US stocks cap their worst day of 2023, bond yields rally, ASX 200 set to fall
ASX 200 futures are trading 45 points lower, down -0.62% as of 8:45 am AEDT.
Major US benchmarks cap their worst day of 2023, bond yields rise on prospects of higher interest rates, Home Depot and Walmart paint a gloomy outlook for the consumer, RBA considers a 50 bp hike and a closer look at iron ore and lithium markets.
S&P 500 Session Chart
- Major US benchmarks sold off as bond yields rallied, an uptick in the VIX and bleak commentary from consumer heavyweights Walmart and Home Depot
- Peak rates currently priced at approximately 5.3%, up almost 50 bps from recent lows
- FOMC meeting tomorrow, preview highlights: More relentless hawkish messaging, elevated inflation readings that counteract the disinflation narrative
- Morgan Stanley strategist says S&P 500 could drop 26% in months (Bloomberg)
- Bank of America and JPMorgan see European rally will fizzle out soon (Bloomberg)
- Microsoft to address EU concerns to save $69bn Activision Blizzard takeover (Bloomberg)
- Walmart sees lower 2023 performance in time of economic uncertainty (Reuters)
- “I am frustrated by pricing. I am sure our customers are too. But that is the environment that we are living in ... We do not see our elasticities changing from the first half of the year. ” - CEO Cagny Conf
- A stressed consumer: "The consumer is still very pressured. And if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods. And so that’s why we take a pretty cautious outlook on the rest of the year.” - CFO John David Rainey
- Inflation still a big problem: "Food inflation has been the most stubborn of all the categories. We were in mid-double digits in Q3. In Q4, it hasn't come down all that much, a little bit I guess...so this looks to be a little bit higher than what we were expecting to went into the year.”
- No growth: "So we work from kind of a fundamental assumption that consumer spending will be flat. We know that our market has seen a gradual shift that reflects the broader shift in the economy, in consumer spending from goods to services.” - CFO Richard McPhail
- No incentive for home improvement: Home Depot customers are homeowners and “over 90% of US homeowners either own their homes outright or have fixed-rate mortgages under 5%. And so that incentive to sell and move to a higher-rate mortgage just isn’t there.”
- Canada's inflation slows in January, making rate pause more likely (Reuters)
- Services sector boosts Eurozone business growth to a 9-month high (Reuters)
- UK's flash PMI beats expectations while inflation eases (Reuters)
- Japan manufacturing contracts at fastest pace in almost three years (Reuters)
- Increased traffic congestion in China indicates accelerated economic activity (Bloomberg)
- Goldman sees Fed hiking by further 75bp on stronger growth (Bloomberg)
- BOJ's Kuroda says wage growth to accelerate on tight job market (Reuters)
- RBA debated hiking cash rate by 50 bp at February meeting (Bloomberg)
Talking Technicals: Yields and VIX
The VIX was trading around the bottom trendline but now it's starting to push.
Sectors to Watch
Iron Ore: Fortescue, UBS and China's pilot scheme
Interestingly, Chinese listed property developers experienced a broad-based rally on Tuesday after the government launched a pilot scheme for real estate private equity investment funds. In summary:
- Pilot scheme of at least 30 million yuan in its first round
- Will invest in residential and commercial housing as well as infrastructure projects
- Encourages participate by foreign investors through an inbound investment programme
Lithium: Prices fall on weak demand
"Downstream demand is weak at the moment as NEV production is slowing down, everybody has sufficient inventory, hence the lack of buying interest."
- Trading ex-div: Domain Holdings (DHG) – $0.02, Commonwealth Bank of Australia (CBA) – $2.10, GQG Partners (GQG) – $0.019, SG Fleet Group (SGF) – $0.089, Netwealth Group (NWL) – $0.11, AGL Energy (AGL) – $0.08
- Dividends paid: None
- Listing: None
- 11:30 am: Australia Construction Work Done
- 12:30 pm: Bank of Japan Tamura Speech
- 8:00 pm: Germany Ifo Business Climate Index
- 6:00 am: FOMC Minutes
Today's Morning Wrap was written by Kerry Sun.
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Livewire and Market Index's pre-opening bell news and analysis wrap. Available weekday mornings and written by Chris Conway, Kerry Sun, and Hans Lee.
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