Viewpoint: Bullish
When we cast our eyes over the US names in the sector the pictures generally the same with stocks like Nutrien (NTR US) and Mosaic Company (MOS US) rallying strongly from their 2020 panic sell-off but currently unable to break significantly higher than levels seen in recent years i.e. the sector has been a clear underperformer since the coronavirus.
The price of commodities which makes up much of our foodstuffs have rallied strongly over the last year e.g. Wheat +17% and Corn +14%. In our opinion this is the start of rising inflation following mass economic stimulus but there’s no hurry to force this view on markets, although the increase is slowly paying dividends for our Agriculture Fund ETF (DBA US) held…
China stocks have bounced almost 10% since they plunged following regulatory moves by Beijing towards on-line education. A deteriorating COVID picture has had no material impact on stocks, a trend which has been consistent across the globe including Australia. We are now neutral around the 5000 area but another test of the downside would look attractive on a risk / reward basis.
IAG rallied in the slipstream of SUN yesterday closing up +4.6% on the day, making it the ASX200’s 2nd best performing stock. Both the stock and sector look good to MM and if we were to see a “pop” by CBA towards $110 tomorrow following their result active players could consider switching part of their banking position into IAG in…
The ASX200 tried hard to rally yesterday but the selling across the “re-opening trade” and Resources Sector offset the strength in the Banking Sector, pretty much in line with our expectations flagged in yesterday’s report. MM has been bullish the banks for months and yesterday saw the Insurance Sector join the “rising bond yield” party, we like both the Banking & Insurance…
CLW +2.5%: A solid result today from a very solid real-estate investment trust. Operating earnings of $159m were inline with expectations as was the distribution of 29.2c.
Similarly iron ore has been coming off the boil since early May with the bulk commodity currently ~32% below its 2021 high, our ideal retracement target is around 8% lower which may provide some excellent risk / reward opportunities into some major Australian names.
Assuming $US strength is about to unfold we would usually anticipate that commodity prices struggle, just as we saw on Friday simply because they are priced in $US, however if the FX move is based on an economic recovery declines are likely to be less dramatic. Conversely we must remain mindful that the likes of copper have more than doubled since March 2020 on the combination…
The $US rallied strongly last week arguably embracing the employment data more than other markets which is probably testament that its bounce from the May / June lows has foundation. MM believes the $US will follow bond yields higher with our target area ~94.5 which implies a decent moves are likely through August across a number of markets and stock sectors.
This morning local bond yields are likely to follow their US peers higher although I would expect the move to be comparatively mooted as economists are again throwing around the “recession” word as Sydney and Victoria remain firmly in lockdown, unfortunately with less than 13% of NSW fully vaccinated it feels unlikely that things will change much into September.
