Uranium stocks have surged higher over the last 48 hours and we believe this is a move to embrace, not fade – remember our very bullish outlook in the MM Resources into FY24 webinar. The uranium price has more than doubled over recent months, posting fresh decade highs in the process. It’s a straightforward game of supply & demand that has reached a tipping point as Utilities that have been drawing down inventory levels suddenly have to chase supply.
Not surprisingly, the correlation between the S&P500 Energy Sector and the crude oil price has been very strong since well before COVID but since Q4 of 2022 stocks have noticeably outperformed and are starting to feel stretched in comparison. Also, the Energy Sector has become a favourite of quant models/fund managers over the last few years as it grinds ever higher against a choppy and uncertain backdrop.
The ASX200 again recovered from early weakness to close up +0.2% although we still saw more stocks decline led by the Energy Sector although the market appears to have got this one wrong following crude oils pop over $US91/barrel last night. This morning may see many short-term players hang on the sidelines ahead of this month's important inflation data out of the US, the interpretation of which plus next week's FOMC meeting is likely to set the tone for bond yields over the coming weeks.
Investors focused on the future, as is usually the case, with the index closing out August down -1.4%, although it’s important to note the month was weak across global indices. The most prevalent headache for companies this profit season has been escalating costs, so far, these have largely been passed onto customers, allowing companies to defend profit margins, but the question is, can this be continued?
Over recent sessions, weakness in the ASX has also been amplified by several heavyweight stocks trading ex-dividend. Subscribers have probably gleaned from reports that September is historically the market's weakest month since 1992, declining on average over -0.9%, almost twice as bad as the infamous May! However, putting this into perspective, the ASX200 has already fallen over twice its usual decline in September.
Yesterday we saw major activity on the share register of Liontown Resources (LTR) which led us to reconsider whether other local lithium names could find themselves in the sights of overseas/local companies looking to grow through acquisition. Half of the lithium mines put on the market since 2018 have been bought by Chinese companies for an estimated $12.3bn illustrating the country's appetite for global battery metal although future moves may prove far harder with national interests likely to be put ahead of shareholders.
A 20% increase by the $US against the $A should by definition deliver a major tailwind for the ASX businesses who earn a significant portion of their revenue in $US with the healthcare and miners initially coming to mind followed by some specific industrials. Ironically the Healthcare Sector is enduring a tough year, especially by its standards, while the miners are struggling to capitalise due to uncertainties from China.
US indices experienced a mixed session overnight with the Dow falling -0.56% while the tech based NASDAQ edged +0.11% higher, weakness was fairly broad based outside of the tech and energy names. Oil prices rose as Saudi & Russia extended voluntary supply cuts bolstering the Energy Sector but creating a headwind for the broader market, Treasuries also edged higher on the inflationary read-through which didn’t help risk assets – Importantly MM believes the current advance by oil is maturing fast. The “Goldilocks” scenario is gathering momentum with Goldman Sachs cutting its recession odds to 15% while also calling the Fed to skip a rate hike this month, our first thought being equities may have already enjoyed the sugar hit, hence the question, what can push them higher into Christmas?
The “risk on” towards China theme was repeated across European bourses when they opened last night with mining giants Glencore Plc (GLEN LN) and Anglo American (AAL LN) trading higher from the opening bell although AAL saw its gains fade away throughout the day – MM holds Glencore in our International Equities Portfolio. Also, luxury-focused stocks that are heavily reliant on China for sales enjoyed a notable bid tone as investors/traders started to position themselves for a Beijing stimulus-led recovery. At this stage, we are getting some glimmers of hope from China's economy but once the picture does become clear we believe the horse will have bolted in terms of increasing portfolio exposure to an economic turnaround.
The US Tech Sector continues to follow the MM roadmap like a world-class rally co-driver, through July & August the FANG+ Index corrected over -13% before reversing on cue, however after just 3-weeks the picture has clearly changed with the index retracing over half of the decline and It's now only 5.7% below July’s all-time high. The Bears might be the most vocal but they’ve been losing the arm wrestle with the more muted Bulls all year. With central banks looking more and more like they’ve reached the pinnacle of their rate hiking cycle it's becoming increasingly easy to comprehend the rate-sensitive sector rallying to an all-time high into Christmas.
