ST note - Price action to watch ST note - Price action to watch ST note - Price action to watch

ST note - Price action to watch

Junvum Kim

Sales Trader

Summary:  AUDUSD has touched and tested 70 cents again for the first time since Aug last year after it found bottom at 0.62 three months ago and ASX200 is worth watching as it has hit fresh breaking above 7,400 handle and it is approaching 7,600 that has been a key triple top resistance level that formed during Aug 21, Jan 22 and Apr 22.


Netflix (NFLX) kicks off earnings season for the FAANG stocks as usual despite its weighting of 0.4% on S&P500 being far from the rest of the mega cap stocks including Microsoft (MSFT) 5.3% or even Meta platforms (META) 0.9%.  This is despite 100% rally from its 52 weeks low of $162.71 that was recorded about 8 months ago and YTD return of 10.7% that is second best only behind Amazon (AMZN) 13.6% so far this year.  The focus would be on the new subscriber numbers with expectations are set at +4.5m (consensus low 3.7m and high 5m) with two thirds should come from US/Canada and APAC.  Its P/E – both trailing and forward - sitting at around 30 times is pretty much the same as Tesla (TSLA) yet its revenue growth is projected to be approximately half at ~10% for 2023 and 2024 so it is probably not that cheap also relative to the US treasury 10 year yield giving you 3.4% even after big 20bps drop last night on the safehaven bids on recession fears causing the yield curve (3 months vs 10 year) to invert down to -123bps that is the most extreme since the yield curve spread was -218bps in first quarter of 1981 that implied recession probability of 86.5% according to Probit Model (Current issues in economics and finance article June 1996 Volume 2 Number 7).

This morning one of the key commodity stock Alcoa (AA) – largest US aluminum producer - fell sharply lower in after hour trading on the back of weaker than expected shipments guidance flagging global inflation, subdued demand and soft economic outlook in China even though forward looking commodities such as aluminum, iron ore & copper prices have shown signs of bottoming out since beginning of 4Q last year in the anticipation of China reopening with continuous stimulus.  Credit spread – junk yield vs 10 year risk free – also shows similar price action as it looks to have topped at 600bps and since then it has been narrowing.

Headline CPI has shown cooling prices and Fed’s preferred measure, particularly core PCE is another key data to watch that is due 27 January with estimate at 4.4% YoY but according to the Taylor rule – that looks implies the Fed funds rate based on gaps of inflation and output – the current Fed rate of 4.3% is more than 300bps short despite narrowing the gap significantly from ~800bps about a year ago therefore the recent terminal rate of 4.8% (50bps further hikes) that is set from the futures market seems still way far from what it should be unless we witness more price stability and core PCE dropping towards 2% target.

AUDUSD has touched and tested 70 cents again for the first time since Aug last year after it found bottom at 0.62 three months ago and this coincides with Shanghai composite index (P/E 11) and CSI300 (P/E 12) – that exclude big tech names like Alibaba and Tencent – similarly rebounding 30% and 24% respectively.  Their P/E noticeably look cheaper compared to S&P500 (17.5 times) but little but more expensive against Hang seng’s 10 times.

Lastly ASX200 is worth watching as it has hit fresh breaking above 7,400 handle and it is approaching 7,600 that has been a key triple top resistance level that formed during Aug 21, Jan 22 and Apr 22.  Its YTD return of 5% has been mostly driven by cyclical stocks in consumer discretionary (9.3%) and materials (8.8%) however the index is lagging behind Hang seng and CSI300 with 9.6% and 6.7% respectively so as long as Aussie commodity stocks (¼ of the index) along with the financials (nearly 30% weighting) remain supported, ASX200 should do well and its dividend yield of 4.4% being the best out of the major equity indices as the big ex dividend approaching in the next two months with 100+ points worth among 121 stocks.

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

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

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.