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US stocks sink on rising yields, ASX to fall - 04/10/23

Market Wrap

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  • 10 out of 11 sectors in the S&P 500 finished lower, with Consumer Discretionary, leading losses, down 2.59%, dragged by travel and leisure stocks. Utilities was the only sector that finished in the green, up 1.17% as renewable energy stocks rebounded from the recent sharp decline. 
  • The USD/JPY sharply retreated from pivotal resistance of just above 150 on BOJ’s intervention bets. The pair touched as low as 147.31 at a point before bouncing back to under 149. The drop happened within 15 minutes after the US JOLTS job openings were released, suggesting traders hugely bid on a BOJ foreign exchange intervention amid the resilient economic data, with 83,000 yen futures contracts traded, about 25 times of the average volume, according to Bloomberg.
  • Meta is considering charging an ad-free version of Facebook or Instagram in the EU, aiming to compensate for potential ad losses due to the EU regulator’s prohibition on using personal data for commercial use. The social platform giant was under pressure from the region’s regulations over its privacy law. The user charge will be EU €13 per month for smartphones, and EU€17 per month for desktops.
  • Crude oil snapped a three-day losing streak ahead of the OPEC+ meeting. The organization is expected to keep its current output cuts arrangement. Saudia and Russia both decided to extend production reductions to the end of the year.

 

Equities

An intensifying bond selloff sparked new losses on Wall Street, wiping out what was left of the Dow Jones Industrial Average's gains for the year and pushing the yields on U.S. Treasurys to fresh multiyear highs.

The losses were broad, with risky technology firms, rate-sensitive banks and real-estate owners and companies that rely on discretionary spending leading the way lower. Utility shares were the only industry segment in the S&P 500 to rise. They added 1.2%, bouncing off big losses Monday.

The Dow Jones Industrial Average shed about 1.3% and ended the session down 0.4% so far in 2023. The S&P 500 declined 1.4%, with more than 10% of the stocks in the index hitting new 52-week lows. The technology-skewed Nasdaq Composite fell 1.9%.

Besides luring yield-seeking investors away from dividend paying stocks, Treasury yields that are so comfortably above the rate inflation-so-called real yields-are likely to weigh heavily on companies' results and pressure their shares, said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers.

"If real interest rates continue to increase in the next weeks, we could see real damage in the equity markets," he said. "They will all suffer from the cost of capital."

Earlier Tuesday, Hong Kong's Hang Seng Index closed 2.7% lower after trading resumed following the National Day holiday, dragged by property stocks. The Hang Seng Mainland Properties Index fell 3.6%. Without significant property policies from Beijing, a "share price rally of developers, if any, will not be sustainable," Nomura analyst Jizhou Dong said. Mainland markets were closed for the Golden Week holiday.

Japan's Nikkei Stock Average lost 1.6%, weighed by energy and auto stocks as concerns about the scope of policy tightening by central banks and higher borrowing costs persisted.

Australia's S&P/ASX200 shed 1.3%, weighed by weakness in materials and energy stocks. Gold and oil shares posted some of the biggest drops as commodity prices retreated, under pressure partly from U.S.-dollar strength.

New Zealand's NZX-50 index settled 0.1% lower, despite a positive adjustment after the market closed. Several large caps weakened.

 

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Movers & Shakers

Broker Upgrades / Downgrades

(CAI) Calidus Resources Price Target Cut 29% to A$0.30/Share by Euroz Hartleys
(CPU) Computershare Price Target Raised 13% to A$27.22/Share by Jefferies
(CRN) Coronado Global Resources Price Target Cut 1.9% to A$2.55/Share by Jefferies
(DEG) De Grey Mining Price Target Cut 14% to A$1.50/Share by UBS
​(DEG) De Grey Mining Price Target Cut 10% to A$1.80/Share by Macquarie
(PMV) Premier Investments Price Target Raised 2.2% to A$23.50/Share by UBS
(RHC) Ramsay Health Care Price Target Raised 8.1% to A$53.60/Share by Morgan Stanley

 

Commodities

Oil futures ended higher, a day after a three-session decline pulled prices to roughly three-week lows.

West Texas Intermediate crude for November delivery rose 0.5% to settle at $89.23 a barrel on the New York Mercantile Exchange. December Brent crude added 0.2% at $90.92 a barrel on ICE Futures Europe.

The path of least resistance is still higher for oil right now "although the countertrend pullback is not necessarily over just yet," said Tyler Richey, co-editor at Sevens Report Research.

"Eventually it will be time to 'sell the recession news' in oil as demand tends to fall off sharply amid the onset of an economic downturn, but the evidence does not definitively suggest we are at that point just yet," he said. Another run towards $100 is "a possibility depending on the news flow and economic data trends in the near term."

Gold prices settled lower, with the prospect of further monetary tightening from central banks adding pressure to commodity markets.

Front month Comex gold futures for October delivery lost 0.3% to settle at $1824.60 a troy ounce.

"Interest rates continue to climb higher and bond markets are pricing even odds that we'll get another Fed hike this year," Peak Trading Research said. "This supports the strong U.S. dollar."

 


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