ASX- Listed Australian stocks:
A1M, AAC, ABX, ABY, ADI.AU, AKE, ALK, AMC, AMI, ANN, ANZ, APA, ARB, ASM, AZS, BFC, BFC.AU, BHP, BKL, BLD, BOQ, BUB, BWP, CAT, CHC.AU, CHN.AX, CKF, CNR, COF.AX, CQE.AU, CSL, DHG, DMP, DXS.AU, ECF.AX, EHE.AUX, ELD, ENN.AX, ESS, EVN.AU, FAL, FATP.AX, FID, FMG, FPC.AU, FPP, GBS, GOLD, GOR.AU, GPT.AU, HUB, IDX, IGO, IPL, JHC.AX, JHX, KRR, MCR, MPL, NAB, NCM.AU, NEC, NML, NSR.AU, NST.AX, NUF, NXM, ORA, ORI, PAN, PAR.AU, PPS, PRN, QAN, QBE, RED, RIO, RXL, S32, SBM, SCG.AU, SCG-2, SFR, SGP, SHL, SLR, SRG, SRV.AU, SSPG-2, SSR, STO, SUN, SVY, TLS, TPG, TRS, TWE, VCX, WBC, WDS, WHC, X64, PDN, GNC, MGR, TYR, ATOM, 29M, RRL.AU, STO.AX, WDS.AX & GMD.AX
International stocks:
3382, 3690, 5930, 6506, 6954, 8058, 9432, 1128.HKE, 1818.HKE, 1821.HK, 1876.HKE, 1928.HKE, 1972.HKE, 2282.HKE, 2840.HKE, 2883.HKE, 3289.TKS, 3690.HKE, 388.HKE, 435.HK, 5929.TKS, 6367.TKS, 6481.TKS, 6758.TKS, 683.HKE, 69.HKE, 700.HKE, 7167.TKS, 7186.TKS, 7974.TKS, 823.HK, 8306.JP, 8316.JP, 8331.T, 8411.T, 8604.TKS, 8604-2, 8801.JP, 8804.TKS, 9684.TKS, AAL, AAPL.NAS, ABX.TSX, ACA.PAR, AIR, AMH.NYS, AMS, AMS.MAD, ANGPY, ANTO, APF, ARF, AT1.ETR, ATVI, ATYM, AUTO.LSE, AV, AVB.US, BA, BABA.NYS, BAC, BARC, BBOX.LSE, BGFD, BHP.NYS, BHR.NYS, BIDU.NAS, BKIA, BMW, BN, BNP.PAR, BP, BT.A, BXP.NYS, C, CAST.SE, CAT, CCH, CCL.LSE, CDE.NYS, CDE.US, CEY, CHL, COL.ES, CQR, CSCO, CSGN, CUZ.NYS, CVO.PA, DGE, DHC, DHI, DIS, DIS.NYS, DLR.NYS, DOM.LSE, ECMPA.AMS, ENAV-uk, ENTRA.OSL, ENX.PAR, EQIX, ESS.US, EXR.NYS, EZJ, FDX, FRES.LSE, G24, GDX.LSE, GDXJ.LSE, GDXJ.US, GEMD, GLD.ARC, GLEN, GOCO, GOLD.NYS, GOOG, GRG, GSK, HDB, HEIA.AMS, HL, HLT.NYS, HMY, HMY.NYS, HSW, HUFV.SE, IAG, IBN, IMG, IMPUY, ITRK, ITV, JHX.NYS, JP.8308, KGC, KIM.US, KNEBV.HEL, KWS, LEG.ETR, LEN, LGEN, LLOY, LRE, LSE, LVMH, MC.PAR, MCRO, MCRO.LSE, MKS, MOL, MONY, MRL.ES, MTN.NYS, NEM, NG, NSR, NWH.U.CA, NWH.UN.TSX, OXY, PETS, PG, PHE, PHE.LSE, PLATJPN, PLD.US, PLEF, PLG.CA, POLY, PPH, PSA.NYS, PZC, RB, REL, RELX, RI, RIGD, RIGD.LSI, RING, RMV.LSE, RNK, RR, SGE, SGRO.GB, SHEL, SIL, SKT, SKT.US, SLP, SMDS, SMI, SMSN.LSI, SN, SNE, SPG.US, SPK, SRC.US, STAY.NAS, SYY, TGYM, TJX.NYS, TME, TRNO.US, TSM, TTWO, TWR, UBER, ULVR, UMH.NYS, VER, VNO.NYS, VOD, VOW, VTR.US, WELL.K, WMG.NAS, WYNN, XERI.PK, XOM, YTRA, YUMC, ZG.NAS, URA, HEM.SE, 9888.CN, 9988.HK, 7163.JP, CDE.US, GENI.GB, PDN.AX, RIOT.US & ZG.US
US Stocks Edge Higher on Fed Dovish Tilt | Gold Hits Record, ASX Lags
US equity benchmarks posted modest advances on Monday as traders mulled economic data and commentary from Fed policymakers. The commentary tilted dovish, with Chicago Fed President Austan Goolsbee saying that the focus should shift to the labour market, which “likely means many more rate cuts over the next year.” The boss at the Minneapolis Fed, Neel Kashkari, espoused his view that the Fed can lower rates by another 50bps before year-end. Raphael Bostic from the Atlanta Fed took a more middle-of-the-road approach, saying policymakers shouldn’t commit to large moves.
While the core equity benchmarks were higher at the close, there was a notable underperformance from the small/mid-caps, which headed lower. The Dow Jones added +0.15%, the S&P500 gained +0.28% to 5,718, while the Nasdaq rose 0.14%. The Russell 2000 declined 0.3%. At the time of writing, the yield curve continued to steepen, with the 2yr falling 2 bps to 3.57% while the 10s were steady at 3.75%. Commodities were mixed with oil lower by 1%, while gold firmed 0.3% to 2,638oz. Soft ag was higher with the grains all higher. Copper was steady. Volatility continued to decline, with the VIX falling 1% to 16.
