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AM Market Digest Thur 9 Dec; Risk on and Santa rally switch on

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Jessica Amir

Australian Market Strategist

Summary:  The risk and Santa rally switch turn on, the Aussie share market looks bullish from a technical perspective, while the benchmark index, top 500 stocks, look toppy and the VIX has fallen from its 12 month high and the chart suggests VIX could fall again. Commodity currencies like the AUD are back in vogue, while the safe haven USDJPY reached a key point in the road. Of course CPI data on Friday and the Fed Reserves meeting next week could rock the boat or push equity markets higher. Here is what to watch now.


Well well well, the Santa rally could potentially come if this good news flow continues. So that do we know now and what do we need to watch ahead?

Australian shares (ASX200) moved higher for four straight days to Wednesday, rising above the 50 day moving average, while the technical forward indicator, the MACD, suggest the market could extend this rally.

In the US, the S&P500 has broken out, rising for the third straight day, seeing the index hit a key level of resistance, after nestling back in all time high territory. So this is a level we will watching closely especially as the market awaits Friday’s US inflation data (tipped to show inflation rose 6.9% YOY in November) and next week’s Fed meeting on Thursday (which is expected to possibly table economic growth expectations for next year and flag possible rate hikes for 2022). What else? The US Russell 2000 index, a measure of small-cap stocks also rallied for the third straight day on  Wall Street.

A measure of volatility - The VIX CBOE Volatility Index has fallen from a 12-month high and is now trading at 19.90, which is where the index traded before Omicron news broke.

So what’s new? The mode is risk on, but what’s behind it? Some say it’s hedge funds covering their shorts in Tech stocks, while glaringly the obvious, is that we’ve now entered a good news cycle . Pfizer says three doses of its vaccine are effective in neutralizing the new COVID strain Omicron, while two doses may still also protect again severe disease. Meanwhile, GlaxoSmithKline says its monoclonal antibodies treatment is effective against all strains of the omicron variant. Good news, finally. 

Markets  - the numbers

In the US the major indices advanced: S&P 500 rose 0.31%, Dow Jones Industrial Average up 0.1%, Nasdaq: up 0.64% 

In Europe their indices fell: Euro Stoxx 50 fell 1.1%,London’s FTSE 100 closed flat, Germany’s DAX fell 0.8%

Asian markets closed higher: Japan’s Nikkei rose 1.4%, Hong Kong’s Hang Seng up 0.1%, China’s CSI 300 rose 1.5%, Australia’s ASX200 gained 1.3%

Futures: ASX200 hints of a 0.4% fall today

Commodities: Iron ore fell 0.6% but holds above US$111, Gold rose up 0.2% to $1,786.81 per ounce, WTI crude gained 0.8% to $72.64 per barrel. Copper rose 1.2%

Currencies: Aussie dollar trades 0.8% higher,  continuing to move off 12-month lows and now trades at 0.7179 US. EUR/USD - most traded currency pair has stayed around a key level of support (1.13) after bouncing off 17-month lows. USD/JPY  - the currency pair viewed as a safe haven has gained for 4th sessions

Bonds: U.S. 10-year yield rose 3.1bps to 1.5058%, Australia 3-year bond yield rose 0.2bps to 0.96%, Australia 10-year bond yield fell 3bps to 1.62%

What to watch today

RBA Governor Lowe speaks at Payments Summit

Annual General Meetings: BDM, FSF, LSX

Other Shareholder Events: FSF, PPT

Economic news: In NZ: 3Q Mfg Activity SA QoQ, prior 3.9%,  3Q Mfg Activity Volume QoQ, prior -0.1%. No Australian economic news out.

Australian analyst rating changes to consider:

WHC: Citi upgraded WHC from a hold to a BUY. 12mth TP to $3.20 from $3.50 on the back of lower coal prices. However, ‘there is still enough upside to justify an upgrade in rating and we move to Buy from Neutral’; Citi. WHC trades on FY24E EV/EBITDA of 3.4x at a thermal coal price of US$74/t

IGO: Citi upgraded IGO to a BUY. 12mth TP increased by 34% to $11.3. IGO moved into Lithium and Citi says this is very well timed. FY23E EV/EBITDA reduces to 7.1x. Citi estimates net cash of $888m at end FY23.

ALK: Alkane Rated New Buy at Bell Potter; PT 95 Australian cents

APM: APM Human Services Rated New Outperform at Credit Suisse

Companies in the News:

Santos (STO): Jera era Acquires 12.5% Stake in Barossa Project From Santos

Booktopia (BKG): Booktopia Says Regulator Intends to Start Court Proceedings

South32 (S32) in 60th Percentile for Environmental, 80th for Social

Other news:

Aussies are having less kids and less per household. See my Tweet here. 

Why AGL could face further pressure if energy prices rise again. See my Tweet here for the chart. 

BHP’s market cap to swell. See what Brokers and investment analysts are saying about BHP Here 

Andrew Forrest inches up at Western Areas

New Zealand’s Import Surge Driving Trade Balance Into Deficit

Australia’s Regulators Facing Surge in High-Risk Loan Approvals

Swiss giant Trafigura plans $750m hydrogen plant at Port Pirie

Bitcoin miner Firmus Grid sets sights on ASX for 2022

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