Morning Market Wrap
Overnight Markets:
Following a long weekend due to US and Canadian public holidays on Monday, we observed US markets trading after the ASX had already conducted two sessions (Monday and Tuesday). The US markets portrayed a negative tone, resulting in a mixed index closure:
- SPX: -0.42%
- Dow: -0.56%
- Nas: +0.11%
These moves followed the release of Friday's Non-Farm Payroll and Unemployment numbers. If you recall, the market initially responded positively to these numbers, but then displayed negativity, signaling some weakness. The subsequent session confirmed this trend. I had previously mentioned that eventually, bad numbers could translate to negative market impacts, and perhaps we are now reaching that turning point. We should be on the lookout for mainstream media discussions increasingly focusing on the prospect of a "recession." However, let's remember that this is somewhat speculative, and we should concentrate on our current task of making money today and this week.
Metals and Macro:
Both gold and silver underwent selling pressure in the Asian session, with further declines after the Australian session close. Silver experienced an additional 1% drop, closing at $23.53 USD/oz, while gold fell by approximately 0.6%, closing at $1925 USD/oz. Base metals, on the other hand, continue to trade directionless, lacking any clear trend. If you are inclined to believe in a "recession" scenario, then you would expect reduced demand for metals. It appears that metals have underperformed relative to the bullish narrative of the commodity supercycle over the past 12-24 months. This reinforces the notion that the crowd, typically composed of retail investors, is often incorrect. Nickel traded +0.12%, copper +0.25%, aluminum -0.94%, and tin -0.08%. Personally, I hold the belief that once a theme becomes a hashtag, it is likely reaching its peak or conclusion.
Energy and Battery:
Regarding oil, we witnessed a 1.19% increase last night, with the Oct WTI trading at $86.74 USD on the close. This development might not bode well for markets, so it's essential to monitor intraday oil movements, as they can indicate risks within equities. Different risks affect various markets, as seen in recent examples such as rates risk affecting tech and growth stocks and industrial risk stemming from higher oil prices. Although these issues are detrimental to equities in general, their impact varies across different sectors within the market. Understanding these risks and their drivers can help identify and mitigate them or even capitalize on them.
Gas and thermal coal are currently moving in opposite directions in the short term, with Oct NEWC trading +4.08% overnight, while natural gas has declined by around 6.47% overnight. Lithium Carbonate prices are still hovering around 200CNY/kg, closing right on the 200CNY/kg mark. We are still waiting for a clear direction from this point, with a breakdown through 195 as a potential risk for Lithium bulls. Uranium continues its gradual ascent, closing at $61.27/lb, the highest level since April/May 2022, with a peak of $63.75/lb on April 14, 2022. Therefore, it's crucial to keep an eye on the upper levels. The uranium sector also performed well last night after Cameco's production downgrade on Sunday, with the URA ETF rising by 2.26%.
Other:
It's also worth noting the strength in overseas cannabis stocks. Over the past three sessions, both US and Canadian-listed cannabis companies have seen substantial increases, whereas the Australian sector, although loosely related to cannabis, hasn't experienced the same level of enthusiasm. We will be closely monitoring this development, as it might signal increased interest in the sector.
Local:
Australian futures are pointing to a weak open today, closing -18pts or 0.25% overnight. Yesterday, the RBA announced no changes to the rate hike, which was already priced in at 95%. The market's indifference to the announcement underscores how little attention it received. There is nothing particularly noteworthy in the statement either. We will continue to keep an eye on the uranium sector, but the overnight movements in US stocks appear to be a catch-up from our market's performance over the past two sessions. Therefore, it will be interesting to see how Australian uranium stocks fare, as they have generally struggled compared to their US counterparts in the medium term.
Data (Sydney Time):
Today, Australia will release real GDP figures at 11:30 am, with QQ and YY numbers expected to be 0.3% and 1.8% respectively. The UK will release PMI figures at 6:30 pm. Following this, US PMI figures are expected at 11:45 am, and Non-Manufacturing PMI figures are due at midnight. Non-Manufacturing PMI is expected to be 52.5, down from the previous 52.7. Keep an eye out for any variations.
That's all for today. Have a great day, traders!