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.

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article
  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article
  • Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article
  • Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article
  • Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.