Summary: VIDEO: For the bullish narrative to continue we firstly need to see a 0.25% hike as expected, taking rates to 4.75%, and the FOMC to indicate they are at the end of their tightening and avoid the words “we have more work to do”. Secondly, major tech company earnings are out from Apple, Amazon and Alphabet which could set the tone and direction for equities. We need to see optimistic outlooks and margins not be squeezed or equities could change direction. Regardless, the China reopening is driving the biggest monthly jump in Australian stocks since 2020, with commodity prices underpinned by low supply and rising demand, but short term correction risks creep in.
It’s a critical and hugely pivotal week for markets with Fed meeting, the ECB, and BOE to decide on interest rates. Thinking about US equites, for the bullish narrative to continue we firstly need to see a 0.25% hike as expected (taking rates to 4.75%) and for the FOMC to indicate they’re at the end of their tightening and to avoid the words “we have more work to do”, or equities are at risk of heading south. Secondly, major tech company earnings are out from Apple, Amazon and Alphabet which could set the tone and direction for equities. We need to see optimistic outlooks. However if we see a margin squeeze and damper outlooks like Microsoft last week, we could see equities change direction. When it comes to trading and investing, you may potentially like to consider taking profits and buying downside optionality (puts), and consider tight stops - considering for example Apple is up 12%, Amazon is up 21%, while the S&P500(US500.I) and the Nasdaq 100 (NAS100.I)are up 13%.
Australia’s share market, the ASX200(ASXSP200.I) is outperforming the S&P500 and Nasdaq, with a gain of 16% from its low - while also recording its biggest monthly gain since November 2020, (up 6.4%). Australia’s market - a dividend and commodity play, as well as being an investment proxy for China's reopening could also continue to outperform the US this year, given its heavy in materials such as iron ore, copper and aluminium, as well as financial companies - benefiting from higher interest rates. Mining giant BHP Group expects 17% dividend growth, Fortescue Metals sees higher sales in the first half of 2023 to China. Also consider, the iron ore price hit a new 2023 on the notion demand will rise. However, the iron ore (SCOA) price could be at risk of short-term correction, given it has rallied up almost 70%. So consider potentially taking profits given BHP shares are up 46% from their July low, Rio Tinto’s up 43%, Fortescue is up 53%. Although there is a risk of a short-term correction, as supply is lower than a year ago, the price over the longer term seems underpinned. Also consider sales to China have been increasing with Fortescue reporting greater buying of port side iron ore to 4.0mt (in the prior quarter), while guiding for H1 sales to rise to 9.3mt. Lastly, consider Australian insurers, banks and financials will likely benefit from the RBA’s rate hikes - QBE and WBC are expected to report profit jumps of over 30%.
The AUDUSD is down 0.2 to 0.7100 US, we continue to watch if the 50 day simple moving average crosses above the 200 day, marking a ‘golden cross’, which could lead to another quick run up. However should the Fed be more hawkish, the rally in the AUDUSD could be reversed.
Oz Minerals’ (OZL) quarterly copper output hit a record high and it sees higher production over 2023, while slightly less gold production compared to 2022 while also guiding for slightly higher costs. However, raw materials price strength in copper and gold could likely underpin its revenue and earnings growth. Also consider the company is recommending it is taken over by BHP.
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