With the US indices near record highs and valuation for the S&P500 once again at the top end of the historical range, incoming data must support and live up to expectations. The narrative that the economy is tracking towards a “soft landing” must hold together. Inflation will also need to continue on a downward trend.
This week, the market will look at several prints on manufacturing, consumer confidence and durable goods, and the key PCE price gauge, the Fed’s preferred inflation gauge. Whilst a bad print could instigate volatility, there is nothing to suggest that the US economy wont make a soft landing in the coming months.
Stocks are priced for perfection in the US. The S&P 500 now commands a PE ratio of 21.4 forecast earnings, well above the long-term average of 15.7. What we can say about the US market is that new record highs and additional upward extension beyond 5,700 in the absence of near-term catalysts are unlikely over the coming weeks. But we might not see much in the way of downside volatility either, now that the Fed is easing, with more rate cuts likely on the way.
The VIX is settling down into a lower range. I think the highs seen in August will not be repeated anytime this year.
When September corporate earnings get underway later next month, they will be closely watched. Consensus estimates are for S&P 500 earnings to have climbed 5.4% from the prior year and then jump nearly 13% in the fourth quarter. If this plays out, then we can expect a strong finish to year end, particularly so if the Fed comes in with one or two more rate cuts.
Gold hit a new record high last week, with Comex futures surging past the $2600 level. Dollar weakness after the outsized rate cut and tensions in the Middle East offset muted physical demand in Asia, leading to the surge. Physical gold is headed for its biggest rise since 2010 and is now outperforming most asset classes, including the S&P500.[stu alias=”daily_249″]
It has been frustrating that we have not seen further upside in the precious metal mining sector, but I believe this is coming with financial inflows set to pick up in the months ahead. Further, US dollar depreciation is also on the cards, which should generally provide another key support for gold and commodities.
Gold has managed to rise despite the financial outflows from ETFs, where the number of tons held has declined since the last peak in 2020. Despite this, gold has risen, but primarily due to central bank buying.
Bank of America’s chief strategist Michael Hartnett said in a note to clients last week that gold is set for a further rally with a new Fed easing cycle underway. He also said that with 250 of bp cuts priced into next year, the S&P500 could have 18% earnings growth. “The growth doesn’t get much better than that for risk, but it means investors will have to chase the stock market surge as bubble risks bounce back. Amid further AI investment and easing policy, the best way to position portfolios is with allocations to bonds and gold, which hedge against growth and inflation risks. Do what central banks are doing… buy gold.”
