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 $US60/mt, at least this wrong call was beneficial with the budget improving daily. We believe BHP’s chief economist, Huw McKay, was on the money this week when he said, “This is an incredibly sweet spot for the industry”, as the printing presses keep rolling at the likes of BHP and RIO.
The ASX200 added to December's gains on Tuesday, taking it up more than 2%, and we still have more than half of the month left. As we’ve said a few times of late, as we head into the seasonally strong fortnight for stocks, the index is looking good for at least a retest of the 7400-7450 area. The broad market was again firm on Tuesday, with no sectors falling and over 70% of the main board ending the session higher. Apart from the strong performance of the tech names, the influential banks and major miners have remained firm over recent weeks.
We already believe stocks are pricing in a best-case scenario of lower rates without a recession, i.e. the Goldilocks scenario; hence, any bumps in the road through 2024 could see setbacks for stocks and, in particular, the “risk-on” trade, e.g. gold is a high Beta example having retraced ~$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.
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.
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.
We remain bullish equities through December with the ASX200 Accumulation index poised to make fresh all-time highs, i.e. the ASX200, including dividends. Hopes of lower interest rates are driving the recent rally through 2024. However, investors are largely ignoring the risks of an economic contraction as the hiking cycle bites consumers and borrowers – the “Goldilocks scenario” is the market's current preferred scenario.
The ASX200 reversed lower for the week on Tuesday as the Resources Sector led the declines, e.g. Pilbara (PLS) -8.5%, IGO Ltd (IGO) -6.7%, Northern Star (NST) -4%, and Sandfire Resources (SFR) -3%. However, with well over 80% of the main board closing lower, there were few bright pockets, with the exception of the Healthcare Sector, which enjoyed a defensive bid, ultimately closing up 0.03%, not conclusive but at least positive.
Always expect the unexpected is a very useful adage for investors, and today, we have looked at 3 cases that would put a spanner in the works for the majority of investors as they sit in the contrarian corner with 2024 looming on the horizon – it's now only 20-days until Christmas. It’s worth remember this time last year; everybody was bullish on the EV trade while gold was hardly getting a mention. Here we are with a few weeks left of 2023, and lithium has crashed ~80% while gold posted fresh all-time highs.
Last week saw US bonds accelerate on the upside (yields lower), taking stocks higher for their 5th consecutive week; the S&P500 posted its highest close since March 2022. Fed Chair Jerome Powell poured fuel on the Dove’s already raging fire, saying the central bank policy is “well into restrictive territory.” The result was the 2s are now trading ~1% below the Upper Limit of the Fed Funds Target Rate as trader’s price in rate cuts by the Fed next year.
Under the hood of stock markets, “The cream rises to the top”, just as it used to when the milkman used to deliver milk in glass bottles door to door every morning, good weather or bad – we know Shawn can still remember this, I wonder how many subscribers? The same effectively unfolds across indices as stocks are promoted/relegated fairly regularly, with 15 stocks changing places in 2023.
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.
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.
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.
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.
We remain bullish equities through December with the ASX200 Accumulation index poised to make fresh all-time highs, i.e. the ASX200, including dividends. Hopes of lower interest rates are driving the recent rally through 2024. However, investors are largely ignoring the risks of an economic contraction as the hiking cycle bites consumers and borrowers – the “Goldilocks scenario” is the market's current preferred scenario.
The ASX200 reversed lower for the week on Tuesday as the Resources Sector led the declines, e.g. Pilbara (PLS) -8.5%, IGO Ltd (IGO) -6.7%, Northern Star (NST) -4%, and Sandfire Resources (SFR) -3%. However, with well over 80% of the main board closing lower, there were few bright pockets, with the exception of the Healthcare Sector, which enjoyed a defensive bid, ultimately closing up 0.03%, not conclusive but at least positive.
Always expect the unexpected is a very useful adage for investors, and today, we have looked at 3 cases that would put a spanner in the works for the majority of investors as they sit in the contrarian corner with 2024 looming on the horizon – it's now only 20-days until Christmas. It’s worth remember this time last year; everybody was bullish on the EV trade while gold was hardly getting a mention. Here we are with a few weeks left of 2023, and lithium has crashed ~80% while gold posted fresh all-time highs.
Last week saw US bonds accelerate on the upside (yields lower), taking stocks higher for their 5th consecutive week; the S&P500 posted its highest close since March 2022. Fed Chair Jerome Powell poured fuel on the Dove’s already raging fire, saying the central bank policy is “well into restrictive territory.” The result was the 2s are now trading ~1% below the Upper Limit of the Fed Funds Target Rate as trader’s price in rate cuts by the Fed next year.
Under the hood of stock markets, “The cream rises to the top”, just as it used to when the milkman used to deliver milk in glass bottles door to door every morning, good weather or bad – we know Shawn can still remember this, I wonder how many subscribers? The same effectively unfolds across indices as stocks are promoted/relegated fairly regularly, with 15 stocks changing places in 2023.
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