AM Market Digest: December 1, 2021

So volatility is indeed picking up right? And add in the fact that US Fed Chair said overnight, that the bond-buying taper process could wrap up “few months sooner than expected”…which opens the door to interest rates hikes thereafter. Powell also said “it’s probably a good time to retire” the world “transitory” to describe inflation. While global equities remain on tender hooks, keep an eye on volatility, and consider possible hedges. Iron ore breaks above its 30-DMA for the first time since 26 October. Watch the Aussie dollar with GPD data ahead.

Equites:

• In the US: The Dow Jones fell 1.8%, the S&P500 lost 1.9%.
  • Apple rose 3.1%. Pfizer rose 2.5%
  • Salesfore.com fell 4%. Travellers fell 3.6%
• In Europe: the Euro Stoxx 50 fell 1.1%, the FTSE 100 down 0.7%.
• Yesterday most Asian markets fell, with the Australian market being the exception, rising 0.2%

Commodities:

• Gold spot down 0.5% to $1,775.45, erasing gains after Powell’s comments on Taper, Inflation
  • Keep an eye on Newcrest (NCM AU), Northern Star (NST AU), Evolution (EVN AU), Regis Resources (RRL AU), Resolute Mining (RSG AU), OZ Minerals (OZL AU): 
• WTI crude down 5.4% Oil Falls Below $65 With Powell signaling faster end to tapering
  • Keep an eye on Woodside (WPL AU), WorleyParsons (WOR AU), Oil Search (OSH AU), Beach Energy (BPT AU), Karoon (KAR AU), Origin Energy (ORG AU), Santos (STO AU): 
• Copper down 1.4%
• Iron ore fell 0.4% after rising 6.8% the prior day
  • Keep an eye on BHP (BHP AU), Rio Tinto (RIO AU) and Fortescue (FMG AU)

Currencies:

• Aussie down 0.4% to 0.7118 per US dollar (Australia, NZ dollars record biggest monthly drops since pandemic)
• Kiwi down 0.1% to 0.6817 per US dollar

Bonds:

• U.S. 10-year yield fell 6.2bps to 1.4375%

Company News:

• Volvo Cars shares rose 13.6%; The company released first quarterly property since listing on the stock market a year ago and confirm a dip in revenue and profit. Volvo also flagged the sector-wide semiconductor shortage would continue into next year
• Apple shares +3.1% after reported Best Apple Cyber Monday. The tech giant is also working on a charger that powers multiple devices, an iPhone, AirPods, and Watch simultaneously.
• Orocobre shares rose 6% to a record high. Trading volume quadruped. The company expects lithium demand to grow materially through to 2040 due to electric vehicle adoption amid the global transition to carbon neutrality. This is expected to lead to a widening deficit over the next two decades, with demand predicted to be more than twice as great as supply by 2040.

Major news, in case you missed it;

• Australian borders won’t reopen today (1 December), they’ll reopen 15 December
• Moderna CEO says current vaccines are less effective against new variant and it may take months before a new variant-specific jab is at scale.
• The World Health Organization said Omicron presents as ‘very high global risk’.

Latest economic news:

• In Australia: The Australian economy is slowing: Private credit grew less than expected; showing Aussies are businesses borrowing less (credit grew 0.5% in October, vs 0.6% expected). Consumer confidence fell on a weekly basis
• In Asia – China’s manufacturing unexpected grew in November. First rise in activity since Aug. Japan industrial output rose for first time in four months, auto production rebounds on an easing of supply constraints

Considerations for today and what to watch

Volatility:

• New information is driving the markets short term direction, so keep an eye out. We’re in an illiquid part of the season, so volatility is high at the moment with news dictating the market moves. Some fund managers are taking money off the table and increasing their hedging
• To minimise volatility you could consider hedging for the next couple of weeks; perhaps consider currency options which is what we are seeing some clients trade at the moment, they are Buying dollar yen.

Iron ore: 

• The Iron ore price to surged to a one month high, rising back above $100. Also of note, we are seeing clients increasing buy iron ore stocks (Fortescue, BHP and Rio Tinto).
• What’s new: Brazilian iron ore giant, Vale lowered its production outlook for year, while Rio Tinto announced it sees demand stabilizing is 2022 and underlying demand remaining robust expecting, China to take action to avoid a property hard land. Basically it seems iron ore supply will be coming out of market (from Vale), and demand is picking up in China.
• From a technical perspective, the iron ore price has held above its 15 and 30 day average, while the MACD technical indicator suggest that buying could pick up again in iron ore. This is definitely something to watch. It appears the 15 day moving average could also cross above the 30 day moving average, which would trigger a gold cross event, a technical event that often results in a bull run forming/continuing as quant traders/investors typically buy into positions when such an event occurs.