Market Strategist
Summary: Market volatility, as measured by the VIX surges to two month highs, iron ore price jumps 5.8% in two days to $119, its highest level since October as China drops interest rates. Quarterly options expire and the ASX200 flags a negative signal on a weekly chart. Here is why you need to pay attention. Plus, the three elements to watch today.
Firstly - What is been happening in markets?
Equities are under pressure, and have been moving 1%+ in either direction for three weeks now, as markets begin to really price in interest rates are rising… not only the first time since covid, but interest rates will be rising for the first time in 10 years, all while covid19 breaths on markets almost two years on. Europe is facing more lockdowns, and it looks like Australia’s most populated state could be heading the same way with NSW covid19 case numbers surging to a record. Plus, its year end, quarter end and options expiry. No wonder why fund a record amount of cash has come out of equities and gone into cash equivalents (including FX), with cash popping to a record $4.7 trillion
Last week equities came under pressure ending Friday’s session lower, with the benchmark index the S&P500 down 1% (losing 1.9% on the week), while the Blue Chip Dow Jones sank 1.5% Friday (1.7% on week). Europe markets also closed mostly lower Friday; France’s market down 1.1% while the UK FTSE lost 0.6% Friday (0.3% on week). Last week the Australian market fell 0.7%.
What’s really interesting is, as markets price in rates will likely rise 3 times next year, money is favouring quality stocks (low debt, high earnings) and those that benefit from rate rises. This month to date, the ASX200 is up 0.4%, while the biggest bank on the ASX, CommBank CBA for example is up 4.5%. In the US, the S&P500 is up 0.7%, while Visa shares are up 7.3%, Mastercard is up 7.8%.
What to watch today and this week?
Futures earlier indicated the Aussie market would 0.4% lower as the Christmas holiday week begins. It’s also critical to point out… that the Aussie share market flagged a technical trigger with the shorter term 15-day moving average, crossing the longer-term 30-day moving average. This typically results in fund managers/technical quant traders closing out positions and shorting the market. And if we want to get technical about it, when we see a 50-day cross over and under the 200-day moving average, that's a death cross. It's usually a big warning. But however we can’t ignore this trigger.
The last time the Aussie share market experienced a cross event on a weekly chart, where the 15-day crossed over and under the longer-term average, was in March 2020. And we all know what happened in March last year, the market fell over 30%. The forward looking trend indicator, below, the MACD is also indicating momentum slowed and the ASX200 could turn lower.
We’d need to see the Aussie market rise on a weekly basis to snap this downtrend that formed since August 2021. OR, we could see a very sharp correction her. Either way, volatility is high and momentum is very week. Look at the chart below. The alarm bells are being rung. Loudly.
So if you are an equity investor, it could be time to trim your profits and hedge, if you already haven’t employed a risk minimization strategy. You could also top up on USD exposure as we saw the USD (as measured by the DXY). Or you could consider shorting the ASX200 if that’s something you wanted to do.
Secondly, watch companies with Australian analyst rating changes
Bluescope Raised to Buy at Jefferies; PT A$24.60
Cimic Cut to Neutral at Credit Suisse; PT A$17.16
Zip Co. Cut to Hold at Jefferies; PT A$4.48
HT&E Raised to Outperform at Macquarie; PT A$2.10
Accent Group Rated New Overweight at Wilsons; PT A$2.70
Viva Energy Rated New Neutral 1 at Barrenjoey; PT A$2.35
Ampol Rated New Overweight at Barrenjoey; PT A$36.68
Reliance Worldwide Rated New Neutral 1 at Barrenjoey; PT A$6.50
Thirdly, company, economic news & the numbers
Annual General Meetings: FBR AU, SAN NZ
Sydney Airport SYD – November sales and revenue release
Metcash MTS Ex-dividend
Shareholder Events: BCI AU, GL1 AU
Australian Rare Earths – 2022 Sector Outlook & New Mine Development meet in Shanghai. Companies to watch LYC, VML, ARU, GGG, NTU. Agenda? Regional demand-supply & 2022 sector outlook. Trends in rare earths and forward pricing. New mine development considerations.
Companies in the news
Mineral Resources Bear Bets Lead Gains Among Most Shorted
Enagas, Elecnor to Sell Gasoducto de Morelos to Macquarie
Rio Tinto’s Serbian Lithium Project Continues Despite Setback
Qantas May Gain Market Share as Flights Resume
Economic news to watch
Australia’s central bank, RBA meeting minutes will be watched tomorrow - investors looking for clues as to when rates may rise –markets are expecting three (3) interest rates hikes next year.
And in the US – all eyes will be on US economic growth data for the 3rd quarter. Expected to show US economy slowed from 6.7% growth in first quarter to just 2.1% growth.
Markets - the numbers
ASX200 futures indicate the market will open down 0.4% (6.59am) to 7,177.00
In the US: Dow Average down 1.5% to 35,365.44. In Europe: FTSE 100 up 0.1% to 7,269.92
Commodities: Iron ore charged 10.6% last week, and now trades at $119.88 (two month highs). Gold spot little changed at $1,798.11, Brent futures down 2.0% to $73.52/bbl
Bonds: U.S. 10-year yield little changed at 1.4021%, Australia 3-year bond yield fell 0.8bps to 0.97%, Australia 10-year bond yield rose 2bps to 1.59%
2024: The wasted year
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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.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.
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.
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.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.
