Morning Market Wrap:
Overnight Markets:
Cash markets experienced a significant reversal overnight:
- Dow: -1.08%
- Nas: -2.19%
- SPX: -1.35%
The U.S. Cash session was mainly supported by the AI theme from the previous NVDA session, which reversed overnight. No particular dataset comes to mind other than yesterday's push being overly optimistic, considering the Powell speech scheduled in Wyoming tonight for Australian traders. It's worth noting how crazy it is that it was THIS TIME LAST YEAR when the market was "calling for" a Fed Pause and trying to price one in. Yet, here we are 12 months later with 11 rate hikes!
A notable mover was AMD, which dropped by 6.7%. Essentially, Tech took the most significant hit, but every sector was in the red last night. I mentioned to two people yesterday that the widespread selling didn't inspire confidence in a continuation. I currently hold only a FULLY DOLLAR HEDGED FMG position. I hedged when Iron ore was in the high 820's (will discuss Iron Ore later). I closed all overnight hold ideas near the close. The market seemed to open with selling dominating most of the day across various assets. This sentiment was palpable as nothing gained traction in the market.
Commodity and Macro:
US Benchmark yields rebounded slightly overnight, closing at 4.2411%, up 59bps. The USD's strength added some pressure to Silver and gold, but they held up relatively well compared to equities. Silver was down about 12c from the Australian session's close, while gold remained relatively flat. The point here is that when certain moves are outsized, it's essential to assess the entire ecosystem to gauge where risks lie. This dynamic is ever-evolving, and things can change rapidly.
Base Metals:
Ni was down by -0.7%, Cu by -1.08%, Al by -1.15%, and Tin by -1.05%. There isn't much commentary around these moves either; it seems like a reversion of yesterday's trends. Markets could be unwinding risk and repositioning ahead of the Powell speech.
Energy:
Iron Ore cooled down as soon as the Australian session closed, dropping by about 10cny before trading back up to around 816 in the night trade. It's worth noting the ongoing weakness in FMG and peers amid this iron ore bounce. To me, there are a few ways to play it: initially, go long on FMG and hope for a catch-up trade as that steam diminishes. As the catch-up trade slows, consider adding some risk mitigation measures as the risk shifts. The risk could turn into a scenario where, for example, FMG can't bounce, iron ore reverses, and buyers are trapped, leading to amplified weakness in FMG. Be aware of these dynamics and manage the risk. I'm not providing mentoring, but these are important concepts to consider. Manage risk and don't just focus on rewards. Lithium weekly prices remain stable (PLS report today, which could dominate sentiment). Considering the valuations of Lithium names in Australia, a strong report is expected. I'll also mention that my short button is ready today... though, in saying that, PLS has consistently been the sector's main pick. Peer plays on results might be better. Lithium Futures were also stable. Uranium prices increased by 25c, but Uranium as a market proxy seems to have prevailed. Australian names led the selling yesterday, followed by US names today. If the Uranium price can continue to creep up, it might lead to a "buy the dips" scenario in Uranium equities. However, after a strong push, it's wise to give room and choose battles in the current market backdrop.
Local:
Australian futures indicate a substantial drop this morning, down 98pts or 1.28%. Remember yesterday's positivity pre-market and the fact that SPI actually reopened DOWN rather than up. It did nothing throughout the day against the prevailing "positive" sentiment from the US session and after-hours trade. Today, a dip in US markets equals a similar move in Australian markets, showing just how sensitive the market is to the downside. This sensitivity helps identify risk. We'll see how markets move today through the session but will focus on any recently weaker names that may have gotten ahead of themselves yesterday amid market positivity.
Data:
The main focus will undoubtedly be Powell's speech in Wyoming after the central banker meetup at the Jackson Hole Symposium. Markets will closely follow his every word.
Not much more to add today - I hope the random market talk helps a bit. We can't always be right, but we can manage the risk of being wrong.
Have a great day.