January 9 2023
US equites rally on weaker than expected data and signs businesses will slow spending
US shares ended really strongly last week, up 1.5%, its best gain in six weeks. Most of those gains came from Friday with US stocks making their biggest one day move in month. That was on the back of firstly; US wage growth data moderating, secondly; the US services sector fell into contraction phase for the first time since May 2020. And the underlying data suggested new orders fell and businesses will slow hiring. So this proves the US economy is slowing as the Fed wants, and gives the US central bank room to take its foot off the accelerator with interest rates hikes this year. And that’s good for equities; so the S&P500 jumped more than 2%. While more gains were in interest rates sensitive tech stocks; the Nasdaq rose 2.6%. As for standouts; Tesla rose 2.5%, Apple 3.7%, chip makers like AMD and Nvidia also did well up 2.6% and 4.2%.
What should you be watching today?
The Aussie share market is likely to open almost 1% higher today, with Hong Kong’s Heng Seng futures suggesting that market will rise the most across the Australian-Asia-Pacific today, up 1.5%, following the stellar close of US shares. This week we could also see some money deployed that was removed from the market from the end of US financial year two weeks ago.
- In terms of key pockets of potential gains to watch; Commodity stocks could likely to do well as there is room for the Fed to not be as hawkish. The copper price rose 2.4% to its highest level since November, which will could likely boost copper stocks today and this week, and spot gold price jumped 1.8% to a range it last traded in June last year. Also keep an eye on coal stocks this week, as coal demand usually peaks in January and Chinese authorities are in discussion on a partial end to the Australian coal ban. So keep an eye on Whitehaven Coal and New Hope.
- In terms of likely laggards… iron ore equities might not perform strongly this week after their stellar gains. Vale, Champion Iron, Fortescue Metals, BHP and Rio will be on watch as the Iron ore price (SCOA) has fallen 1.3% from its five month high as buying of iron ore is expected to grind lower as China heads to lunar new year holidays. Oil equities could also see a slide as the oil price posted a large weekly loss. Although the oil price in WTI is up 0.1% at $73.77, demand uncertainty is hanging over the market amid a potential recession.
What else should be on your radar for the first full week trade for 2023?
Volume might be thin this week as many are still on holidays, but moves in equities could be amplified in either direction. A big focus will be US inflation data out on Friday January 13. If its weaker than 5.7% core inflation YOY expectation, then we could potentially see some of the capital put to work that was taken out of the market for end of financial year 2022.
In Australia and Asia; there is plenty of economic news to watch; Australia Monthly CPI is out on Wednesday Jan 11, along with Australian retail sales. China’s inflation data is out on Thursday, expected to show inflation rose to 1.8% YoY.
In currencies, the Aussie dollar flagged a bullish signal, crossing a key level
The US dollar suffered its longest streak of weekly falls in two months. So that’s supporting other currencies higher. In particular the commodity currency, the Aussie dollar broke above its 200-day moving average, which could be seen as a bullish sign. The Aussie dollar trades at two-month highs of 68.85 US cents. What's also supporting the Aussie dollar is that China’s reopening is expected to add considerably to Australia’s GDP. Some economists predict a 0.5% addition to GDP in a year once Chinese students and tourists return. JPMorgan thinks over the next two years Aussie GDP will grow near 1% thanks to inbound Chinese students and holiday makers likely returning.
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