The Monday Report – 31 January 2022

This story features NEWCREST MINING LIMITED, and other companies. For more info SHARE ANALYSIS: NCM

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World Overnight
SPI Overnight	6896.00	– 16.00	– 0.23%
S&P ASX 200	6988.10	+ 149.80	2.19%
S&P500	4431.85	+ 105.34	2.43%
Nasdaq Comp	13770.57	+ 417.79	3.13%
DJIA	34725.47	+ 564.69	1.65%
S&P500 VIX	27.66	– 2.83	– 9.28%
US 10-year yield	1.78	– 0.03	– 1.38%
USD Index	97.27	+ 0.02	0.02%
FTSE100	7466.07	– 88.24	– 1.17%
DAX30	15318.95	– 205.32	– 1.32%

By Greg Peel

Bottoms Up I

The bell was rung on the bourse as the ASX200 hit the -10% correction mark on Thursday. Wall Street gave back a big early jump to close slightly lower on Thursday night, but the S&P500 also held on to the -10% correction mark. Bottoms in? The local futures suggested up a hundred on Friday morning.

One tell-tale sign is that hardest hit sectors on Thursday were the defensives. That’s capitulation.

Within ten minutes on Friday, the index was up 124. But there were still slow sellers and disbelievers lurking. Late morning, the index was back where it started.

Again, nonetheless, -10% held. The selling was exhausted and the buying kicked off. Just after lunch, the index hit 7000. Not just 7000, but 7000.00. That was the ceiling, ahead of closing at 6998.

Which will make today interesting. Wall Street, too, saw a powerful late rally on Friday night. But on Saturday morning our futures closed down -16 points. We’d already had our go, and for now 7000 will be resistance. The local earnings season begins to ramp up this week and the profit warnings have been flooding in.

On the assumption the season is weak, as early warnings suggest, do we go back down again, or was -10% enough?

Gains across sectors were relatively uniform on Friday, with most up 2-3%. The standout exception was energy (+0.8%), but it had its run the day before and oil prices were down a tad. Same story for utilities (+1.5%).

Materials (+1.5%) was again held back by weak gold miner production reports, with Newcrest Mining ((NCM)) falling -6.4% and Ramelius Resources ((RMS)) -8.0%.

Technology managed only 1.6% with the Nasdaq down -1.4% overnight.

It might be a quieter one today, ahead of tomorrow’s RBA meeting. Clearly that -10% has a lot to do with exactly what the RBA will do. The December quarter producer price index rose to 3.7% annual, as revealed on Friday.

While Australian inflation has jumped significantly, we’re not in the sphere of the 7% numbers being experienced in the US. The core CPI is smack bang in range at 2.6%. Unemployment is down to 4.2%. Time to hike?

The stumbling block for the RBA has been wage growth. US wage growth has been surging, along with CPI inflation. Australian wage growth, to date, has not. Tomorrow may not be the day a hiking timetable is specifically outlined.

Bottoms Up II

Unlike the Australian market, Wall Street opened lower on Friday night, to the tune of -350 Dow points. A rally was then attempted, but by 2.30pm the Dow was back slightly lower again. An hour and a half later, it closed up 564, accelerating all the way to the bell.

The Nasdaq rebounded 3%. That took it to square for the week, while the S&P500 posted a net 1.3% gain over the week after closing down in the prior three.

The Fed’s swift shift to hawkishness had been the main trigger for Wall Street’s correction, but weak quarterly earnings results to that point had not helped either. The tag for the season so far is “supply shortages”. All eyes were on Apple in the Thursday night aftermarket.

When the results dropped on Thursday evening, Apple rose 3%. On Friday it closed up 7%. That’s a big move for America’s biggest company.

All last year, every time there was a scare in growth stocks due to bond yield movements, dip-buyers were quick to jump back into the Big Tech names. In January, they didn’t, until Friday night.

All last year, Nasdaq swoons were ultimately followed by new all-time highs. So is the bottom now in?

Certainly last week on Wall Street saw a classic bottoming pattern. But the US earnings season is still in full swing. And fears continue over Russia-Ukraine and China-Taiwan.

