Morning Market Wrap
Overseas Markets:
Good morning. US markets closed lower overnight, with weakness seen across all major indices:
- SPX: -0.57%
- Dow: -0.05% (holding up the best)
- Nasdaq: -1.09%
The Oil Services, Oil & Gas, and Energy sectors were the best-performing sectors, closing up 2.44%, 2.42%, and 2.24%, respectively. The oil price hit 11-month highs, closing up 1.71% at $88.84 for the Oct WTI Contract.
Metals and Macro:
Gold was down about $7 since the Australian session closed, and Silver remained basically flat since the Australian session close. Silver has been trading in about a 50-cent range for a week now, while gold has been gradually declining over the same period. It has been a pretty choppy ride there. During the same period, 10-year Treasuries have seen upward movement, highlighting the inverse correlation between rapid rates of change and metals. For newcomers, take note of this relationship. We are now seeing the Benchmark 10-year Yield sitting just below the swing highs of around 4.4%, closing at 4.28%. So, keep an eye on that upper level. I mentioned this a few weeks ago, but this oil story is NOT good for inflation, so it's essential to monitor this situation closely.
Base Metals:
In the base metals sector, there continues to be a lack of clear direction, with most metals chopping around, grinding higher, and then swinging lower in the medium term. Overall, they are trading in a range with little interest from the market. Despite what you might see on social media (#commoditysupercycle...), it's important to keep in mind that these trends can be quite different from reality. Anyway, all jokes aside:
- Nickel: -3.03%, flirting with lows that would bring it back to prices from 2021.
- Copper: -0.11%
- Aluminum: -0.43%
- Tin: -1.5%
Energy and Battery:
We talked about oil earlier, so I won't dwell on that. The November natural gas contract is just holding the six-month range lows, closing at 3.015. Coal (NEWC) closed at 160, closer to the top end of a similar six-month range. Most market participants seem to be banking on European winter seasonality, but given what happened last winter, I'm not entirely convinced that it will play out as expected. A lot may already be priced into the upcoming winter. If the winter isn't as cold as anticipated, there could be trouble. Lithium prices continue to remain at lows, with Wuxi Carbonate futures trading at around 186 CNY/kg. This Friday, we'll get the Fortnightly Spodumene FM pricing. With Platts printing at $2,750/t and Asian Metals at around $2,850 for SC6, and current FM prices at $3,350, it seems like a lower print is in the cards. We'll also see weekly prints come out on Friday, so keep an eye on these developments as the market is becoming quite sensitive to the downside. U.S. lithium-related companies continue to struggle (SQM broke overnight to 52-week lows). Now, tell me, does this look like a bullish sector? Uranium continues to climb higher, with overnight indicative pricing sitting at $62.09/lb. U.S. U3O8 names are also printing higher, creeping up. CCJ, NXE, and ER are all attempting (and printing) new 52-week highs. Among Australian names, BOE stands out, trading at circa 52-week highs, while the largest cap, PDN, is struggling to reach them. Although it's trading up there, it's having trouble pushing through those 2021 highs. Given its 2.6 billion-dollar valuation as a near-term producer, maybe it's fully priced. It's interesting to observe that when you look at the likes of CXO, SYA, LTR, you see their valuations in a similar situation. The bullish narrative surrounding them (primarily retail-driven) while the underlying asset is breaking down. Yet, you have a growth story with uranium, and these companies are struggling to hold a solid bid. Just wait until uranium reaches $80, and retail investors all pile in. It could make for another cyclical story of buying highs and being stuck, transitioning from lithium to uranium. It's a tale as old as the stock market. I'll be watching for any trending hashtags.
Local:
Australian futures are pointing to a negative open, down 21 points or 0.29%. With mixed commodities and oil pushing higher, it's uncertain how the ASX will perform today. Unfortunately, the structure of our market often results in oil stocks gapping up and then struggling due to futures weakness, while other sectors gap down and struggle to sell off due to the "buy the dip" narrative. Down days from overseas often create a challenging landscape in our markets, and illiquid opens can make it hard to navigate. We also have UC CPI tonight, so the market will be watching that carefully. CPI data is from August, so it might capture some of the oil price impact in the core number. However, we'll be closely watching next month's CPI to see if there's a real effect, not just on the number itself but also on generalized inflation (manufacturing costs, etc., rising due to the higher oil price).
Data (Sydney Time):
There's no Australian data of note today. The UK has a few releases: at 4 pm, we have Claimant Count and Unemployment Rate data, along with GDP figures. Decent numbers from the UK are expected later in the Australian session. Manufacturing data is also on the horizon. The UK isn't a significant manufacturing economy, so these numbers don't carry as much weight as a services number would, but they're still worth watching. The main event will be the GDP and unemployment data, both at 4 pm. Then, at 10:30 pm, the US will release CPI numbers, both core and ex-core. These will be the main focus for the markets. If they print higher than expected, it could be a real cause for concern. Truflation numbers have been relatively stable and have often led official numbers by about three months, so based on that, an in-line to slightly declining number might be expected. However, it's always wise to be prepared for anomalies, especially when dealing with sensitive data.
That's it from me. Have a great day!