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The strength across iron ore names has been garnering plenty of air-time over recent days, with Fortescue (FMG) making new all-time highs yesterday as the bulk commodity hovers around the $US135/mt level – to put things in perspective, the Australian government’s budget forecast assumed iron ore would be trading around $US60/mt, at least this wrong call was beneficial with the budget improving daily. We believe BHP’s chief economist, Huw McKay, was on the money this week when he said, “This is an incredibly sweet spot for the industry”, as the printing presses keep rolling at the likes of BHP and RIO.
The ASX200 added to December’s gains today, taking it up more than 2.4% for the month, and we still have more than half of the month left. As we’ve said a few times of late, as we head into the seasonally strong fortnight for stocks, the index is looking good for at least a retest of the 7400-7450 area, now only two good sessions away.
The ASX200 added to December’s gains on Tuesday, taking it up more than 2%, and we still have more than half of the month left. As we’ve said a few times of late, as we head into the seasonally strong fortnight for stocks, the index is looking good for at least a retest of the 7400-7450 area. The broad market was again firm on Tuesday, with no sectors falling and over 70% of the main board ending the session higher. Apart from the strong performance of the tech names, the influential banks and major miners have remained firm over recent weeks.
Another session where a lack of selling was obvious across the market as 10/11 sectors made gains headlined by technology stocks as they sprang back to life led by heavyweight Xero (XRO) +3.79%, a classic illiquid stock squeezing up into Christmas. Not a lot to cover this afternoon, so a short & sharp missive for a Tuesday….
We already believe stocks are pricing in a best-case scenario of lower rates without a recession, i.e. the Goldilocks scenario; hence, any bumps in the road through 2024 could see setbacks for stocks and, in particular, the “risk-on” trade, e.g. gold is a high Beta example having retraced ~$US100/oz of its recent gains after bond yields bounced over the last few days. As we mentioned earlier, US credit markets are attributing a 40% chance that rates will be cut by March 2024, but at MM, we believe it won’t be until the next FY and, more than likely, the 4th quarter, which suggests some market disappointment at times next year.
The ASX 200 broke out this morning, up through 7200 to hit a morning peak of 7226, but the gains were forfeited as the session wore on – the market closed flat on the day, coming off the back of a strong week. Not a lot on the docket to drive stocks, some bits and pieces on the corporate front but a fairly muted session on low volumes.
Global equities have driven higher over the last 7-weeks, fuelled by dovish optimism that international central banks will start cutting interest rates in 2024 as they appear to be winning the battle against inflation. Since late October, the US 2-year yield has fallen from 5.26% to 4.54%, while the local 3s reversed from 4.47% to 3.84%, as credit markets have decided it’s a case of “when not if” rate cuts will commence, very different sentiment to that which prevailed through September & October. Not surprisingly, the winner’s enclosure over the last month has been dominated by the rate-sensitive stocks/sectors such as the Real Estate and Healthcare Sectors.
The ASX200 pushed higher last week, ultimately closing up +1.7%, posting fresh 11-week highs into the close on Friday. The last 2-days caught our attention as the local market reversed early weakness as belief in a 2023 Christmas rally gathers momentum – for the statisticians amongst you, if we’ve already seen the low for the month at 7041 and December delivers the average monthly range of 2023, by extrapolation, the index is destined to test the 7400-7450 resistance area.
The market opened on the backfoot, down early, before rallying ~50pts into the close to finish at session highs, clearly a bullish tone to end the week with the solid intra-day move. The lack of selling as December wears on is the theme we’ve been highlighting in recent reports with a few examples taking shape in recent sessions.
What Matters Today: Is it time to consider the Energy Sector as Santos & Woodside consider a merger?
Yesterday, we heard that Woodside (WDS) and Santos (STO) are considering a $80bn oil & gas merger following the global trend as their operating landscape changes with decarbonisation pressures increasing rapidly. Discussions are at an early stage, with no certainty a deal will be forthcoming; they might be testing the market’s response following the overnight announcement. Over recent months, major shareholders have been touting ideas on how STO could unlock shareholder value, including a break-up of the business.
