AUD marches up, Yen slides, Hydrogen hype, Uranium ups ante

Co-written by Market Strategists Jessica Amir in Australia, Redmond Wong in Hong Kong, Charu Chanana in Singapore.

What’s happening in equites that you need to know?

• The Australian share market’s (ASX200) bullish rally is continuing, with the ASX200 up 0.4% on Friday, and collectively up about 2% this week. As indicated yesterday, the Aussie share market which is 30% commodity stocks, is being pulled higher mainly by the push for clean energy and as Australia’s resources are increasingly in demand amid a global supply shortage. From a technical perspective, on the hourly and daily chart, the ASX200’s technical indicators (the moving averages, the MACD and RSI), suggest this rally could continue here. The next positive catalyst to watch is; more stimulus from the Australian government, as the nation heads to its next Federal Election. On the downside, on Friday in the US, two US Fed speakers could raise alarm bells for more aggressive US interest rate rises. If that happens, then the rally of the ASX200 could be stunted. In particular, the ASX’s consumer discretionary stocks which make up 6.9% of the ASX200, Real Estate makes up 6.8% of the ASX200, and tech stocks make up 3.6% of the ASX200. These areas are subject to longer selling pressure from April.

• Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index and Hang Seng TECH Index (HSTECH.I) were moderately lower on Friday morning in Asia.  JD Logistics (02618) fell more than 13% after announcing its plan to offer shares at a 8% to 11.7% discount to yesterday’s closing price.  EV maker NIO (09886) reported losses in 4Q21 increasing 46% YoY to RMB 2.2 billion amid rising material costs.  The company guided delivery of 25,000 to 26,000 vehicles in 1Q22 which was below analyst expectations. NIO fell 2.5%.  Base metal producer, MMG (01208) reported better than expected results on higher copper and zinc prices.  MMG was up 8%.  In A shares, CSI300 was flat.  Real estate names retraced lower

• Crude oil (OILUKMAY22 & OILUSMAY22) prices fell on Friday morning in Asia. US and its allies discussed a possible further coordinated release of oil from storage to help calm energy markets. There were also reportedly some progress in talks with Iran but issues persisted. Brent was down to $119 and WTI slid to $112. Investors were waiting to see how Western sanctions will be tightened on Russia over its invasion of Ukraine.

What you need to consider

• Hydrogen investment hype is on. After the Chinese Government unveiled a plan to produce enough green hydrogen by 2025 that will triple global output, the Australian Government got in on the action too.  Australia pledged more $250 billion to develop hydrogen projects, as a zero emission energy source for Australia. PwC analysis shows 90 hydrogen projects are in the pipeline in Australia, with the bulk of the cash to go to the 20 largest developments. The National Hydrogen Strategy, thinks the Australian hydrogen industry could add $11 billion a year in GDP by 2050. If the market develops faster, it could mean another $26 billion a year in GDP.

• Nuclear power push is on. The global nuclear industry has been heating up, with sanctions likely to be put on the supply of uranium and enrichment services from Russia. Several European Nations are revisiting or accelerating plans to incorporate nuclear energy into power generation, particularly as a result of energy security concerns, and higher fossil fuel costs. Plus, several US senators introduced legislation to end the US’ reliance on imported Russian uranium. Plus, Australia, the US and the UK formed a nuclear cooperation named AUKUS to build nuclear (uranium) powered submarines and further progress was made this week.

• The market priced in the US Fed Reserve will hike interest rates to 2.5% this year (after 8 hikes). But remember, every single time inflation rises more than expected, more rates hikes increases are expected, and tech stocks fall as a result. So each time commodity prices rise, inflation jumps, and tech stocks take a hit. As rates rise this year, it will usher in a new cycle of tech stocks underperforming and commodities stock outperforming. So, consider adjusting your portfolio to benefit from this longer term shift. 

• US data and Fed commentary supports a hawkish Fed. Weekly initial jobless claims fell to a seasonally adjusted 187,000 last week, the lowest level since September 1969 and below the 212,000 forecast. US Flash Markit Manufacturing PMI rose to 58.5 in March, beating expectations. Service sector growth was also stronger than expected with flash PMI coming in at 58.9 versus forecast for a drop to 56.0 from 56.5 in February. Chicago Fed President Charles Evans said he would be comfortable raising rates at every Fed meeting through next March by 0.25% each time but is “open-minded” about a possible 0.50% hike. All data and recent Fed comments suggest Fed will continue to focus on inflation and hike “until things break”.

• Surge in Tokyo CPI won’t nudge BoJ, Yen decline continues. Tokyo core CPI rose at the fastest pace in over two years. March CPI ex-fresh food was up by 0.8% y/y, the highest since December 2019, but still below the Bank of Japan’s 2% target which means the central bank is unlikely to join its global peers in tightening policy for now. USDJPY rose above the 122 handle and it is on track for three consecutive weekly gains. AUDJPY has been a key focus as Australia is the world’s largest exporter of LNG and a prominent exporter of other important commodities. Adding insult to injury, North Korea has been out testing missiles, with Japan deeming that the latest test was of an ICBM that flew some 6,000 kilometres. This would be the first intercontinental ballistic missile (ICBM) test since 2017. 

• NATO agrees to strengthen its forces in Eastern Europe, increase military aid to Ukraine and tighten sanctions on Russia. Biden said Russia should be removed from the G20. Indonesia will likely get caught in the middle as it hosts G20 this year. China has signaled it stands by Russia’s continued G20 membership. Any expulsion requires unanimity among members.

Trading ideas

• For investors interested in backing the shift to nuclear power generation, via uranium, you could look at; Global X Uranium ETF (URA) or VanEck Vectors Uranium Nuclear Energy ETF (NLR) which invest in the world’s biggest uranium/nuclear companies.

• As mentioned above, hydrogen stocks are gaining a lot of hype. Fortescue Metals (FMG) plans to be the biggest hydrogen producer in Australia. Today FMG shares jumped 2% to AU$19.34, taking FMG shares above its 30 day moving average. The technical indicators (moving averages , MACD and RSI) are also flagging bullish signals for FMG, suggesting its rally could continue. Keep in mind, Fortescue (FMG) has clean energy division, that will be in-part lead by the RBA’s former deputy chair. Also keep in mind, in 2021 FMG made 94% of its money from iron ore. However FMG sees this changing in the future as it focuses on mining and selling other commodities. For more investment ideas you could look at, Global X Hydrogen ETF (HYDR) or ETFS Hydrogen ETF (ASX Code: HGEN), that invest in the largest global hydrogen companies.

• Asian chip stocks in focus. Apple is reportedly planning a hardware subscription service for iPhones that could launch as soon as the end of this year. Chip and semiconductor suppliers in Asia could benefit, especially Apple’s suppliers. In Japan, Murata Manufacturing (6981) shares jumped almost 1%, while Alps Alpine (6770) climbed 0.62%. Taiyo Yuden was up 0.7%.

• Chinese shipping container stocks in focus. Container shipping freight rates from China to Europe declined in March. It reflects weaker European demand for Chinese consumer goods.  Investors could consider taking profits in container shipping stocks, such AS Orient Overseas (00316), which are heavily exposed to container shipping and have benefited from the surge in container freight rates since the summer of 2021. 

Earnings to watch

• In Hong Kong & mainland China: Mar 25: Greentown Service (02869), Longfor (00960), Meituan (03690)

For a global look at markets – tune into our Podcast 

For prior Australian market and APAC updates - click here.