Daily Market Reports | Oct 14 2024
This story features WOODSIDE ENERGY GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WDS
SPI futures are signalling another strong opening for the local bourse on Monday, despite no further announcements forthcoming over the weekend regarding more stimulus for the Chinese economy.
The US presidential election and Q3 corporate results season in the US remain equally on investors’ radar.
And then there’s Israel and surroundings. Here’s a quote from a fresh Washington DC update by RBC Capital:
“There is an expectation in Washington that Israel will indeed launch a major strike that will cause substantial damage. While administration officials hope that Iran will opt for a more calibrated counteraction to enable an offramp, the Iranian leadership is not expected to sit on its hands and do nothing.
“While some officials at UNGA indicated that the newly elected reformist President Pezeshkian was exercising a restraining influence on Supreme Leader Khamenei, the Iranian Revolutionary Guard apparently drove the decision to launch the missile strike and may hold considerable sway in the coming weeks.
“We also continue to highlight that the US election calendar may also influence Netanyahu’s war calculations, with American support potentially at its peak before the polls close on November 5.
“We believe that there is a corner of the market that will hit the sell button on any sign that Israel is taking a pass on hitting Iranian oil facilities, and wind the clock back by several weeks.
“We would caution that we may be entering the most dangerous retaliatory spiral of this one-year war, and the risk of a full regional confrontation will remain appreciably high, even if Kharg Island is spared in the next Israeli strike.
“Moreover, based on our conversations here, Israel apparently has a serious contingency plan on the books to inflict a devastating blow on Iran’s oil industry.”
| World Overnight | |||
| SPI Overnight | 8296.00 | + 46.00 | 0.56% |
| S&P ASX 200 | 8214.50 | – 8.50 | – 0.10% |
| S&P500 | 5815.03 | + 34.98 | 0.61% |
| Nasdaq Comp | 18342.94 | + 60.89 | 0.33% |
| DJIA | 42863.86 | + 409.74 | 0.97% |
| S&P500 VIX | 20.46 | – 0.47 | – 2.25% |
| US 10-year yield | 4.07 | – 0.02 | – 0.56% |
| USD Index | 102.68 | – 0.19 | – 0.18% |
| FTSE100 | 8253.65 | + 15.92 | 0.19% |
| DAX30 | 19373.83 | + 162.93 | 0.85% |
By Chris Weston, Head of Research, Pepperstone
Good morning.
Last week, those set in long positions in a select number of DM equity indices, as well as the USD, would have been feeling good about life as we moved into the new week.
That played out well, and looking at the respective technical set-ups and internals, the same can also be said this week too.
We head into the new trading week with the S&P500 closing at its 45th all-time high (ATH) in 2024, with the Dow also at ATH’s, while the Russell 2k rallied 2.1% on Friday and could test the 52-week highs of 2299 this coming week.
Sentiment towards US equity is clearly upbeat but importantly not yet at euphoric levels S&P500 cyclical sectors are outperforming defensive sectors, high beta equity outperforms low volatility beneficiaries, and shorts continue to cover.
Market internals portray good participation, but the various metrics are not yet at alarming levels, with 62% of S&P500 companies above their 20-day average, while 21% of S&P500 constituents closed at a 4-week high on Friday, where we would typically see the S&P500 peak when this number moves above 50%.
US Q3 earnings set to increase in frequency
US Q3 earnings will start to play a greater role in influencing variance in the respective US indices this week, with around 9% of the S&P500 market cap reporting, although it’s the following week where we get the deluge with 37% of the S&P500 market cap set to report.
JP Morgan has set a precedent reporting a solid set of numbers on Friday, subsequently raising the bar for other upcoming reporting banks to also inspire in the guidance.
Notable reporting names for traders to put on the radar are Bank of America, Goldman Sachs, Citigroup, and Netflix. United Health (UNH) also report, and while unlikely to attract the same level of attention from traders as Netflix, UNH does hold a 9.1% weighting on the Dow.
In Europe, the skew in directional risk for the German DAX40 is for higher levels and remains my preferred long play within the suite of EU indices, where a push through 19,500 would attract further momentum-focused capital.
While in Asia, the NKY225 needs a push through 40k to get the momentum pumping, and while a weaker JPY would be a tailwind for the index this week, we can price the NKY225 in CHF terms (the strongest G10 currency last week) and see the index still holds up well, suggesting the recent gains are not simply a currency play.
China/HK markets set to react to the weekend MoF briefing
The volatility in Chinese & HK equity indices may have settled late last week, but there are risks that increased range expansion may return.
Subsequently, we watch for the reaction in equity and the yuan to China’s Minister of Finance’s weekend press conference.
Gauging a potential reaction is always a tough job to price, however, on balance, despite expectations of defined fiscal measures having been reduced through the week, the risk seems skewed for a weaker open in China/HK equity markets.
The market is failing to hear enough substance and a defined timeline in the roll out of fiscal stimulus, notably in the areas that will directly consumption and lift China out of its debt deflation loop.
However, there was a message of strong intent and a defiant stance to hit its 5% GDP target, with a clear appetite for a sizeable increase in the fiscal deficit and a potential move away from its 3% deficit limit a factor that may limit any initial fallout in equity.
Ultimately, with market participants looking to efficiently price certainty on China’s growth prospects, the lack of immediate clarity on China’s efforts to reflate the economy is unlikely to be taken well.
Trading Trump tariff risk the yuan to get the clear focus
Another factor which is emerging is that Trump’s rating in the polls, notably in the six key swing states has picked up certainly enough for market players to increase tariff hedges and trade expressions.
