January 10 2023
Fed speakers remind markets, rates could be over 5%; markets await Friday CPI
Following Friday’s strong rally of over 2%, the major US indices somewhat stalled on Monday, as investors got a reminder from two Fed speakers that US rates could rise to over 5%. Also, recall the US economy’s recent data sets from Friday suggest the Fed can remain lighter with its rates hikes. However, we’d need to see core inflation falling from 6% YoY to 5.7% YoY as expected, then the Fed would get the nod to not go as hard with its interest rate hikes. That means there could potentially be some capital put to work that was taken out of the market at the end of financial year, 31 Dec 2022. But it seems some investors are pre-empting this scenario perhaps. As on Monday the Nasdaq 100 rose 0.6%, with retail investor favourites surging; Tesla rise almost 6%. Tesla is still in technical long term downtrend though on the weekly charts, but it appears to be attempting to cross its 50-day moving average, which it last briefly crossed over in September 2022, before rallying higher and quickly falling again. Cloud-computing proxy, Snowflake rose over 8%, with the business recently saying it expects revenue growth of 47% for its full year.
What should you be watching today in equities across APAC?
The Australian share market (ASXSP200.I) opened slightly lower on Tuesday down 0.2%, while Japan’s market is suggested to outperform in APAC today, with the futures suggesting the Nikkei could rise 0.9%. Keep an eye on coal stocks particularly as China’s National Development and Reform Commission has issued three notices urging parties to secure and speed up the process of locking in medium and long-term supply deals, to ensure China does not run out of power. China banned the imports of Australian coal for over two years, however yesterday, reports suggested BHP struck a deal, and sold two shipments of met coal to China. This highlights that trade relations are improving but also means the price of coal is likely to remain supported as demand is increasing. Keep an eye on Coronado (CRN) Whitehaven Coal (WHC), and New Hope (NHC). In Australia and Asia today, Copper stocks are in focus after the copper price rose 2.4% to over $4, which is a six month high. Copper stocks to potentially watch include BHP, Oz Minerals. It’s also worth watching the Bloomberg Commodity Index which jumped 1.1%. There also affiliated ETFs that are worth watching given China is easing restrictions and likely to ramp up commodity buying after the lunar new year. Iron ore (SCOA) trades flat today, but holds a five month high, as buying of iron ore is expected rise after the new year holidays as it typically does. This notion is also supporting iron ore stocks in the industry like Vale, Champion Iron, Fortescue Metals, BHP and Rio.
The Aussie dollar flags more bullish signals. And could cross toward
The commodity currency the Aussie dollar (AUDUSD) is now trading at four-month highs 0.6913 US cents after the US dollar continues to remain weak, while China’s reopening notion is expected to add considerably to Australia’s GDP and thus support further possible upside to the Aussie dollar. JPMorgan thinks over the next two years Aussie GDP will grow 1% alone thanks to inbound Chinese students and holiday makers likely returning. But we think it’s worth mentioning the extra boost to GDP on top of that could likely come from the anticipated pick up in commodity buying from China. And the what I like to call, 'extra hot sauce' could even come from China buying Australian coal again. However, the next catalyst for the Australian dollar is Australian inflation (CPI) data out on Wednesday Jan 11. Core or trimmed CPI is expected to have risen from 5.3% YoY to 5.5% YoY. If CPI comes in line with expectations, or above 5.3% YoY, you may expect the AUD rally to be supported
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