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ASX to drop, US stocks fall as yields climb - 17/08/23

Market Wrap

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  • 10 out of 11 sectors finished lower in the S&P 500, with Consumer Discretionary, Communication Services, and Real Estate, leading losses, down 1.27%, 1.21%, and 1.20%, respectively. Utilities is the only sector that ended in the green, up 0.46%.
  • Tesla cut prices further in China amid fierce competition and weak demands. The EV maker slashed prices of Model S and Model X cars by 54,000 yuan and 62,000 yuan, respectively. The price cuts may further press on its profit after reporting the lowest margin in the second quarter.
  • The Chinese tech giant, Tencent, reported a surge in profit in the second quarter due to a surge in its advertising business. But the pace of growth missed the market’s expectations. Tencent’s revenue was 149.21 billion yuan (US$20.46 billion), lower than an expected 151.73 billion yuan, up 11% year on year. Profit attributable to equity holders is 26.17 billion yuan, short of an estimated 33.42 billion yuan, but surging 42% from a year ago. Tencent’s gaming division sees tepid recovery due to regulatory strains. The company also said it would launch its proprietary foundational AI model later this year. 
  • The British Pound strengthened following cooling inflation data in the UK. The country’s July CPI printed at 6.8%, in line with expectations, but core CPI stayed unchanged at 6.9%, higher than the consensus of 6.8%, which could promote the BOE to continue its hiking cycle.
  • WTI futures fell below $80 per barrel, extending the third-day losing streak. While China sees weakening demands due to the recent economic woes, the US oil producers are expected to accelerate outputs to fight for market shares amid OPEC+’s production cuts. Traders may re-assess demand and supply balances which caused the oil market’s pullback from the multi-week rally.
  • Coinbase’s share rose 3% before cutting gains after winning approval to offer crypto futures trading in the US. The crypto exchange can now offer bitcoin and ether futures to retail clients in the US. However, this did not offer a bullish push to the cryptocurrencies as Bitcoin fell below 29,000.

 

Equities

Stocks dipped and government-bond yields reached a 15-year high after minutes from the most recent Federal Reserve policy meeting showed central bankers are worried about a possible resurgence in inflation.

The S&P 500 fell 0.8%, the Dow Jones Industrial Average dropped about 0.5%, and the Nasdaq Composite Index fell 1.2%. All three indexes are down 2.2% or more so far in August. The 10-year Treasury yield settled at 4.258%, its highest close since June 2008.

Minutes of the Fed's July meeting said some officials thought the risks of raising rates too much versus too little "had become more two-sided, and it was important that the committee's decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening."

At the same time, officials still saw significant risks that inflation might not fall as much as they expect, which could require them to raise rates again this year, the minutes said.

In Asia, Japan's Nikkei Stock Average fell 1.5%, dragged by falls in trading houses and banks as concerns about higher borrowing costs cast a shadow over the economic outlook.

Chinese stocks ended lower as the market's mood continued to be weighed by the cooling economic recovery. Software makers and telecoms led the session's losses. However, property sector shares gained amid chatter over likely easing of purchasing curbs to check the sector's downward spiral. The benchmark Shanghai Composite Index dropped 0.8%, the Shenzhen Composite Index declined 0.95%, and the tech-heavy ChiNext Price Index lost 0.7%.

Hong Kong's benchmark Hang Seng Index dropped 1.4%.

Elsewhere, New Zealand's NZX-50 closed 0.5% lower as the country's central bank indicated that interest rates will need to stay high for some time.

And Australia's S&P/ASX 200 closed 1.5% lower, tumbling to its largest one-day loss in almost six weeks. Shares in 19 of the 20 largest companies finished in the red.

 

Opto Research

 

Movers & Shakers

Broker Upgrades/Downgrades

(EDV) Endeavour Price Target Cut 7.7% to A$6.00/Share by Jefferies
(MGR) Mirvac Price Target Raised 1.7% to A$2.34/Share by Jefferies
(NWL) Netwealth Price Target Cut 0.5% to A$14.95/Share by Jefferies
​(NWL) Netwealth Price Target Cut 1% to A$16.29/Share by Wilsons
(SWM) Seven West Media Price Target Cut 12% to A$0.38/Share by Jefferies
(TCL) Transurban Price Target Cut 0.6% to A$14.08/Share by Jefferies
 

Commodities

Oil futures fell for a third straight day, extending a pullback attributed to worries about China's economic outlook.

West Texas Intermediate for September delivery fell 2% to end at $79.38 a barrel on the New York Mercantile Exchange. October Brent, the global benchmark, dropped 1.7%, to settle at $83.45 a barrel on ICE Futures Europe.

Investors also weighed official data that showed a larger-than-expected drop in U.S. crude inventories last week. And a string of disappointing China data and worries about the country's property sector have sparked concern about demand from the world's second-largest oil consumer.

Gold futures fell for eighth consecutive session, settling at their lowest levels since July 6, as higher Treasury yields and a firm U.S. dollar kept the pressure on the yellow metal.

December gold slid 0.4% to settle at $1,928.30 per ounce on Comex. The yellow metal booked its longest losing streak since the nine-day streak ending March 10, 2017, according to Dow Jones Market Data.

       
      (All news & data sourced from Aspect Huntley / AFR / The Australian / Bloomberg / Reuters / CNBC / Wall Street Journal / Morningstar / OPTO / Trading Economics)ASX 


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