AM AM AM

AM Market Digest: December 2, 2021

Equities 5 minutes to read
jessica-amir-400x400 white BG
Jessica Amir

Market Strategist

Summary:  It seems markets might not be on track for a cheery traditionally bullish December, if the first two days of trade are to go by, they have been wild and ugly days. The benchmark US index, had its worst two day back since October 2020 amid Omicron cases being detected in the US, while South Africa reported doubling of virus cases in the last 24 hours, plus traders are also pricing in interest rate hikes in the New Year. In Australia the share market is a risk of a possible correction if the iron ore rally does not continue. Speaking of, the iron ore price near nears its 50 DMA for the first time since 28 October on news that iron ore demand is improving. While the Aussie dollar found support and bounced off its 1 year low on better than expected GPD data. Here is what to watch today and potential trading considerations.


Markets and what you need to know

Equites:

In the US the major indices fell:

  • Dow Jones lost 1.3%
  • S&P500 lost 1.2%
  • Nasdaq down 1.8%

In Europe the major indices were green and gold:

  • Euro Stoxx 50 rose 2.9%,
  • London’s FTSE 100 gained 1.6%.
  • Germany’s DAX rose 2.5%

Most Asian markets rallied:

  • Japan’s Nikkei rose 0.4%
  • Hong Kong’s Hang Seng up 0.8%
  • China’s CSI 300 rose 0.2%
  • Australia’s ASX200 fell 0.2%

Futures

  • ASX200 hints of a 1% fall today (futures at 7.59am)
  • Japan’s Nikkei touted to fall 2.6% (futures at 8.00am)

Commodities:

  • Iron ore fell 0.7% but has gained a total of 6.8% this week
  • Gold rises 0.4%, rebounding from a three-week low to $1,781.90
  • WTI crude fell 0.9%
  • Copper fell 1.4%

Currencies:

  • Aussie dollar bounced up off its 12-month low  - but now trades at 0.2% lower at 0.7112 US
  • EUR/USD  continues to bounce off 17-month lows and is attempting to form a five-day uptrend (most traded currency pair)
  • USD/JPY  - the currency pair viewed as a safe haven has fallen for 4th session

Bonds:

  • U.S. 10-year yield fell 1.0bps to 1.4358%
  • Australia 3-year bond yield rose 6bps to 0.93%
  • Australia 10-year bond yield rose 4bps to 1.73%

Considerations for today and what to watch

Company News:

  • Aristocrat (ALL AU): Still Sees 2Q ‘22 Completion of Playtech Deal. Aristocrat still expects to complete the acquisition as planned in 2Q of calendar year 2022
  • BHP (BHP AU): S&P’s ‘A’ rating remains on watch
  • Cleanaway (CWY AU): ACCC’s Decision Date on Suez Assets Deferred
  • Qantas (QAN AU): Qantas Readies Superjumbos Entirely for Flights Paid With PointsIn 

Iron ore:

  • The Iron ore price holds above $100. And has moved closer to its 50-day moving average for the first time since 28 October 2021.
  • What you need to know, that’s new:
    • China aims to boost domestic iron ore production by 30% in five years and ramp up investments in overseas mines and strengthen scrap steel recycling -  to break its dependency on Australia. China currently imports 80% of iron ore from Australia and Brazil. And China says this is a risk.
    • Australian miners are skeptical given China’s high production costs and lack of quality iron ore. China's own officials also admitted there was a lack of untapped high-quality iron ore resources globally.
  • At the same time – let’s be balanced
    • Recall Brazilian iron ore giant, Vale lowered its production outlook for year
    • Rio sees demand stabilizing in 2022 expecting China to take action to avoid a property hard land.
    • Iron ore shipments from Australia rose week on week - with BHP and Rio increasing exports. All in all (shipments from Port Hedland totaled 17 mills tonnes in week to November 19, up from 16.4 million tonnes for prior week.
    • So we need to watch if iron ore supply will be coming out of market (from Vale), and demand continues to pick up in China – for trading consider watch BHP, Rio and FMG.
  • From a technical perspective for iron ore:
  • the 15 day moving average is nearing crossing the 30 day moving average. If buying in iron ore continues and we continue to see positive developments, we could see a technical trigger event (a golden cross), that often results in a bull run forming whereby quant traders/investors typically buy positions when such events occur.

Technical data – who’s shorting what stocks on the ASX:

  • AUB Group, Transurban, Altium had the largest percentage increase in total short positions, according to data compiled by Bloomberg
  • Inghams Group, South32, Bluescope had largest decrease in short positions

Volatility continues:

  • As mentioned yesterday, some investment managers are taking money off the table and increasing their hedging given there are so many unknowns driving short term direction in markets right now  - as news is dictating market moves. To minimize volatility you could consider possibly hedging for the next couple of weeks; with considering currency options which is what we are seeing some clients trade at the moment (with clients buying USDJPY  - the dollar yen).

Australia market at risk of a correction

  • The ASX200 is now 6% from the all-time high. So if the iron ore rally doesn’t continue, the market is at risk of another \ pull back. If you wanted to hedge your portfolio, if you are exposed to the broad Aussie market, you could consider shorting the XJO or look at buying a bear ETF. Such instruments include BEAR or BBOZ on the ASX. Or if you took a view that the US market would fall, you could do the same, short the S&P500, or look at buying a bear US ETF like BBUS.

Australian Economic news to watch today :

  • International trade data is out at 11.30am for Oct: Total International Trade Balance is expected to narrow to A$11.2b, from A$12.2b, as Exports month on month are expected to have fallen again by 1%. (the prior drop was 6%). Meanwhile Imports MoM are estimates to have risen 2%.
  • Home loan data is out at 11.30am for Oct: Home Loans Value MoM, are expected to have to rise 1.5%, and Investor Loan Value MoM, is are expected to have surged 6.0%, following last months 1.4% jump.

What else?

  • OPEC is in the midst of a two-day meeting. Ministers are going to make a decision on whether to increase output by 400,000 b/d in January or take a pause. However the market is thinking production cuts will likely be announced, which could cause a rally in oil.  

Australian analyst rating changes to consider:

  • CNU NZ: Chorus Raised to Neutral at Jarden Securities; PT NZ$6.45
  • FMG AU: Fortescue Rated New Overweight at Barrenjoey; PT A$20
  • REP AU: RAM Essential Services Rated New Outperform at Credit Suisse
  • SPG NZ: Stride Property Raised to Overweight at Jarden Securities
  • WOR AU: Worley Raised to Overweight at Morgan Stanley; PT A$12

Ex-Dividends today on ASX: 

  • Perseus Mining, Pendal Group, Technology One, F&P Healthcare, ALS

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.