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Beijing has announced the PBOC will cut the bank’s Reserve Requirement Ratio by 0.5% effective the 5th of February, the announcement sent stocks in Hong Kong surging up over 3.5% in rapid fashion, its largest daily gain in four months. The move is aimed at stimulating the economy by relaxing lending restrictions as the banks aren’t required to hold as much cash in reserve, a significant move which frees up about $US140bn. As we know, Beijing is also likely to put “pressure” on the banks to put this money to work, which should help their goal of kick-starting the economy.
A choppy session played out locally with the market hot early only to give back the morning gains by the close, a ~60-point trading range and a fair dose of volatility at the stock level thanks to a flurry of company updates, particularly in the mining sector.
The local index triggered a buy signal for MM on Monday when it traded back above 7460, with our ideal target being the 7650-7700 area, suggesting further “risk on” is the order of the day into February. However, it’s important to reiterate that while MM is bullish over the coming weeks, we continue to believe the strong advance from late October is maturing, and we intend to migrate portfolios down the risk curve into further strength.
The market was more bullish today than futures were implying this morning with strength across the resources overlapping bank buying, which is an influential partnership at the index level. Clearly, the market is retaining its bullish bias as more fundies get back to their desks with the least resistance still on the upside – a trend we need to respect for now.
The collapsing nickel price bears a painful resemblance to lithium, both of which are used in EV batteries. However, the surging increase in demand that was anticipated to propel the sector higher has arrived with a relative whimper, while supply has increased unabated from Indonesia in anticipation, with the result being a glut & depressed prices, e.g. the nickel price has halved over the last 12-months. We’re now seeing the likes of Twiggy Forest shutting down Nickel operations his private company Wyloo acquired just six months ago, while BHP is facing similar issues.
A good session today unless you hold Lithium stocks, with the ASX kicking off the shortened trading week on the front foot. Banks offered support at the index level with the Big 4 breaking out of their recent trading ranges and looking strong, while the supermarkets finally found some love and rallied from recent lows – the risk/reward now looking good in that sector.
We had a significant number of questions come in over the break, and we couldn’t include them all in the usual Weekend Q&A on Saturday. Here’s a special Monday follow up report, with additional Q&A.
Global equities have maintained their bullish advance, which started back in October 2022. There have been plenty of reasons for risk assets to roll over in recent years, from wars to an embattled Chinese economy and surging interest rates, but stocks have continued to rally – plenty of pundits are licking their wounds at the start of 2024. As we often say at MM, a market that can advance on “bad news” is a strong market that should be respected.
Most years in January, we remind subscribers that indices often form important pivot points in the first few months of the year on the stock, sector and index level, e.g. the ASX200 formed an important top in 2020,2022 and 2023 and a low in 2019 and 2021.
Local equities snapped a 5-session losing streak today, rounding out a soft few days to bounce into the weekend. Supported by strength overnight, the ASX200 hit a high of 7446 early, up +100pts on the session but the move tempered into the afternoon. Still, the 74pt gain today was the best session for the index in more than a month, led by Tech and Healthcare. Utilities were the only sector to finish the session lower. The ASX200 fell -1% this week, a soft Materials sector being the main drag.
