ASX to rise on S&P 500 lead with Fed in focus

The coming week will focus on what US policymakers are willing to do and how President Jerome Powell describes what’s going on with inflation and where he sees it heading.

The Fed will issue a statement at the end of its two-day Thursday AEDT meeting. Powell will speak to reporters next. The Fed will also release new economic and interest rate projections.

TD Securities: “The tone is likely to be relatively hawkish, although that is widely expected now. We expect the pace of reduction to be doubled and the ‘transient’ to have fallen, with the midpoint showing a 50bp increase in 2022. We expect inflation and growth to slow enough to delay rate hikes through 2023, but, so far, strong data is encouraging hawkishness. . “

This week also brings policy decisions from the Bank of England and the European Central Bank – each Thursday as well.

As for local investors, Thursday will bring November employment data. TD’s Perspective: “The labor market recovery is expected to gain momentum following the easing of restrictions and we don’t expect a repeat of last month’s poor performance. However, the seasonal adjustment may put a damper on the November print.

“We expect the turnout to climb to 65.5% from 64.7% due to the reopening and could lower the utilization rate to 5.1% (October: 5.2%) despite the significant job gains expected. “

Today’s agenda

Local: New Zealand net migration in October

Overseas data: index of major Japanese manufacturers in the fourth quarter, machinery orders in October

Market highlights

ASX futures up 13 points or 0.2% to 7366

  • AUD + 0.3% at 71.72 US cents
  • Bitcoin on bitstamp.net $ US from .. am AEDT
  • On Wall St: Dow + 0.6% S&P 500 + 1% Nasdaq + 0.7%
  • In New York: BHP + 0.3% Rio + 0.2% Atlassian -0.8%
  • Also in New York: Tesla + 1.3% Ford + 9.8% GM + 6%
  • Apple + 2.8% Amazon -1.1% Microsoft + 2.8% Alphabet + 0.3%
  • In Europe: Stoxx 50 -0.2% FTSE -0.4% CAC -0.2% DAX -0.1%
  • Spot gold + 0.4% at US $ 1,782.84 / oz in New York
  • Brent crude + 1% at US $ 75.15 per barrel
  • US oil + 1% to US $ 71.67 per barrel
  • Iron ore -0.5% to US $ 108.03 per tonne
  • 2-year yield: US 0.65% Australia 0.62%
  • 5-year yield: United States 1.25% Australia 1.32%
  • 10-year yield: US 1.48% Australia 1.63% Germany -0.35%

From today’s financial review

Blackbird’s $ 10 billion return makes it Australia’s biggest venture capitalist: It’s Canva’s biggest funder, but Blackbird has backed many successful Australian start-ups and revealed that it had so far turned $ 1.3 billion into $ 10 billion.

Climate change and skills on CEO wishlist for federal election: Australia’s top business leaders want next year’s federal election to be on jobs and climate change, saying country must act quickly.

Australia’s tough borders fall despite omicron fears: Victorian authorities have made a surprise announcement ending the need for travelers from South Africa, where omicron was first identified, to self-quarantine.

United States

Consumer prices in the United States rose last month at the fastest annual rate in nearly 40 years. The consumer price index climbed 6.8% from November 2020, according to Labor Department data released on Friday (Saturday AEDT).

Goldman on What’s Going on in US Stocks: “Most S&P 500 shares participated in the rally between November 2020 and April 2021. But the breadth of the market has shrunk considerably in recent months. Only five stocks (AAPL, MSFT, NVDA, TSLA, GOOGL) contributed 51% of S&P 500 returns since April.

“When the market width narrows, the trend usually continues for another four months, while momentum ‘leaders’ tend to outperform. Historically, periods of sharp declines in market scope have been followed by low returns and larger than average declines.

“Despite the narrowing scope, the major downside risk over the next few months appears limited due to light positioning, strong earnings growth and stock prices already reflecting a likely Fed tightening. “

Goldman said its width index peaked at 100 in April 2021 before dropping to the current level of 16. Likewise, the S&The P 500 Equal-Weighted index outperformed the S&P 500 by 7 percentage points from November to April (25 percent vs. 18 percent) but has underperformed by 5 percentage points since (7 percent vs. 12 percent).

Goldman’s recommendation: “We continue to recommend that investors hold high growth, high margin stocks. These stocks have performed well in recent months and this should continue provided the tightening persists. “

Europe

The pan-European STOXX 600 slipped 0.3% on Friday, down for the third session in a row.

Technology and retail were the biggest drops in Europe on Friday.

“We believe that the path for equities is weaker over the next 12 months,” said Milla Savova, European equities strategist at Bank of America.

“Real bond yields will rebound from record lows as the Fed becomes more hawkish and the market begins to enter a steeper-than-expected Fed up cycle.”

