Market digest Wed 22 Dec: Risk-on amid EV stimulus & Moderna hopes, iron ore surges to 4-month highs, up 27% from low, oil up 4%

Firstly  -  what you need to know now and consider

US stocks closed sharply higher in turnaround-Tuesday mode, recovering from Monday’s pull back, with all three of the US indices up almost 2% each, while the tech heavy Nasdaq rose 2.4%.

The risk-on-buying the dip mode switched was flicked on for three important reasons; Firstly Moderna said its booster can protect against Omicron, so traders bought the dip into economic recovery stocks, that supported Delta Air Lines and United Airlines shares rising 6%, while Carnival rose 9%. Secondly, better than expected company news was released - markets love that. Nike reported stronger than expected quarterly sales and earnings, offsetting a drop in China revenue and the slowdown in production and transportation. Nike shares rose 6%, with many thinking Nike's digital and online strategy and brand are “stronger than ever”, which should support long-term gains in market share. Shares in chipmaker Micron Technology rose almost 11% on reporting stronger than expected quarterly revenue, and giving bullish guidance. So, other chip makers like NXP Semiconductors and Advanced Micro Devices did well too. And the third reason sentiment got rosier was as the White House says it’s going to work on convincing Joe Manchin to vote for Bidens $2 trillion stimulus package (in the new year) that involves building 500,000 EV charging stations and giving Americans a $12,500 EV incentive.

What to watch now

• Futures suggest the Aussie market will have a second positive day of trade and rise 0.1% or 10 points, following yesterday’s 0.9% jump; So that basically should square the ASX200 up and see the market recover from last week’s fall.
• Traders will be watching oil stocks, stocks that benefit from reopening and lithium stocks given EV stimulus could be voted in favour by the US Senate in the new year.
• Lithium stocks to look at include
  • Pilbara Minerals PLS Australia’s largest lithium company fell 9% yesterday on downgraded output and shipments for 2022. However PLS said the lithium market conditions remain very strong, with high demand and constrained supply leading to record product pricing, which is still trending higher.
  • Allkem (formerly known as Orocobre) and Australia’s second biggest lithium company fell 0.2% yesterday after it had the largest increase in total short positions (according to ASIC and Bloomberg)
  • For a list of EV stocks, see the Saxo Basket basket for ideas.
• Overnight the iron ore price rose 2.2% and today it’s trading 0.9% higher. The iron ore price is up 26% from the November low after China cut interest rates and started to increase its purchase of Australian iron ore.
  • Why is this important? Iron ore is Australia’s largest export, and it helps the profitability of some of our biggest companies like BHP, RIO and FMG.
  • The iron ore price is still down 48% from its May 2021 high. However, if you are interested in buying into iron ore, keep in mind there is a lot of noise in the sector.
  • There is talk that iron ore stockpiles remain high (meaning there is oversupply). While China is also likely to curb steel production and buying of iron ore ahead of the February Olympics (to reduce emissions).
  • However for now, keep an eye on BHP (BHP), and Fortescue (FMG). Also watch Rio Tinto (RIO) as its stock rose over its Bollinger Bands. Rio's shares are up 15% from the November low. FMG's share are up 44% from their November low, while BHP shares are up 18% from their November low, with all three of the major's technical indicators suggesting their rally will continue. 
• The Oil price rose 3.9% overnight to $71.29 on positive news from Moderna. But a word of caution. Upside is limited and likely to be capped as the oil futures market is pricing in a surplus for now…meaning… oil could trade lower in the short term. However as Ole Hansen pointed out on the Saxo Market Call Podcast global oil and gas discoveries have dropped to a 70-year low. And this is part of the reason why the longer-term oil outlook looks strong, plus demand will also likely strongly pick up too.
  • However for today’s session keep an eye on Woodside (WPL), WorleyParsons (WOR ), Beach Energy (BPT), Karoon (KAR), Origin Energy (ORG), Santos (STO). 

Secondly, watch companies with Australian analyst rating changes

• Gascoyne (GCY AU): Cut to Speculative Buy at Canaccord
• RMD: ResMed Raised at KeyBanc on Sleep Apnea Market Share Strength
• Murray Cod Australia (MCA): Rated New Overweight at Barrenjoey

Thirdly, watch companies in the news

• BHP (BHP AU): Gets All Regulatory, Competition Approvals for Unification
• Fonterra (FSF AU): Whole Milk Powder Average Price Falls to $3,867 a Ton
• Fortescue (FMG AU): Major Australian Companies Failing at Slavery Disclosure
• GTK NZ: New Zealand’s Gentrack Says New CFO Will Be Based in London
• Lendlease (LLC AU): Wins Backing From CPPIB for International Quarter Project in London: AFR
• Magellan (MFG AU): May Need to Slash Management Fees After Mandate Loss: AFR
• Resmed (RMD AU): Raised at KeyBanc on Sleep Apnea Market Share Strength
• Shareholder Events: SWK AU

Markets -  The numbers

• Global Markets;
  • In the US Dow Average rose 1.6% to 35,492.70, the S&P 500 index charged 1.8%, the tech-heavy Nasdaq charged 2.4%.
  • In Europe the FTSE 100 rose 1.4%, the German DAX gained 1.4%.
• Commodities: Iron ore price is up 2.3% to $127.30. Copper rises 1.3%, after China’s monetary easing buoys metals markets. Gold spot down 0.2% to $1,788.00. Crude oil rise 4% to $71.35/bbl.

• Currencies: Euro little changed at $1.1281. Aussie up 0.6% to 0.7154 per US$ as the Prime minister Scott Morrison said on Tuesday that Australia must learn to live with the virus, while restrictions continue to ease and daily Covid cases hit record highs. The Kiwi is up 0.8% to 0.6764 per US$

• Bonds: U.S. 10-year yield rose 6.3bps to 1.4874%. Australia 3-year bond yield rose 0.5bps to 0.93%. Australia 10-year bond yield rose 6bps to 1.60%