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The Monday Report – 24 January 2022

Daily Market Reports | Jan 24 2022

This story features RESMED INC. For more info SHARE ANALYSIS: RMD

World Overnight
SPI Overnight 7006.00 – 49.00 – 0.69%
S&P ASX 200 7175.80 – 166.60 – 2.27%
S&P500 4397.94 – 84.79 – 1.89%
Nasdaq Comp 13768.92 – 385.10 – 2.72%
DJIA 34265.37 – 450.02 – 1.30%
S&P500 VIX 28.85 + 3.26 12.74%
US 10-year yield 1.75 – 0.09 – 4.69%
USD Index 95.64 – 0.16 – 0.17%
FTSE100 7494.13 – 90.88 – 1.20%
DAX30 15603.88 – 308.45 – 1.94%

Greg Peel shall return on Thursday.

January hasn't been the usual, easy-going, let's wait and see what comes next start into the new calendar year, and that's putting it mildly.

Last week, the S&P500 lost -5.7% of its value and the tech-laden Nasdaq declined by -7.6%. For both leading indices, it was the worst weekly performance since March 2020 when the world woke up to the fact that something scary had escaped from China.

To illustrate the rather extreme bifurcation that is currently, yet again, showing up on the global financial forum: iron ore added yet another US$3.75 to US$137.40/t on Friday, taking the week's gain to US$10.65 or 8.4%.

If the SPI futures are anything to go by then the local share market is yet to find a genuine breather in this month's downward cycle that could have made a much larger impact at the index level, if it wasn't for the heavyweight commodities stocks that have served their shareholders well thus far.

The week ahead includes Australia Day on Wednesday and the FOMC meeting the day after.

Here's what I wrote on Friday:

January's sudden reversal in market momentum is the direct result of financial markets' realisation that central bankers will have to accelerate their tightening intentions with covid interruptions and price inflation to stick around for longer.

What seemed like a logical one-off once societies opened up without pre-warning international supply chains has now turned into the threat that higher inflationary expectations might become embedded in consumers' and workers' minds. And once the genie is let out of the bottle, it might turn into another type of challenge for tomorrow's central bank policies.

In Australia, the focus is now firmly on the RBA as governor Philip Lowe has remained remarkably stoic in his view that interest rates won't (have to) move anytime soon. Yet, the team of economists at ANZ Bank predicts quantitative easing will be announced at next month's RBA meeting, and the prospect of hiking the ultra-low cash rate later this year would have to be under serious consideration by now.

ANZ Bank, of course, is far from the only one with such view. The team at Westpac equally reported this week the RBA is expected to announce the cessation of its bonds purchasing program altogether on February 1st, when the RBA board meets next.

What seems to have changed the debate is a much stronger labour market; much, much stronger than most had predicted. Hence, the renewed market conviction that an explicit decision to move to quantitative tightening is likely on the table for the February RBA meeting. The Q4 CPI report in the week ahead may be all that is left to seal the deal, so to speak.

As pointed out by the team at National Australia Bank this week, the latest read on unemployment in Australia saw the overall rate decline to 4.2%, its lowest since August 2008 and before that we have to go back to the 1970s to see an unemployment below 4%.

If ANZ Bank's gutfeel is anything to go by, the RBA will continue to emphasise patience, but its the central bank's forward guidance on interest rates that needs to shift. Expect bond traders to get really, really excited when that occurs. There will be a general sense of "did we tell you, or what?"

Westpac now predicts the first RBA rate hike in August, but all-in-all suggests more flexibility at the RBA seems but the logical approach given this year's general context. ANZ Bank economists are of the view that hiking the cash rate in early 2023 will likely become Lowe & Co's central scenario, with a pull forward into 2022 no longer ruled out.

The number one major event for the week ahead is without any doubt the FOMC meeting in the US, followed by the releases of US Q4 GDP and personal consumption expenditure (PCE) price index for December on Thursday and Friday respectively. A strong PCE print will likely reinforce expectations of a US rate hike as early as March.

In Australia, as mentioned, the Q4 CPI release on Tuesday might turn into a Big Event, with business conditions for December to be released on the same day. All throughout the week resources companies will continue releasing their trading updates for the December quarter and by Friday the local reporting season will -sort of- take off as ResMed ((RMD)) reports its quarterly from the US.

On Wednesday Australia celebrates Australia Day.

A more detailed calendar is available on the website:

Spot Metals,Minerals & Energy Futures
Gold (oz) 1835.60 – 2.70 – 0.15%
Silver (oz) 24.27 – 0.16 – 0.65%
Copper (lb) 4.49 – 0.04 – 0.78%
Aluminium (lb) 1.38 – 0.03 – 1.85%
Lead (lb) 1.07 – 0.01 – 0.49%
Nickel (lb) 10.87 + 0.15 1.42%
Zinc (lb) 1.66 + 0.00 0.01%
West Texas Crude 85.14 – 1.76 – 2.03%
Brent Crude 87.89 + 0.81 0.93%
Iron Ore (t) 137.40 + 3.75 2.81%

The Australian share market over the past thirty days…

AKE Allkem Upgrade to Add from Hold Morgans
Downgrade to Accumulate from Buy Ord Minnett
Downgrade to Neutral from Buy UBS
ANZ ANZ Bank Upgrade to Overweight from Equal-weight Morgan Stanley
Upgrade to Accumulate from Hold Ord Minnett
ASX ASX Downgrade to Underweight from Equal-weight Morgan Stanley
AWC Alumina Ltd Downgrade to Hold from Accumulate Ord Minnett
BLD Boral Upgrade to Equal-weight from Underweight Morgan Stanley
CAR Carsales Downgrade to Lighten from Hold Ord Minnett
COE Cooper Energy Downgrade to Hold from Accumulate Ord Minnett
CVN Carnarvon Energy Upgrade to Buy from Accumulate Ord Minnett
DXI Dexus Industria REIT Upgrade to Add from Hold Morgans
GNC GrainCorp Downgrade to Neutral from Buy UBS
HUB Hub24 Upgrade to Outperform from Neutral Macquarie
Upgrade to Buy from Accumulate Ord Minnett
HVN Harvey Norman Upgrade to Outperform from Neutral Credit Suisse
MP1 Megaport Upgrade to Hold from Sell Ord Minnett
RBL Redbubble Downgrade to Equal-weight from Overweight Morgan Stanley
REA REA Group Upgrade to Buy from Hold Ord Minnett
SEK Seek Upgrade to Accumulate from Hold Ord Minnett
SFR Sandfire Resources Downgrade to Sell from Hold Ord Minnett
VRT Virtus Health Downgrade to Hold from Add Morgans

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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