Turning to data, preliminary estimates showed that despite deepening woes for the manufacturing sector, the larger services sector remained in expansion, cushioning economic activity. This helped stoke bets on a soft landing, our base case.
The S&P Global US Manufacturing PMI fell to 47 in September from 47.9 in August, defying market expectations for a rise to 48.5. This marks the third straight month of contraction in factory activity, with the decline accelerating to its sharpest pace in over a year. The drop was driven by the steepest fall in new orders since December 2022. Data suggested excess capacity in the supply chain, and manufacturers cut jobs. While the services sector remained strong, growth slowed slightly (55.4 vs 55.7). The result was that the Composite PMI dipped slightly to 54.4 in September from 54.6, although marginally exceeded forecasts of 54.3. Notably, the average prices for goods and services rose at the fastest pace since March, while input costs saw their largest increase in a year.
Mega-caps provided modest support overall, as declines from Apple -0.8%, Microsoft -0.4% and Alphabet -1% were limited. Nvidia +0.2%, Meta +0.6%, Amazon +1.2% and Meta +4.9% were on the green team. Tesla’s outsized gain followed Barclays’ decision to maintain its “equal weight” rating. The broker suggested Tesla’s third-quarter delivery numbers could surpass expectations, providing a short-term boost. In my view, much rests on the upcoming Robo-taxi reveal in October, assuming no further delays.
Intel climbed +3.3% after Bloomberg reported that Apollo Global Management proposed a multibillion-dollar investment in the chipmaker. CNBC also confirmed Qualcomm recently showed interest in a takeover of the beleaguered chipmaker.
Micron Technology was up +2.9% after JPMorgan reaffirmed its “overweight” rating ahead of its upcoming earnings on Wednesday. The JPMorgan analyst reportedly expects the results to be fuelled by strong demand in artificial intelligence and server markets.
General Motors slipped -1.7% after Bernstein downgraded the automaker to “market perform” from “outperform.” The firm cited risks to earnings and potential pricing pressures due to rising inventory levels.
Boeing ascended +2% on news that it had sweetened offered terms for disgruntled striking workers.
Gold’s positive momentum faded into the close, which led to some profit-taking on Hecla Mining -2.7% and Coeur Mining -2%, although Harmony Gold posted a +2.1% advance. The news that Microsoft agreed to buy nuclear output from Constellation Energy lifted uranium exposures, including the Sprott Physical Uranium Trust +4% and the Global X Uranium ETF +3%.
The ASX 200 retreated from the record high on Monday, slipping -0.69% to close at 8152. Uranium stocks enjoyed firm bids, while gold miners found support from another record high for gold bullion prices. Supermarkets were a drag as the ACCC launched legal action. Traders also took a cautious stance ahead of the Reserve Bank of Australia’s board meeting, which is expected to keep the cash rate steady at 4.35% when the decision is announced this afternoon. SPI futures are pointing to a marginal decline at the open.
Australian Treasurer Jim Chalmers said on Sunday during an interview on Sky Business that he expects upcoming data to show encouraging progress in combating inflation but acknowledged that “the central bank may not be ready to cut interest rates this week.” Consensus expectations are that Australia’s CPI will confirm the disinflationary trend for August and fall to 2.7%.
Jim Chalmers said that “whether it’s in the low threes or in the high twos, what it will show is that inflation in monthly terms is around half what we inherited a couple of years ago when we came to office. That would be welcome and encouraging progress. We are broadly on the right path.” However, the hot jobs print last week (dominated by public sector hiring) effectively rules out a rate cut today. I still think there is scope for a rate cut from the RBA by year-end, but we will need some slackness to emerge in the labour market.
Australia’s manufacturing sector continued to show widening cracks, with the preliminary PMI falling to a four-year low of 46.7, while the services PMI eased to a two-month low of 50.6. The Judo Bank Flash Manufacturing PMI slipped to 46.7 in September from 48.5 in August. This marks the eighth month of decline and at the sharpest pace since May 2020. Both new orders and production tumbled at their fastest pace in over four years, driven by weakening demand, including a fall in export orders. Meanwhile, the service sector’s slowdown was driven by moderating new business and a decline in export orders. Clearly, the Australian economy has slowed to a snail’s pace, and the risk is we slip into recession in the coming quarters.
