury Department's upsized bill issuance threatens to choke the market and threaten vital sources of funding (Bloomberg)
• US 30 year Treasury bonds yields head for best week of the year (Bloomberg)
• BofA flow data shows clients turning cautious, fleeing equities on US recession risk but tech funds still see inflows (Bloomberg)
• Money market assets climb to fresh record, with rates above 5.0%, inflows primarily driven by cash moving into government funds (Bloomberg)
• Hedge funds lose more than US$6bn this year betting against cruise lines and hotels after underestimating US consumer and travel demand resilience (FT)
• Chinese deal activity in US has fallen to lowest level in almost two decades (FT)
• Retail traders piling back into meme stocks again (Bloomberg)

CENTRAL BANKS

• PBOC Governor Pan meets with property developers and pledges funding support (Bloomberg)
• RBA sees bigger hit to consumption, inflation returning to target in late 2025 (Bloomberg)
• BoE rate decision had something for everyone except for sterling; Bailey's medicine finally working (Reuters, FT)

STOCKS

• Earnings expected to grow in Q3 following three quarters of decline (Bloomberg)
• Apple hiring for dozens of roles to ramp up generative AI capabilities and adapt it for iPhones and iPads (FT)
• Lucid cuts EV prices amid heating competition in the EV market (Reuters)
• Lack of chip availability to cap AI growth (CNN Business)
• KKR in advanced talks to buy publishing company Simon & Schuster for US$1.65bn (Reuters)

EARNINGS

Approximately 84% of S&P 500 companies have now reported second quarter earnings. Of these, 79% have topped EPS estimates, above the 5-year average of 77% and the 10-year average of 73%.

• Amazon's revenue guidance beats forecasts amid AWS stabilisation (Bloomberg)
• Apple contending with weak iPhone demand (Reuters)
• Booking posts blowout Q2 earnings, travel demand remains strong (CNBC)
• Block shares tumble despite Q2 beat and guidance upgrade (Reuters)
• Berkshire Hathaway's on-hand cash nears $150bn, operating earnings rise 7% (CNBC)

ECONOMY

• US July non-farm payrolls up 187,000 vs. 200,000 expected, lowest since December 2020 but wage gains remain strong (Reuters)
• US unemployment down 0.1 percentage points to 3.5%, better than consensus 3.6% and annualised earnings up 4.4% vs. 4.2% consensus (Bloomberg)
• German factory orders unexpectedly jump to levels not seen since 2020 (Bloomberg)
• Fitch's downgrade shrinks no of AAA-rated nations, underscoring budget deterioration in world's biggest economies (Bloomberg)
  
  

DEEPER DIVE

JPMorgan backs off recession call

JPMorgan's Michael Feroli ditched his forecast for a US recession in 2023, with the view that:

• Recession risks remain elevated for next year but the base case is for 'modest, sub-par growth'
• If inflation doesn't continue to ease, more Fed hikes will come, which will raise the odds of a downturn
• "Waning post-pandemic disruptions and waxing supply-side development suggests upside risks as well"

The note came out at 1:40 pm ET and the S&P 500 started to reverse its 0.85% rally at 1:45 pm AT – Reflecting one of those 'good news is bad news' situations.

Sectors to Watch

The ASX 200 is expected to fall on Monday after the weak lead from Wall Street (where Tech, Utilities and Staples led to the downside and Discretionary, Energy and Materials outperformed on a relative basis). Most sectors and ETFs were very choppy overnight, even the ones that managed to finish green. We'll recap some of the outperformers below.

VanEck Gold Miners (+0.96%): The pullback in bond yields and weaker US dollar supported a bounce for gold miners overnight. Though, the ETF is bouncing from a near 17-month low (aka no man's land).

VanEck Rare Earths/Strategic Metals ETF (+1.13%): The ETF is up only 4% year-to-date (from a peak return of almost 30% in February). It faded from session highs of 2.1% overnight.

Global X Uranium ETF (+1.18%): The price action for uranium was more positive overnight as uranium prices rose to US$56.2/lb and no far off recent 14-month highs of US$57.8. Utilities across the US and Europe are taking precautionary measures against Russian supply risks due to geopolitical tensions. In addition, political turmoil in Niger has raised concerns that the country will halt uranium exports to its key consumer France.