Market Digest Monday 20: WARNING  technical signal triggered, Flight to high-quality stocks, market volatility two-month high, iron ore charges

Market Digest Monday 20: WARNING technical signal triggered, Flight to high-quality stocks, market volatility two-month high, iron ore charges

Equities 4 minutes to read
Jessica Amir

Australia 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

Currencies: USD index trades at 3-week high, in 18-month high neighborhood. Euro down 0.8% to $1.1241, Aussie down 0.6% to 0.7141 per US$, Kiwi down 0.8% to 0.6746 per US$


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%

Source: TradingView, Saxo Markets
Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
Most of our staff in Singapore are working from home to help limit the spread of the coronavirus. We remain at your service on the details below. Thank you for your understanding.

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.