Price pressures eased in manufacturing and services, which RBA policymakers will consider, but my base case is that the RBA will begin its pivot before Christmas or early 2025. Meanwhile, the Aussie battler (dollar) firmed as China’s central bank surprised by lowering its 14-day repo rate.
Eight broad ASX sectors declined on Monday, led lower by consumer staples -2.8%, followed by real estate -1.6% and consumer discretionary -1.32%. Energy +0.94%, utilities +0.81% and tech +0.26% were the only broad sectors that posted advances.
Energy’s robust performance was driven by a surge in uranium stocks following Microsoft’s deal to source nuclear energy for its data centres. American utility firm Constellation Energy intends to restart Three Mile Island Unit 1 (yes, that Three Mile Island). If the restart gets approval from the regulator, Microsoft will buy 100% of its output for at least 20 years. The landmark deal highlighted the growing role of nuclear energy in meeting the tech sector’s fast-growing energy demands. Boss Energy jumped +8.2%, Paladin Energy rose +4.7%, and Deep Yellow climbed +5.1%. Woodside Energy added +0.9%, while Santos -0.1% was little changed. Coal miners Whitehaven Coal +2.4% and New Hope Corporation -0.2% were mixed.
The financial sector sat around the middle of the table on Monday, falling -0.5%. The big four banks saw mixed results. CBA slipped -1.5%, pulling back after recent strength and was a substantial drag. ANZ slipped -0.6%, while NAB +0.1% and WBC +0.1% posted marginal gains.
Materials struggled as falling iron ore prices weighed on the sector. Iron ore slipped below US$90 per tonne, pressuring the majors. BHP -1.3% and Rio Tinto -0.6% declined, although Fortescue +0.3% bucked the trend with a modest advance. In the copper space, Sandfire Resources gained +1.4%, while 29Metals climbed +3.8%.
Gold miners firmed as rising safe-haven demand pushed gold bullion prices to fresh highs. The gold sub-index advanced +0.4%. Newmont rose +1.6%, Northern Star +0.2% crept higher, while Evolution Mining dipped -0.5%. Genesis Minerals was flat on Monday but has staged a solid advance year-to-date. A growing production profile provides leverage to rising gold prices.
In our last technical update on Genesis back during late May we highlighted that “Since respecting the primary upward trend, Genesis Minerals has reasserted to the topside to retest the historic overhead resistance level at $2. A topside breakout appears to be in the making. If confirmed, Genesis Minerals has decent scope to surge to new record highs well above $2.”
Genesis Minerals has indeed broken above topside resistance at $2. Scope is now open for higher levels towards $3 in the year ahead, with the A$ gold price approaching $4000oz. Given that it took Genesis three years of ranging and base building before the historic resistance at $2 finally conceded, the technical setup favours a decent rally in coming months. Support now looks formidable at $2, given that it has been successfully tested in recent months.
The supermarkets were a drag as they were hit by an ACCC lawsuit over misleading pricing tactics (basically false discount claims). Coles tumbled -3.3%, and Woolworths fell -3.4%. That dragged the staples sector lower.
In corporate news, REA Group slipped -2.5% after it sweetened its bid for UK property platform Rightmove by about 6%, though the offer was again rejected. Investors are watching to ensure REA Group doesn’t go overboard with its bid.
Healius surged +7.5% after announcing it would sell its Lumus Imaging division for $965 million, well above the price tag that the market anticipated. Austal rose +2.4% after securing a US$152 million contract with the US Navy to support submarine deliveries, while Telix Pharmaceuticals gained +1.9% on news of its $230 million acquisition of US-based RLS, further expanding its footprint in oncology.
Diversified miner South32 (flat) has been awarded a $244 million (US$166m) grant covering 30% on a cost-share basis from the US Department of Energy to develop a commercial-scale manganese production facility at its Hermosa Project in Arizona. The project has the scope to be an integral part of the American EV battery supply chain.
