ASX 200 futures flat, oil rallies to 9-month high + JPMorgan's CPI game plan The Morning Wrap ASX 200 futures are trading 4 points higher, up 0.05% as of 8:10 am AEST.
S&P 500 SESSION CHART
S&P 500 fades from session highs to close at worst levels (Source: TradingView) MARKETS
S&P 500 -0.70%, Nasdaq -1.17%, Dow -0.54%, Russell 2000 -0.85%
S&P 500 finished lower after selling off in the last hour of trade from breakeven levels
WTI crude settles 1.7% higher at a 9-month high of US$84.2 a barrel
Goldman Sachs said record high demand and Saudi supply cuts shifts the market back into deficit
European natural gas prices jump 40% over fears around Australia supply (FT)
Goldman Sachs said June and July short-covering was the largest over a two-month period in the past seven years among its hedge fund clients
Treasury auctions off to good start, strong demand for 3-year notes (Bloomberg)
Hedge funds bail on record net short positions (Reuters)
Bets ramp up on yield curves returning to normal as slowing economies force central banks to cut rates (Reuters)
STOCKS
US banks loan losses hit US$19bn as borrowers feel rate rise pain (FT)
KKR buys up prime auto loans as regional lenders shed assets (Bloomberg)
WeWork raises "substantial doubt" about its ability to continue operating (Bloomberg)
Verizon hikes prices for third time in two years as wireless customer growth slows (Bloomberg)
EARNINGS
Mostly minor earnings results today.
Rivian (-9.9%): Smaller-than-expected loss but analysts flagged a “long path to profitability,” plus steeper competition and a depletion of free cash flow (CNBC)
Lyft (-10.0%): Revenue in-line, earnings beat but management flagged it will double down on competitive pricing to catch up with Uber (Reuters)
Roblox (-21.9%): Missed estimates on both top and bottom line (CNBC)
Upstart (-34.2%): Light Q3 guidance that missed both revenue and earnings estimates
ECONOMY
China CPI inflation hits negative for first time since early 2021 (Bloomberg)
China's uneven recovery deepens worry for US luxury goods makers (Reuters)
Eurozone inflation expectations hit 13-year high (FT)
South Korea unemployment raterises to six-month high (Reuters)
DEEPER DIVE JPMorgan's Trading Scenarios for US CPI
This is a bit of a fun breakdown for how the S&P 500 might trade tonight. It provides some nice insights but typically wrong so read it with a pinch of salt. As reported by CNBC:
45% probability: CPI rises in-line with consensus estimates of 0.2% month-on-month. The S&P 500 rises 0.25% to 0.5%. "While this would be positive, it may be a move that is faded as the market shifts its focus to Jackson Hole (Aug 24-26) where it seeks to gain confirmation of the Fed's rate hike intentions."
25% probability: CPI up 0.1% to 0.2% and the S&P 500 climbs 1.0% to 1.5% following the print. This would see a "mission accomplished" outcome and potentially move forward rate cut expectations.
22.5% probability: CPI up 0.2% t o 0.4% which sees the S&P 500 fall 1.0% to 1.5% and dent the current disinflation narrative on Wall Street.
5% probability: CPI climbs 0.4% or more as a result of higher-than-expected auto prices and core inflation. "The market reaction here would drive bond yields higher, including the 10-year yield to a new 52-week high," and see the S&P 500 fall 1.75% to 2.0%.
2.5% probability: CPI falls below 0.1% and under this scenario, the S&P 500 climbs 1.5% to 2.0%.
The battle of the banks
Two banks dominated yesterday's reporting season headlines. One is the largest consumer bank in Australia and the other is, ironically, in a tussle with regulators to sell its banking operations to a much larger competitor. And if the share price reactions were anything to go by, it all came down to the dividend.
Commonwealth Bank (ASX: CBA)'s full year cash profits came bang in line with expectations. But it beat the consensus on dividend and earnings per share. In addition, it launched plans for yet another buyback. If it is completed, it will make $4 billion worth of shares that the Big Bank has bought back in just two years. No wonder that P/E ratio is so lofty! You can read more about the result on the Livewire website and hear fund manager Nathan Parkin's view about whether this is the CBA's "peak earnings" moment.
Commbank's 12-month price chart (Source: Market Index)
Meanwhile, another bank in Suncorp (ASX: SUN) also reported its full year results just weeks after regulators ruled that it cannot sell its retail operations to ANZ on competition grounds. In its result, it missed consensus estimates on cash earnings and profits but recorded double digit increases to insurance premia in both Australia and New Zealand. But the biggest miss was in its dividend. At just 60 cents per share, it's a long way from the 73 cents per share which the consensus had pencilled in. Net interest margins also increased by just 3 basis points. No wonder it wants to sell its bank and become a full-time insurance business!
Suncorp 12-month price chart (Source: Market Index) And speaking of results...
A note from Morgan Stanley caught my eye yesterday, talking about the potential read-through for AGL (ASX: AGL) and Origin Energy (ASX: ORG) earnings from the privately-held Energy Australia. To cut the long story short, Energy Australia lost 23,000 customers in the first half while commercial volumes fell significantly. But in spite of this, its EBITDA climbed from $26 million in H1 2022 to $91 million in H2 2022.
All this tells energy analyst Simon Lee (let me assure you, no relation to this writer) that strong revenue growth is coming for all of the major energy retailers.
AGL reports its earnings today (analysts are expecting profits of $267 million and a $0.29 per share dividend) and Origin Energy reports its results on August 17th. Both results will be covered here on Livewire Markets and Market Index.
(20min delay)