Good Morning.
Overnight Markets: It was a weird session; we had a bit of a bounce early on in the US session with the DOW up about 100-150 points, but that reversed around midnight (Aus time) with an everything sell-off again. Mainly dragged down by interest rate-sensitive mega caps on Nasdaq. Here are the closing indices:
- SPX: -0.79%
- Dow: -0.84%
- Nas: -1.09%
Yields were the main driver here, as they crept back touching those highs from October 2022. I mentioned when ES was up at 4600 (a couple of weeks ago in the Morning wrap) that this is the risk, and there is serious room on the downside - a solid 200-400 points could get wiped in any decent rate of change in yields. So, we still see that risk in play! Any decent shock to the system and equities will drop significantly. The risk is there.
Commodities and Macro: As mentioned above, early in the session, we saw some USD weakness. We got stimulus news out of China also, giving Iron ore a very large pop, pushing it up about 4.5% late in the afternoon session, then up another 3.8% last night. US names and Iron ore-related ADRs BHP, RIO, and VALE all closed in the green in a red market, up 1.1%, 2.06%, and 1.4%, respectively. I suspect this would have been double these figures had the market held up overnight, but index flows would have put a bit of a damper on that theme. Nonetheless, Iron ore's push won't go unnoticed by the market today. Gold and Silver also tried to push after our close, but USD pushed gold back down (again, driven by yields), and Silver also sold off from those highs back to small gains from our Aus close, with Gold closing down about $4 USD from Aus close. Lithium Futures remained stable overnight at 202, BUT we have the Fast Markets weekly and fortnightly Spot prints - and they are Ugly (as expected and continuously flagged in this morning wrap):
- Hydroxide weekly Spot: -8.7%
- Lithium Carbonate: -28.09%
- SC6 Spodumene: -2.9% to $3,350 USD/t (Platts have it at $3,000) Lithium names have been sold off hard, so not too sure how much of this wasn't expected.
Uranium is up 70c overnight so keeping a close eye on Uranium names today. BOE been a clear leader. Hard with overall market weakness as they can also be played as market proxies, so- makes them a bit hard, but Uranium is UP so risk to the top side in names if they don't go up early and the market holds.
Base Metals:
Again, with the USD weakness early, we saw Nickel, Copper, and Aluminium all bounce hard (with the China Stimulus news), but all closing off their highs. Ni +2.56%, Cu +0.82%, Al +Flat (after being up about 1.5%). Tin was up 0.93%.
Locally:
Aus Futures are sitting -28 points (-0.39%), so a negative lead-in from there. With a hold-up in Commodities, it makes the day feel choppy - markets down, commodities up, Aus commodity names might be confused, lol. We saw CXO come out with a Cap raise and SPP yesterday, opening down nearly 40c and trading pretty tightly around there, between 41 and 42 most of the day. With a bit of a bounce off lows in peers... again - head-in-the-sand dip buying. But it did feel like more sustained early selling was done yesterday, so some downside follow-through intraday might be coming into the fray! With US futures re-open this morning with a continuation early to the downside, that might add to that narrative. Not too sure where to look given recent sell-offs. Likely, lithium would be my target if the market speeds up - developers, etc.
Data:
No local data, but I'll keep an ear out for any more news out of China. Evergrande filed for bankruptcy last night as well, so there are more headwinds on the China forefront. Banking and REITs are most sensitive if that news takes hold, although one would have expected most pundits to have been all over this; it's been a while coming. At 4 pm Aus time, we have UK retail sales, and that's about it... Nothing too serious. The Jackson Hole Symposium is next week, so markets might start thinking about that soon as well...
Anyway, have a great day, everyone.