AM Market Digest: December 2, 2021

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 4^th 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