ASX 200 to fall, S&P 500 gives back early strength + US inflation recap

MARKETS

• S&P 500 +0.03%, Nasdaq +0.12%, Dow +0.15%, Russell 2000 -0.42%
• S&P 500 finished higher but well off session highs of 1.34%
• In-line July CPI prints continue to support the disinflation and peak Fed narratives, optimism has been offset by concerns about Treasury supply, upward pressure on energy prices, stretched long positioning, capitulation of shorts, seasonality headwinds and dampened AI optimism
• JP Morgan strategists expresses optimism for stocks after CPI (Bloomberg)
• San Francisco Fed Daly said the CPI report does not signal victory over inflation and it would be premature to say that the Fed has done enough on rates (Reuters)
• JPMorgan says China’s deflation concerns could be good news for global disinflation, estimating a -70 bp spillover to global (ex-China) core goods inflation (NYTimes)
• US 10-year auction sees decent demand despite yield under 4.0% (Bloomberg)
• US 20-year auction has higher yields than 30-year counterparts (Bloomberg)
• Global Funds, Japan banks have big opposing bets on JGB futures (Bloomberg)

STOCKS

• Woodside and Chevron in talks with workers to avert Australian strike that threatens 10% of global supplies (Bloomberg)
• Virgin Galactic successfully launches its second commercial spaceflight with three customers on board (CNBC)
• Ford hope to grow per vehicle revenue by $4,000 to $5,000 by 2026 through more and better software (Reuters)

EARNINGS

• Disney posts mixed results on streaming woes, restructuring costs (CNBC)
• Alibaba reports solid earnings beat, revenue rises most since Sept 2021 (CNBC)

ECONOMY

• US headline and core inflation rose 0.2% MoM in-line with expectations (Bloomberg)
• India central bank holds rates steady but eyes food price spike, while signalling tighter policy (Reuters)
• Bulging warehouses mean lean times for longer for US, European companies (Reuters)
• Japan wholesale inflation falls for seventh straight month (Reuters)
• Rice soars to highest since 2008 on rising threats to supply (Bloomberg)
• Grain exports back in Russia's sights in Ukraine war (FT)
  
  

DEEPER DIVE

US Inflation Recap

Core inflation eased to 4.7% from 4.8% in June, below expectations of 4.8% and the lowest annual core print since October 2021.

Overall, there weren't many surprises in the release and confirms disinflationary trends and still-strong shelter inflation.

• Food index rose 0.2% month-on-month
• Energy prices up 0.1% month-on-month after a sharp June increase due to higher gasoline prices
• Shelter was the largest driver, up 0.4% month-on-month
• Airline fares fell 8.1%, down for a fourth consecutive month
• Used vehicles component down 1.3% after a 0.5% drop in June

Inflation Base Effects

As Bespoke puts it "because of base effects, it would take a negative MoM print this morning for this streak of monthly declines in YoY CPI to continue. Likely going to see the YoY number float between 3-4% for the next 4-5 months."

What we don't want to see is a re-acceleration like the late 70s.

Charts of the Week

ASX 200 - Home on the range

You will forgive my doodling on the chart above but it is intended to show just how many levels and layers of support and resistance there are in play right now – and just how sideways the action on the XJO has been for so long. Coming up on nine months, the index really hasn’t traveled very far and is almost in exactly the same position it was at the start of December last year. At least there are plenty of stocks on the move.

James Hardie (ASX: JHX) - We have lift-off

I covered this on on Friday, 21 July, noting the neckline that sat above $41 and commented that “if this level can be cleared, a pathway into $50 could be opened up”. Since that update, neckline was cleared and then the price action came back to retest and confirm the breakout level as support. Since that retest, we’ve seen a sharp move higher, up to $47 at yesterday’s close with the move coming on a big volume spike. Well done to anyone who stayed with it.

Worley (ASX: WOR) - Building power

Worley has been a favourite of fundies of late, particular those keen on energy transition. Being a mining services contractor, Worley sells the ‘picks and shovels’ to the mining industry and has increasingly winning business as existing miners go green and new greener mines and operations come online – so it’s win-win for Worley. That interest has been reflected in the share price in recent months, as can be seen on the chart above. We see uptrend support, solid volumes, and a recent break above and retest of the $17 level – which should act now as a base of support.

KEY EVENTS