If Trump’s prospects are indeed increasing, then a potential 35-percentage point increase (to 60%) in tariffs on China’s imports would clearly negatively impact China’s efforts to engineer consumption and reflate.
USD upside risks remain but the ECB will need to lift its dovish game
With the USD in mind, its near-term prospects remain positive, and this should limit pullbacks in the USD pairs.
The US dollar index (DXY) tests 103, where a break of a defined congestion zone (best seen on the daily timeframe) should see a further push to the YTD average of 103.72 and the 200-day MA at 103.76.
US event risk centres on retail sales and Gov Waller’s speech
US event risk is perhaps limited to US retail sales on Thursday, and while the labour market remains the primary focus, consumption trends still command attention.
The market looks for a 0.3% m/m lift in sales, with many seeing an elevated risk of an upside surprise, where the prior three retail sales reports have come in well above consensus.
We also have 11 Fed speakers to navigate through the week, although I would be most concerned about holding positions over Gov Waller’s speech on Monday (Tuesday 6 am AEDT), where we look for any guidance on the -25bp cut or hold debate for the November FOMC meeting.
In the ongoing battle to price US interest rate risk, we see -20bp of cuts priced for the November meeting, or an 83% chance of a -25bp cut.
Further out, we see US interest rate futures pricing the fed funds rate to trough at 3.33% by Q1 2026, implying -150bp of further cuts to come.
Other key event risks for traders to navigate
Elsewhere in the week, we continue to be on the lookout for geopolitical headlines that could increase the prospect of a shock to Iranian crude output, which would lead to a spike in the crude price.
In the UK we get job numbers, CPI, and retail sales, with the market firmly of the view the MPC cuts rates by -25bp in the 7 Nov meeting.
In Australia, we see the September employment report, but with the first -25bp cut not priced until February, it’s questionable how influential this well-watched jobs data will be to the AUD or ASX200.
We also get CPI numbers in NZ and Japan, and certainly the NZ CPI print could be worth putting on the radar, given the market expects headline CPI to drop to 2.2% y/y and we’re hearing calls from some circles that the RBNZ may cut rates by a punchy -75bp at the 27 November meeting.
On the calendar today:
-New Zealand 3Q CPI
-China September Trade Balance
-Japan, US public holiday
FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/
Corporate news in Australia:
-Woodside Energy ((WDS)) seeks partners like Saudi Aramco for a $15.6bn Louisiana LNG export project
-Commonwealth Super is likely to sell its $2bn stake in CDC Data Centres to existing owners Infratil ((IFT)) or the Future Fund
-Appen ((APX)) is raising $50m to explore generative AI opportunities
-Dubber Corp ((DUB)) to raise a total of $25.0m via a fully underwritten equity raising
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 2674.20 | + 27.05 | 1.02% |
| Silver (oz) | 31.74 | + 0.37 | 1.18% |
| Copper (lb) | 4.49 | + 0.05 | 1.03% |
| Aluminium (lb) | 1.19 | + 0.02 | 1.82% |
| Nickel (lb) | 8.05 | + 0.09 | 1.19% |
| Zinc (lb) | 1.42 | + 0.02 | 1.79% |
| West Texas Crude | 75.49 | – 0.13 | – 0.17% |
| Brent Crude | 78.76 | – 0.30 | – 0.38% |
| Iron Ore (t) | 106.44 | + 0.63 | 0.60% |
Stephen Auth, Chief Investment Officer for Equities at Federated Hermes
As we enter the third quarter earnings season, analysts have lowered their expectations, with overall downgrades running at about 3.5%. This is a bit higher than the historical norm, but not dramatically so.
Energy stocks have been a key culprit, though the downgrades there seem more to do with the decline in oil prices in the third quarter that now have corrected back up. Large-cap pharma has also been hit, though these stocks tend to trade on forward pipeline developments than current earnings, anyway. And financials have seen downgrades due to the lagged effects of the Fed’s September rate cut, which hurts net interest margins temporarily then helps them later.
Bottom line, most of the action this earnings season will hang on what companies say about the forward outlook. For big tech, we will be looking for evidence that the “AI revolution” is making anyone, other than Nvidia, any money so far. Here, our expectations are more cautious.
Elsewhere, we’ll be watching the industrials for evidence that the longstanding weak manufacturing PMIs are having any impact on profits, which so far, they haven’t. And overall, we’ll be looking to see if the improved earnings growth outside of tech that we’ve been expecting to begin to show signs of life in the third quarter actually happens.
We’re optimistic. Net-net, we see the upcoming earnings season as market supportive, though not uniformly so.
The Australian share market over the past thirty days
| Index | 11 Oct 2024 | Week To Date | Month To Date (Oct) | Quarter To Date (Oct-Dec) | Year To Date (2024) |
|---|---|---|---|---|---|
| S&P ASX 200 (ex-div) | 8214.50 | 0.79% | -0.67% | -0.67% | 8.22% |
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| APA | APA Group | Downgrade to Sell from Neutral | UBS |
| DRO | DroneShield | Downgrade to Hold from Buy | Bell Potter |
| GNC | GrainCorp | Downgrade to Hold from Buy | Bell Potter |
| LTM | Arcadium Lithium | Downgrade to Hold from Add | Morgans |
| Downgrade to Hold from Buy | Ord Minnett | ||
| NAB | National Australia Bank | Downgrade to Reduce from Hold | Morgans |
| NWL | Netwealth Group | Downgrade to Hold from Accumulate | Ord Minnett |
| WDS | Woodside Energy | Downgrade to Neutral from Outperform | Macquarie |
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.)
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