Auto shares were pulled higher by Daimler, which rose 2.9% after the Daimler Truck split soared when it debuted on the Frankfurt Stock Exchange.

Tobacco group Swedish Match jumped 7.2 percent after the the Wall Street newspaper reported that U.S. Democrats had abandoned a vaping tax proposal that would have taxed e-cigarettes like regular cigarettes.

Food delivery companies Deliveroo and Just Eat Takeaway fell 2.4% and 3.2% respectively, adding to losses last week, fearing that a European Commission decision on the drivers of the economy of gigs don’t hurt profits.

Asia

China’s blue chips fell on Friday after hitting their highest level in more than four months in the previous session, as November’s currency and credit data fell short of analysts’ expectations.

The CSI300 index fell 0.6% to 5,047.11 at the end of the morning session, while the Shanghai Composite Index lost 0.3% to 3,661.12.

The Hang Seng Index fell 0.5% to 24,132.85. The Hong Kong China Enterprises index lost 0.4% to 8,625.90.

For the week, the CSI300 index gained 3% and is expected to have its best week in three months, while the Hang Seng index rose 1.5%.

The Hang Seng Tech index lost 1.1%, internet giants Alibaba Group, Tencent Holdings and Meituan lost between 1.6% and 2%.

“If we still want to invest in internet stocks, we have to see a policy turning point,” said Jie Lu, head of China investments, Robeco Private Fund Management in Shanghai. “It is difficult to judge the valuation without seeing the bottom of the regulatory risks. “

Real estate giant China Evergrande Group fell 1.7% after rating agency Fitch downgraded the company and the Kaisa Group due to non-payment of offshore bonds. A source said Kaisa has started restructuring its $ 12 billion offshore debt.

“The Evergrande and Kaisa defaults bring us to the second stage of this Chinese real estate slowdown, as systemic risk is gradually being replaced by idiosyncratic risk,” said Robin Usson, credit analyst at Federated Hermes.

Currencies

In its December currency report card, RBC Capital Markets said it expects the US dollar to extend its gains until 2022. “We think the Fed’s dot plot has room. to increase, but the most interesting change will be in the pricing of terminal rates.

“Futures show expectations stagnating around 1.75%, below the 2.5% that the FOMC consensus sees as neutral over the long term. What makes us more cautious than a year ago is that the consensus is much less bearish on the dollar and we believe the underlying positioning has shifted as well. “

RBC considers the main risk to the US dollar over the next six to twelve months: the relative underperformance of US stocks.

As for the Australian dollar, RBC is bearish in the near term: “Our economists have identified a number of factors holding back wage growth in Australia even as the recovery strengthens and this will likely keep the RBA on hold longer than the markets. next to. “

The “current overvaluation of rate hikes is not unique to Australia, but it is more extreme than most other markets. We expect the AUD to underperform as the rate markets revalue. “

RBC also sees the $ A struggling further. “Longer term, the AUD is unlikely to regain its status as a G10 high yield country anytime soon. Our AU team is looking for a low final cash rate (around 1.5%), well below previous RBA cycles. “

Merchandise

The Biden administration has ordered U.S. government agencies to immediately stop funding new carbon-intensive fossil fuel projects overseas and prioritize global collaborations to deploy clean energy technology, cables say American diplomatic.

The cables, seen by Reuters, indicate that the U.S. government’s commitments should reflect targets set in an executive order issued earlier this year to end U.S. financial support for coal and carbon-intensive energy projects in the United States. ‘foreigner.

Royal Dutch Shell shareholders voted overwhelmingly on Friday in favor of a plan to end the company’s dual-share structure and move its headquarters to London from The Hague.

With around 58 percent of the shares outstanding, a preliminary tally showed that 99 percent of shareholders supported a special resolution allowing the change in the company’s structure.

S&P Global Platts on Asia Met Coal Prices: “The Asia-Pacific regional metallurgical coal market closed the week stable on December 10 as price indications appeared to be limited in the markets. maritime. “

Platts valued Premium Low Vol stable at 341 USD / mt FOB Australia, and CFR China stable at 347 USD / mt CFR China on December 10.

“Chinese market players have remained on the sidelines, observing
the direction of the domestic blended coke market and its potential impact
on domestic coking coal and subsequently maritime price levels, ”Platts also reported.

Australian equity market

ASX’s weekly 1.5pb rebound ends streak of losses: The Australian stock market plunged on Friday as renewed concerns over omicron’s economic impact dampened risk appetite ahead of the main US inflation data.

Fundies on alert, ‘no shortage’ of risk for stocks in 2022: Fund managers say supply chain disruptions pose greater economic threat than new variant of COVID-19 to returns l ‘next year.

Talk about the street

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