The Monday Report – 18 December 2023

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This story features TRANSURBAN GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: TCL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Resourceful

Following Wall Street’s solid, Fed-driven rally on Wednesday night, Thursday night saw more of a pause and reflect. The ASX200 put in a monster rally on Thursday but decided to follow-on on Friday, rising 85 points to lunchtime.

Whereas Thursday’s rally was largely an all-in affair amongst sectors, Friday was all about resources. Materials and energy both rose 1.9%.

Aside from the benefits the sectors enjoy from the promise of lower interest rates, improving demand, on Friday the PBoC injected the most cash via one-year policy loans since at least 2016 as it seeks to support a Chinese economy suffering from a housing slump and weak demand.

Always good news for us.

The injection followed some better-looking numbers out of China for November. Industrial production rose 6.6% year on year, up from 4.6% in October, beating 5.6% expectations. Retail sales rose 10.1%, up from 7.6%, but missing 12.5% forecasts.

Fixed asset investment rose 2.9% year to date, matching October.

Not so good news was the close of our futures on Saturday morning, down -74 points despite a flat close on Wall Street on Friday night. Recalling that we saw a big out-of-the-blue buy order in the lead-up to last week’s rally, we might assume a profit-taking sell order.

Or a large international portfolio rebalance. Whatever the case, be warned.

The banks continued to power on on Friday (+0.7%) with lower rates in the offing, although Aussie bond yields on Friday were little changed. Discretionary (+0.8%) and industrials (+0.7%) are similarly back in favour – the latter mostly thanks to yield proxy Transurban ((TCL)).

Smaller gains were booked for healthcare, staples and communication services, while real estate saw some give-back (-0.5%) after rallying 4% on Thursday, utilities fell -0.2% and technology was flat.

Among individual index movers, Core Lithium ((CXO)) led the charge with a 15.1% leap as all lithium miners shot up on a bounce in the lithium price in China, due potentially to the stimulus news or the simple fact the lithium price has fallen out of bed in recent weeks, or both.

Core Lithium was over 10% shorted as of last week, and the table of stocks shorted by 5% or more is dominated by miners of lithium and other exotics.

Also heavily shorted is AI company Weebit Nano ((WBT)), which jumped 14.8% on Friday, following Thursday’s announcement of a deal signed with a Korean chip foundry.

On the downside, Telix Pharmaceutical ((TLX)) fell -10.2% after posting a not so bad September quarter update. Clearly the trade was crowded.

Traders will be wary of the release tomorrow of the RBA minutes but as the meeting pre-dated the Fed pivot, they may be less informative.

Seven-Week Run

On Friday night it looked like the S&P500 might just post its seventh consecutive up-day but it tripped at the finish line and closed down -0.01%. Never mind, the S&P did manage to post its seventh consecutive up-week, for the first time since 2017.

The Dow also managed to hit a third consecutive new all-time high.

Small caps saw a bit of Friday profit-taking, with the Russell down -0.8%, but it closed up 5.6% for the week on its reawakening.

Throwing a bit of cold water on Fed-based exuberance on Friday was the New York Fed president, who said interest rates are “at or near the right place” to get inflation under control and keep the economy growing but that it’s “premature” to discuss whether it is time to cut interest rates.

“We aren’t really talking about cutting interest rates right now,” John Williams said.

Jerome Powell hinted on Wednesday night that rate cut timing will at least be the next discussion – he certainly didn’t poo-poo the idea — and the market is now pricing in -150 basis points, or six cuts, next year, beginning in March.

That’s probably ambitious, and it’s likely Williams was simply trying to calm things down, but consensus does at least have at least four rate cuts next year as a starting point.

The US ten-year yield was steady on Friday night at 3.93%.

There were mixed data on the PMI front. A flash estimate of the US December manufacturing PMI showed a fall to 48.2 from 49.8, but services rose to 51.3 from 49.4, swinging back into expansion.

As we enter the final stretch before Christmas, consensus has the Santa Rally continuing into early next year at least. But when everyone has the same view…

Commodities

In a sign of the times, our LME price source has suffered a cyberattack. They are currently working to fix it but for now, we cannot bring you base metal prices.

Apologies.

The US dollar index saw a bit of a bounce on Friday night (+0.6%) which took some of the steam out of gold, but not the Aussie, which is flat at US$0.6699.

The SPI Overnight closed down -74 points or -1.0% on Saturday morning.

The Week Ahead

‘Tis the week before Christmas, thus offices will begin to empty, research will soon dry up and a festive cheer will descend.

But we will still get the minutes of the December RBA meeting tomorrow.

However in leaving its rate on hold, the RBA noted (again) in its statement this month that international developments are one factor informing policy decisions. While this would very much include China, developments in US policy cannot be overlooked.

In other words, the minutes will be old.

The Bank of Japan meets this week.

The US will see housing starts and home sales, consumer confidence, durable goods orders and most importantly, just before Christmas, November PCE inflation numbers.

The quarterly balance of the ASX200, previously announced, will come into effect from today.

Thursday brings the expiry of December quarter equity derivatives (futures, options).

Wrapping up the long tail of AGM season next week are Allkem ((AKE)), Incitec Pivot ((IPL)) and ANZ Bank ((ANZ)).

The Australian share market over the past thirty days…

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