Shifting to Asia, the stock market in Japan was closed for a public holiday. China’s CSI 300 advanced +0.37%, while the Hang Seng dipped -0.06%. This snapped a six-day winning streak but left the benchmark near a two-month high of 18,247.
On Monday, China’s central bank (the PBoC) injected 74.5 billion yuan ($10.6b) into the banking system through open market operations and lowered the 14-day repo rate by 10bps to 1.85%. This followed more downbeat economic data last week. With the Fed cutting by 50bps, Beijing has more room to manoeuvre while defending the yuan.
Unlike the Hang Seng Index, China’s CSI300 index of mainland Chinese companies has yet to confirm and sustain a breakout from the bear market that began in early 2021. The index has nearly halved from close to 6000 to the current level of 3200. The good news is that the CSI300 is potentially forming a double bottom. After the lows of 3600 in 2022 were broken and the index slid to 3200, the rebound petered, and the lows retested. Indexes and stocks often do this ahead of a change in trend.
In Hong Kong trading, Xiaomi climbed 4.4% after CEO Lei Jun teased that a new product launch was imminent. JD.com eked out a +0.4% advance, while most other big tech fell, including Meituan -2.3% and Kuaishou Technology -1.1%.
Property developers China Vanke +2.2% and China Overseas Land & Investment +1.2% extended gains from last week, thanks to the prospects for lower interest rates. Gold miner Zhaojin +3.9% tracked higher gold prices. Energy stocks were another bright spot, with PetroChina +1.5%. Sinopec +1.3% and CNOOC +0.4% rising.
London’s benchmarks closed in the green as investors mulled economic data from home and abroad. The FTSE 100 rose +0.36% to close at 8,259, supported by strong performances in retail and utilities, while the more domestically focused FTSE 250 inched up +0.06%.
UK economic data showed business activity grew more slowly than expected. The composite PMI for September fell to 52.9, down from 53.8 in August, as there was a slowdown across manufacturing and services sectors. Despite this, S&P Global suggests the UK is still on track for GDP growth of around 0.3% in the third quarter. The data reflected improving customer demand and a solid domestic backdrop but concerns about fragile client confidence and weak global conditions weighed on business optimism.
Rightmove shares gained a modest +0.8% to 679.6p per share after receiving a sweetened third takeover bid from Rupert Murdoch’s REA Group. The bid valued the company at £6.1 billion, or 770p per share. The market seems sceptical about the transaction going ahead.
Retail stocks performed solidly following positive sector comments from UBS. Marks & Spencer rose +1.8%, Kingfisher added +1.61%, Associated British Foods gained +1.1%, and Next plc advanced +1.2%.
Tech stock Alphawave IP Group tumbled almost -14% after reporting a significant drop in first-half revenue and losses attributed to delays in customer programs. Currys rose +8% after Berenberg raised its price target, citing confidence in its cash flow improvement.
Higher gold prices buoyed Fresnillo +1.5% and Endeavour Mining +2.5%, while oil prices bubbled higher, supporting Shell +0.6% and BP +0.5%.
On the continent, weak economic data lifted regional bourses as traders increased their bets that the ECB will ease at its next meeting. Business activity in the Eurozone contracted for the first time in seven months. The Eurozone composite PMI fell sharply to 48.9 in September from 51.0 in August, driven by weakness in manufacturing. That was well below expectations of 50.6. Germany’s manufacturing sector printed a dismal reading of 40.3, a 12-month low.
This raised expectations that the European Central Bank (ECB) may be forced to ease policy more aggressively. Investors are now pricing a higher chance of rate cuts at the ECB’s next meetings in October and December. Yields on German two-year bunds fell faster than their 10-year counterparts, signalling growing concerns about Europe’s economic outlook.
At the close, the pan-European Stoxx 50 was up +0.29%, Germany’s DAX added +0.68%, while France’s CAC-40 inched +0.1% higher. Italy’s FTSE MIB retreated -0.24%, while Spain’s IBEX 35 advanced +0.38%.
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Carpe Diem!
Angus
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 members@fatprophets.com.au.
Chart Source: Thomson Reuters
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