• The ASX is set to open sharply lower on Thursday
  • Wall Street plunged after US credit downgrade by Fitch Ratings
  • JP Morgan shares its views for the second half of the year

 

The ASX 200 is set to open lower on Thursday as the US S&P 500 index had its worst day since April. At 8am AEST, the ASX 200 index futures was pointing down by -0.8%.

Overnight, Wall Street fell across the board following the downgrade of US sovereign credit from AAA to AA+ by Fitch Ratings.

The S&P 500 fell by -1.38%, the blue chips Dow Jones by -0.98% and tech heavy Nasdaq by -2.17%.

Fitch’s downgrade pummelled sentiment in equities, pushing the VIX (also called the fear index) higher by more than 15%.

It also sparked a selloff in Treasuries that sent 10-year yields to the highest levels since November (bond prices fall when yields rise).

JP Morgan chief Jamie Dimon however dismissed Fitch’s decision, calling it ‘ridiculous’.

“It doesn’t really matter that much, because it’s the market, not rating agencies, that determines borrowing costs,” Dimon told CNBC.

“To have them be triple-A and not America is kind of ridiculous. It’s still the most prosperous nation on the planet, it’s the most secure nation on the planet.”

Rate-sensitive megacap stocks, including Tesla, Nvidia, Meta Platforms and Apple, all tumbled.

Qualcomm, the largest maker of smartphone chips, also fell 2% after saying that demand for mobile devices remains weak.

The AUD dollar meanwhile got hammered further, now trading at US65.4c, following the RBA’s decision to keep rates steady on Monday.

 

JP Morgan’s second half prediction

Absent any Fed easing, JP Morgan expects to see a more challenging macro backdrop for stocks in the second half of 2023.

“Given that multiple expansion has been the main driver of performance year to date, we see unattractive risk-reward for equities…” noted Dubravko Lakos-Bujas, head of US Equity and Quantitative Strategy at JP Morgan.

Lakos-Bujas said that business cycle will further decelerate in the second half, with the onset of a US recession likely in Q4 of 2023 or Q1 of 2024.

“What’s more, consumers are starting to show signs of weakness, and there is a risk that liquidity and credit conditions could tighten in the coming months.”

The picture is similarly gloomy for equity markets elsewhere around the globe.

“We believe the view that the worst of the pressures is behind us could  be proven wrong, as historically, the impact of monetary tightening works with a lag,” he added.

In the commodities market, recessionary fears are prompting skittish investors to take cover, reducing net exposure across global commodity futures to the lowest levels in real terms since January 2019.

“In this environment of high uncertainty, it’s hard to hold a constructive view on a heavily cyclical asset like commodities,” said Natasha Kaneva, Head of Global Commodities Strategy also at JP Morgan.

Demand for oil however is running above expectations, and Brent crude is expected to hit US$85/bbl by the end of 2023.

“But oil prices should ease in 2024 as stocks gradually increase,” said Kaneva.

 

In other markets

Overnight, gold fell -0.5% to US$1,934.91 an ounce as US bond yields rose to a nine-month high.

Crude prices fell by around -2%, with WTI now trading at US$79.65 a barrel.

Iron ore 62% fe slipped almost -1% to $US107.41/ a tonne.

Bitcoin meanwhile was modestly lower by -0.02% in the last 24 hours to US$29,194.

 

5 ASX small caps to watch today

Janus Henderson (ASX:JHG)
The fundie says its Q2 assets under management (AUM) increased by 4% compared to Q1 to US$322.1 billion. The funds reported US$0.5 billion of net outflows in Q2, compared to US$7.8 billion net outflows in the pcp. The board has declared a quarterly dividend of US$0.39 per share.

DevEx Resources (ASX:DEV)
DevEx says it will sharpen its uranium and rare earths exploration focus after selling its NSW copper-gold portfolio for $7.5m to ASX-listed explorer Lachlan Star (ASX: LSA). DevEx will receive fully paid ordinary shares in Lachlan Star with a value of $7.5 million plus a 2% net smelter royalty.

The Environmental Group (ASX:EGL)
EGL announced its strategic entry into the supply of air filtration systems in the solar energy industry. The company has designed a unique air filtration system to significantly reduce particulate matter entering solar farm inverters. EGL has now signed its first contract to supply air filtration systems into the solar energy market for $2.1 million.

Carawine Resources (ASX:CWX)
Drilling has commenced to test the source of three conductors identified from moving-loop electromagnetic (MLEM) surveys at Carawine’s Big Bang tenement in the Central Fraser Range region of WA. A total of 950m of drilling is planned in three holes, one per conductor, with the program expected to take approximately three weeks to complete.

EQ Resources (ASX:EQR)
EQR announced a new monthly concentrate production record at its Mt Carbine Tungsten Mine in Far North Queensland. Mt Carbine produced 110 tonnes of 50% tungsten concentrate, nearly twice the June monthly production, driven by processing of first primary ore from the Andy White open pit.

 

At Stockhead we tell it like it is. While DevEx Resources and Carawine Resources are Stockhead advertisers, they did not sponsor this article.

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