ASX 200 to tumble + Why Goldman Sachs is bearish on miners

ASX 200 futures are trading 90 points lower, down -1.28% as of 8:30 am AEST.

S&P 500 SESSION CHART

MARKETS

• S&P 500 lower but closed well above session lows of -1.4%
• US 2-Year Treasury yield briefly hits 5.0% on strong economic data
• US 2-Year Treasury yield returns to levels seen before the March banking crisis
• Fed minutes reveal divisions over decision to pause in June (FT)
• NY Fed President Williams says more work needed to reach inflation target (Bloomberg)
• Dallas Fed Logan says a June rate hike would have been appropriate (Reuters)
• Traders lift Bank of England hiking bets to 6.5% (Bloomberg)
• OPEC+ upbeat over 2024 oil demand outlook despite slowdown (Reuters)

STOCKS

• Exxon flags US$4bn earnings hit from lower natural gas prices (Bloomberg)
• Bank of America plans to increase its quarterly dividend by 9% from Q3 (Reuters)
• Meta launches Twitter-rival with Threads, gaining 10m sign ups in a few hours (FT)
• Affirm shares tumbled 10% after Piper Sandler downgraded the stock to Underweight, citing headwinds from higher rates and the resumption of student loan payments

GEOPOLITICS

• US Treasury Secretary Yellen starts China trip, seeks to usher in more talks (Bloomberg)
• Washington opposes China's export controls on metals, will consult allies (Reuters)

ECONOMY

• US unemployment data due tonight – Unemployment rate expected to tick down 0.1 percentage point to 3.6% and a 225,000 gain in June nonfarm payrolls
• US private payrolls beat expectations in June, up 497k vs 250k expected (Reuters)
• US service sector picks up in June, sixth-straight month of expansion (Reuters)
• German factory orders jump but underlying trend weak (Bloomberg)
• Major US autos report big rise in new car sales over Q2 (NY Times)
• RBA to raise cash rate to 4.35% in August but economists split on rate peak (Reuters)

DEEPER DIVE

Charts of the Week

Chris is away today so I'll be taking care of Charts of the Week.

The ASX 200 sold off rather aggressively on Thursday, led by miners and banks. This selling is expected to continue amid surging bond yields and a heavy overnight session.

We saw similar price action about a month ago, where the Index rallied 3.6% over seven sessions, only to give it all back in the following four. The next few days will provide key feedback as to whether or not this pullback can stabilise.

The recent pick up in volatility as well as lofty bullish sentiment, rising bond yields and diverging participation creates a rather difficult environment for traders. In today's Charts of the Week, I'll highlight a few examples.

Patriot Battery Metals (ASX: PMT) has been consolidating around the $1.80 level in recent weeks. The stock briefly rallied 13.7% to $2.07 on Wednesday, 5 June after announcing upbeat metallurgical testwork results but finished the session just 2.5% higher. It then sold off 5.4% on Thursday.

If you tried buying around that $1.95 to $2.0 level. You'd be down around 10%.

Lycopodium (ASX: LYL) is a mining, infrastructure and industrials services provider. Since July 2022, the stock has been doing either one of two things. Either trending higher or taking a breather around the 20-day moving average. It's pulling back into the 50-day (green) and this is where you have to wonder, can it still hold up?

Goldman's take on miners: June Quarter and FY24 preview

Goldman Sachs previews June quarter production results for ASX-listed miners and also takes a look at FY24 guidance expectations. Here are the key takeaways:

• Challenging March quarter: 13 of the 14 mining companies under Goldman's coverage missed production forecasts in the March quarter.
• June quarter expectations: "We expect ongoing mining productivity and cost pressures to have continued in the June Q. We see potential negative surprises for AWC, SFR, MIN, & CIA (vs. VA cons), and positive surprises for CRN, ILU and LYC."
• FY24 expectations: Analysts sit below consensus expectations for production and above for capex/opex for most companies but "especially for FMG, SFR, S32, WHC, LYC, NHC and CIA."
• Why so bearish: "Our view is that ongoing labour and equipment cost pressures will continue to weigh on performance of operating assets and growth project capex."
• Commodity outlook: "The GS commodity team recently downgraded Fe and base metals, and we maintain a cautious view on Chinese and developed market demand and are positive on only copper, met coal and mineral sands into 2H."
• Buy-rated stocks: Goldman is buy rated on RIO (on conviction list), ILU (also on conviction list) as well as BHP, S32, CRN, CIA, BSL and SGM.
• Sell-rated stocks: While sell rated on FMG, NHC, AWC, SFR and MIN.