As far as Fed policy is concerned, US PCE inflation rose 5.8% annual at the headline and 4.9% in the core rate — the Fed’s benchmark inflation measure. That’s a lot less than the headline CPI of 7%, but still the highest level since 1982.

But, the Fed has flagged its policy shift, and in a couple of months inflation numbers should start coming down as they cycle last year’s surge. The US jobs report for January is due on Friday, but is no longer that important. Moreover, if you’re at home sick with omicron, while still being employed, you’re counted as unemployed in the non-farm payrolls number.

So the January numbers will likely be distorted.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1791.60	– 2.10	– 0.12%
Silver (oz)	22.46	– 0.19	– 0.84%
Copper (lb)	4.37	– 0.07	– 1.64%
Aluminium (lb)	1.40	– 0.00	– 0.20%
Lead (lb)	1.03	– 0.02	– 2.27%
Nickel (lb)	10.29	– 0.15	– 1.48%
Zinc (lb)	1.65	+ 0.02	0.97%
West Texas Crude	86.82	+ 0.41	0.47%
Brent Crude	90.03	+ 0.84	0.94%
Iron Ore (t)	147.90	+ 9.15	6.59%

It was a great day on Friday for the iron ore miners, but I wouldn’t get too carried away. Such late surges happen every year ahead of the week-long Chinese New Year break, which begins today. When China comes back it usually goes the opposite way.

The other notable move below is that of the Aussie – back in the Swinging Sixties. Makes that iron ore price look even better.

The SPI Overnight closed down -16 points on Saturday morning.

The Week Ahead

China’s closed all week but will still put out January PMI numbers today. They, too, could be misleading, as Beijing does not seasonally adjust its data and New Year always leads to distortions before and after.

Everyone else will report manufacturing PMIs on Tuesday and services on Thursday.

The eurozone reports December quarter GDP tonight.

The Bank of England holds a policy meeting on Thursday.

The US will see private sector jobs on Wednesday and non-farm payrolls on Friday. Other data include construction spending on Tuesday and factory orders on Thursday.

Locally we’ll see private sector credit data today and housing finance tomorrow, along with house prices, retail sales and the RBA meeting.

Philip Lowe speaks on Wednesday and the RBA’s quarterly Statement on Monetary Policy is out on Friday.

On Thursday we’ll see building approvals and the trade balance.

IGO Ltd ((IGO)) gets things going with its result today while Amcor ((AMC)) and REA Group ((REA)) are two of the biggies this week as the earnings season ramps up.

Westpac ((WBC)) provides a quarterly update on Thursday.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
3PL	3P Learning	Downgrade to Equal-weight from Overweight	Morgan Stanley
ABP	Abacus Property	Downgrade to Lighten from Hold	Ord Minnett
AND	Ansarada Group	Downgrade to Hold from Add	Morgans
CHC	Charter Hall	Upgrade to Buy from Accumulate	Ord Minnett
CNI	Centuria Capital	Upgrade to Buy from Accumulate	Ord Minnett
COE	Cooper Energy	Downgrade to Underperform from Neutral	Macquarie
DXS	Dexus	Upgrade to Buy from Hold	Ord Minnett
EVN	Evolution Mining	Upgrade to Add from Hold	Morgans
FMG	Fortescue Metals	Downgrade to Underperform from Neutral	Credit Suisse
GPT	GPT Group	Downgrade to Hold from Accumulate	Ord Minnett
HPI	Hotel Property Investments	Upgrade to Buy from Accumulate	Ord Minnett
MCR	Mincor Resources	Downgrade to Neutral from Outperform	Macquarie
MIN	Mineral Resources	Downgrade to Neutral from Buy	Citi
		Downgrade to Sell from Hold	Ord Minnett
NEA	Nearmap	Upgrade to Buy from Neutral	Citi
OZL	OZ Minerals	Upgrade to Buy from Neutral	Citi
		Downgrade to Neutral from Outperform	Macquarie
PMV	Premier Investments	Upgrade to Outperform from Neutral	Credit Suisse

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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