Market Digest Tues 14 Dec; Iron ore leaps, could it push the ASX200 back to all time highs
Summary: The sleeping giant, iron ore, just woke up, flagging a technical bull run could potentially start and may take iron ore, Australias biggest export, out of a bear market and push up the Aussie share market. Iron ore has been trading 52% lower than its highs since May, keeping mining shares depressed, and for the first time in five months, overnight, iron ore broke and held above its 50 day moving average for the first time after rising 6.5% on new favourable China monetary policy. Here are the three elements you need to watch today in markets.
Firstly - iron ore, the sleeping giant
Iron ore crossing its 50 DMA implies trading momentum is likely to continue and push iron ore higher, and likely the ASX’s most valued company, BHP, as well as Rio Tinto and Fortescue Metals, as prospects for Chinese iron ore demand are likely to continue to grow amid favorable China policy. All else being equal, this could help the Aussie share market finally head back toward its all-time high (which the ASX200 is 4% from), while it could also strengthen Australia’s trade balance and AUD. It all comes also comes at good time for Australia; when QLD reopened its boarder, WA opens its on Feb 5 and Australia will soon have Moderna making mRNA vaccines in Melbourne. This is why the technical indicators are currently looking favourable (The MACD and RSI), implying iron ore stocks, financials and thus the broad Aussie market could continue to rally with buying mounting.
However, there are two absolutely huge caveats to seeing the Aussie market gain serious strength here, 1- we’re awaiting to see how virulent Omicron is. Overnight US equities fell from their record highs on Monday, down 1% as UK reported its first Omicron death which dragged the oil price down 1%) and 2- We are awaiting the Fed’s announcement on removing covid stimulus.
The market cold likely stay in a 5% range until the Fed tables when tapering (bond buying) stops and when it will rise official interest rates. Be mindful that bond buying could double from $15 per month to $30 billion, and possibly end March 2022 (instead of mid-year), sending up bond yields and making stocks that carrying more debt (tech and small growth stocks less attractive).
After stopping bond purchases, the Fed will have wiggle room to rise official interest rates from April onwards (potentially rising official interest a total of three times in 2022)… to cool the economy, slow spending, property price growth and of course inflation, which is back at 1980 highs. Don’t forget the Fed also wants to take the wind out of sails of stock market. Rising rates will take further heat out of growth stocks (especially those that operate on high price to earning ratios).
With this in mind, we are watching; 1- the CBOE Volatility index, which has picked back, rising above its 30-day moving average, after recently falling from its 12-month high, and 2; the EURUSD. If the Fed is more hawkish than anticipated at this Wednesday’s meeting, could see new highs in Fed rate expectations drive EURUSD to new lows below the November low, just south of 1.1200.
Secondly, watch companies with Australian analyst rating changes
- Altium Cut to Hold at Bell Potter; PT A$45
- Bapcor Cut to Neutral at Goldman; PT A$6.70
- Iris Energy Rated New Overweight at JPMorgan; PT $30; Rated New Buy at Compass Point; PT $22; Rated New Buy at Canaccord; PT $30 ; Rated New Outperform at Macquarie; PT $31
- Regis Healthcare Cut to Hold at Morgans Financial Limited
- SiteMinder Ltd Rated New Neutral at Goldman; PT A$6.90
- Vulcan Steel Rated New Outperform at Forsyth Barr
- City Chic Collective Raised to Overweight at Wilsons; PT A$6.50
- Insurance Australia Cut to Sell at UBS; PT A$4.20
- GrainCorp Rated New Outperform at RBC; PT A$9.10
- Aurizon Reinstated Underweight at JPMorgan; PT A$3.10
- SCA Property Raised to Buy at Jefferies; PT A$3.16
Thirdly - what else to watch today; company and economic news
- Annual General Meetings: Annual General Meetings: HCH AU, HUB AU, SLA AU, TSI AU
- Investor Roadshows: NewsCorp Tuesday 14th Dec
Companies in the news:
- CSL enters a trading halt over ahead of potential $16.74 billion deal with Switzerland’s Vifor Pharma
- Ramsay Health Care Says Ramsay UK YTD Revenue in Excess of FY19
- Rio to Cancel Mongolia’s Debt After Cost Blowouts at Giant Mine
- IDP Education Bear Bets Lead Most Shorted Gains: Australia SI
- Johns Lyng Climbs to Record After Acquisition, Equity Raising - Johns Lyng advances as much as 12% to a record high after the property services company said it was buying Reconstruction Experts and completed an institutional placement and entitlement offer to fund the deal.
- Air New Zealand Enters Revised Support Package With Government
- Afterpay 57% Valuation Discount May Hurt Takeover Vote Chances
- Crown Resorts mulls sale of “non-core” assets
- Private Equity Buyer Seeks Stake in Virtus Health, AFR Says
Economic news to watch today
- Australian eco news NAB Business Confidence for November prior 21. NAB Business Conditions, prior 11. Tomorrow consumer confidence, prior 105.3. Remember Thursday we get employment data: ‘Record Jobs Likely as Hidden Workers Return’.
- New Zealand: Food Prices MoM for Nov, prior -0.9%
Markets - the numbers
- ASX200 opened 0.4% lower (10.43am) 7.351. Earlier futures were down 0.3% to 7,355.00.
- US Major indices fell on Monday: S&P 500 fell 0.9%, Nasdaq fell 1.3%, Dow lost 0.7% to 35,735.73
- Europe indices closed lower: Euro Stoxx 50 lost 0.4%, London’s FTSE 100 fell 0.8%, Germany’s DAX closed flat.
- Asian markets closed mixed on Monday: Japan’s Nikkei rose 0.7%, Hong Kong’s Hang Seng slipped 0.2%, China’s CSI 300 gained 0.6%. Australia’s ASX200 rose 0.4%
- Commodities: Iron ore rose 6.5% to $115.39, Gold spot up 0.3% to $1,787.72. Brent futures down 1.0% to $74.43/bbl
- Currencies: Euro down 0.2% to $1.1289, Aussie down 0.5% to 0.7135 per US$, Kiwi down 0.6% to 0.6757 per US$
- Bonds: U.S. 10-year yield fell 6.0bps to 1.4241%, Australia 3-year bond yield fell 3bps to 0.89%, Australia 10-year bond yield fell 3bps to 1.60%
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.