Not surprisingly, the correlation between the S&P500 Energy Sector and the crude oil price has been very strong since well before COVID but since Q4 of 2022 stocks have noticeably outperformed and are starting to feel stretched in comparison. Also, the Energy Sector has become a favourite of quant models/fund managers over the last few years as it grinds ever higher against a choppy and uncertain backdrop.
The ASX200 again recovered from early weakness to close up +0.2% although we still saw more stocks decline led by the Energy Sector although the market appears to have got this one wrong following crude oils pop over $US91/barrel last night. This morning may see many short-term players hang on the sidelines ahead of this month's important inflation data out of the US, the interpretation of which plus next week's FOMC meeting is likely to set the tone for bond yields over the coming weeks.
Investors focused on the future, as is usually the case, with the index closing out August down -1.4%, although it’s important to note the month was weak across global indices. The most prevalent headache for companies this profit season has been escalating costs, so far, these have largely been passed onto customers, allowing companies to defend profit margins, but the question is, can this be continued?
Over recent sessions, weakness in the ASX has also been amplified by several heavyweight stocks trading ex-dividend. Subscribers have probably gleaned from reports that September is historically the market's weakest month since 1992, declining on average over -0.9%, almost twice as bad as the infamous May! However, putting this into perspective, the ASX200 has already fallen over twice its usual decline in September.
Yesterday we saw major activity on the share register of Liontown Resources (LTR) which led us to reconsider whether other local lithium names could find themselves in the sights of overseas/local companies looking to grow through acquisition. Half of the lithium mines put on the market since 2018 have been bought by Chinese companies for an estimated $12.3bn illustrating the country's appetite for global battery metal although future moves may prove far harder with national interests likely to be put ahead of shareholders.
A 20% increase by the $US against the $A should by definition deliver a major tailwind for the ASX businesses who earn a significant portion of their revenue in $US with the healthcare and miners initially coming to mind followed by some specific industrials. Ironically the Healthcare Sector is enduring a tough year, especially by its standards, while the miners are struggling to capitalise due to uncertainties from China.
US indices experienced a mixed session overnight with the Dow falling -0.56% while the tech based NASDAQ edged +0.11% higher, weakness was fairly broad based outside of the tech and energy names. Oil prices rose as Saudi & Russia extended voluntary supply cuts bolstering the Energy Sector but creating a headwind for the broader market, Treasuries also edged higher on the inflationary read-through which didn’t help risk assets – Importantly MM believes the current advance by oil is maturing fast. The “Goldilocks” scenario is gathering momentum with Goldman Sachs cutting its recession odds to 15% while also calling the Fed to skip a rate hike this month, our first thought being equities may have already enjoyed the sugar hit, hence the question, what can push them higher into Christmas?
The “risk on” towards China theme was repeated across European bourses when they opened last night with mining giants Glencore Plc (GLEN LN) and Anglo American (AAL LN) trading higher from the opening bell although AAL saw its gains fade away throughout the day – MM holds Glencore in our International Equities Portfolio. Also, luxury-focused stocks that are heavily reliant on China for sales enjoyed a notable bid tone as investors/traders started to position themselves for a Beijing stimulus-led recovery. At this stage, we are getting some glimmers of hope from China's economy but once the picture does become clear we believe the horse will have bolted in terms of increasing portfolio exposure to an economic turnaround.
The US Tech Sector continues to follow the MM roadmap like a world-class rally co-driver, through July & August the FANG+ Index corrected over -13% before reversing on cue, however after just 3-weeks the picture has clearly changed with the index retracing over half of the decline and It's now only 5.7% below July’s all-time high. The Bears might be the most vocal but they’ve been losing the arm wrestle with the more muted Bulls all year. With central banks looking more and more like they’ve reached the pinnacle of their rate hiking cycle it's becoming increasingly easy to comprehend the rate-sensitive sector rallying to an all-time high into Christmas.
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