Joining the dots

By June 3, 2024 No Comments

Good morning,

A benign read on US inflation and data pointing to a slowing economy was all Wall Street needed on Friday to close mainly in the green, with the Dow Jones having the best daily gain this year. Investors are joining the “dots on inflation” and lowering the downward trend. The annual headline and core PCE inflation data came in at 2.7% and 2.8%, respectively. Bond rallied while commodities came under pressure, and the US dollar did little. The narrative for the Fed to trim rates later this year seems to be on track.

The Dow Jones rose 1.51%, the S&P 500 gained 0.80% to 5,277, and the Nasdaq Composite -0.01% effectively closed flat. The Russell 2000 added 0.66%. Futures markets are pointing to solid gains across Asia this morning, including the ASX200 +0.5%. Retailer Gap surged 28.6% after the apparel giant raised annual sales guidance after first-quarter results beat market expectations, exhibiting fresh signs that a turnaround strategy is working. Meanwhile, Dell fell 18% after missing estimates and flagging higher costs.

Commodities were on sale on Friday, with oil and precious metals declining. Investors are weighing the durability of this year’s bull market in commodities amid signals the US economy is slowing while shortages are becoming more ubiquitous. OPEC confirmed over the weekend that production cuts would be extended. Notably, gold and silver miners held up very well on Friday while the SPDR Energy ETF closed 2.5% higher.

The SPDR Energy ETF closed 2.5% higher on Friday and looks to be on the cusp of a breakout to new highs on the 10-year monthly chart below. Goldman Sachs said last week that it remained bullish on commodities because demand growth is still solid and “sees more structural upside in industrial metals and gold.” Goldman expects copper to resume a rally and surge another 15% to $US12,000 a tonne by the end of the year, while gold will rise to $US2700oz.

XLE, the SPDR Energy ETF, is reasserting to the topside following a historic breakout to new record highs.

Bank of America is still bullish on copper but warned that the tight physical market would likely trigger more price volatility. BoA highlighted that “LME inventories are low, and only around 20% of metal in storage is acceptable to CME warehouses due to differences in exchange regulations. With physical markets still tight, further squeezes are possible, so CME may not be out of the woods yet.”

BoA noted that price dislocations between exchanges had become more frequent. With demand likely to keep growing while supply is constrained, there may not be an immediate remedy to low stocks at exchanges, which could cause more volatility. “With most base metals in sustained deficits, traders may have to get used to more frequent volatility.”

OPEC+ extended production cuts as it sought to shore up the market, but it also laid out a path to begin adding production later this year. The agreement reached in Riyadh on Sunday exceeded expectations and extended so-called “voluntary” cuts from key members, including Saudi Arabia and Russia, well into next year. The agreement aims to support crude prices while also easing production restraints on some producers, such as the United Arab Emirates. After the meeting, Saudi Energy Minister Prince Abdulaziz bin Salman told reporters, “We will maintain our precautious and pre-emptive approach.”

Macau’s gaming revenue jumped 29.7% in China in May, rising to the highest level since COVID, as the “Golden Week” holiday and new travel permits for Chinese tourists fuelled spending. Gross gaming revenues hit $2.5 billion for the month, aligning with the median analyst estimate of a 30% year-on-year increase. Macau saw a surge in visitors during China’s five-day Labor Day holiday at the beginning of the month, with average daily tourist arrivals growing 23.2% year on year and returning to 76% of the 2019 level.

Macau gaming stocks remain well down from their pre-COVID highs despite revenues having nearly fully recovered. The casino hub reported 2.6 million visitor arrivals in April, which was about 76% of the pre-pandemic level. May data is due later this month and should also support this trend.

MGM China has managed to sustain a breakout on the 12-year monthly chart below, following a pullback from the HK$16 highs in May. The technical setup is bullish, favouring additional upside over the coming year. Meanwhile, support at the breakout level looks significant. The May visitation data will be the next key catalyst for the shares.

Chinese citizens, who make up most of Macau’s tourists, can now apply for travel permits that allow multiple entries into the gambling hub within a period, provided they attend exhibitions, seek medical care, participate in entertainment or join specific tour groups. The travel easing, starting from May, is widely expected to boost visitor numbers.

The Fat Prophets Global Contrarian Fund had a solid performance during May with key portfolio overweights in commodities, precious metals, uranium, Japanese financials and China internet names all contributing. Net tangible asset backing on an estimated pre-tax basis through to Wednesday, 29th May, was up nearly 8%.

The ASX release stated …“in Japan, the yield on the JGB 10yr rose to 1.06% in a clear sign the Bank of Japan is scaling back intervention. The technical outlook for Japanese bond yields is for much higher levels in coming years as the BOJ prepares to raise rates for the first time in decades. The first rate hike is probable in June in our view, which would provide a sharp boost to earnings for Japanese financials, where the fund retains a key overweight.”

The Board “continues to be focused on reducing the share price discount to NTA which is still steep at c23%. The ongoing buyback is highly accretive to NTA at the current share price, which some value investors might find attractive.”   

Carpe Diem!


Disclosure: Fat Prophets and its affiliates, officers, directors, and employees may hold an interest in the securities or other financial products relating to any company or issuer discussed in this report. Fat Prophet’s disclosure of interest related to Investment Recommendations can be provided upon request to


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