AM Market Digest: December 2, 2021
Summary: It seems markets might not be on track for a cheery traditionally bullish December, if the first two days of trade are to go by, they have been wild and ugly days. The benchmark US index, had its worst two day back since October 2020 amid Omicron cases being detected in the US, while South Africa reported doubling of virus cases in the last 24 hours, plus traders are also pricing in interest rate hikes in the New Year. In Australia the share market is a risk of a possible correction if the iron ore rally does not continue. Speaking of, the iron ore price near nears its 50 DMA for the first time since 28 October on news that iron ore demand is improving. While the Aussie dollar found support and bounced off its 1 year low on better than expected GPD data. Here is what to watch today and potential trading considerations.
Markets and what you need to know
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%
- ASX200 hints of a 1% fall today (futures at 7.59am)
- Japan’s Nikkei touted to fall 2.6% (futures at 8.00am)
- 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%
- 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 4th session
- 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
- 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
- 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
- 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.
- 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
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.