ASX 200 to rally, megacap tech boosts Nasdaq, oil prices tumble on Saudi price cuts

ASX 200 futures are trading 82 points higher, up 1.10% as of 8:20 am AEDT.

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S&P 500 SESSION CHART

MARKETS

• S&P 500 finished higher, closed at best levels thanks to outsized gains from megacap names like Nvidia (+6.4%), Amazon (+2.7%), Apple (+2.4%) and Alphabet (+2.3%)
• Bond yields and US dollar eased after a sizeable bounce last week
• Oil prices tumble after Saudis cut official selling prices amid persistent weakness and reports of possible Red Sea transit deals with the Houthis
• Busy day for M&A including nearly US$bn in healthcare deals, likely US$17bn merger in the natural gas space and a US$35bn deal in software expected to be announced later this week
• Bond traders confident big rate cuts coming despite Fed pushback (Bloomberg)
• Morgan Stanley's Wilson sees US stocks resuming last year's 24% rally only if economic growth picks up (Bloomberg)
• Investors look towards share repurchases to push this year's rally (Bloomberg)
• Blackstone raises US$1.3bn for private equity fund, most ever for one of its retail vehicles (FT)
• Bitcoin ETF likely to be approved on Wednesday (CNBC)

STOCKS

• Boeing faces fresh scrutiny over 737 Max planes (Bloomberg)
• Nvidia plans to begin mass production in 2Q24 of AI chip it designed for China to comply with US export rules (Reuters)
• Investors bet cheap US healthcare stock valuations will offset a tendency to underperform during presidential election years (Reuters)
• Big US banks set to log sharp rise in bad loans due to unpaid debts and impact of higher rates (FT)
• Nike and Tiger Woods end 27-year partnership (CNBC)
• Barclays says its global headcount fell by 6% last year (Bloomberg)

CENTRAL BANKS

• Fed pivot will dominate the year of rate cut cycles around the world (Bloomberg)
• BOJ said to be worried about balance sheet deficit after rate hike (Nikkei)

GEOPOLITICS

• China sanctions five US defence firms on Taiwan arms sales (Bloomberg)
• Taiwan slams Chinese balloons as safety threat, psychological warfare (Reuters)
• Blinken starts five-day Middle East diplomatic effort (Reuters)

CHINA

• China securities regulator lifts stock net-selling ban for mutual funds (Reuters)
• China stocks slump to 5-year low in dismal start to 2024 (Bloomberg)
• China's shift to high-value manufacturing could trigger new trade war (Bloomberg)
• China seeks to ease video game industry's fears of another crackdown (FT)
• China hits at more easing with possible reserve ratio cut (Bloomberg)

ECONOMY

• New York Fed Survey of Consumer Expectations shows year-ahead inflation expectations in January of 3.0%, the lowest since Jan 21 (NY Fed)
• Winter storm lashes US Northeast with heavy snow, flights cancelled (Axios)
• German factory orders for November miss estimates (Reuters)
• Eurozone investor sentiment improves further in sign of mild rebound (Bloomberg)
  
  

Stretched Sentiment Is Not All Bad

Monday's Wrap noted how the NAAIM Exposure Index had hit 102.7 on the last trading day of 2023, the highest since November 2021. A month later, the S&P 500 topped out and experienced a 25% trough by October 2022.

For context, the National Association of Active Investment Managers represents average exposure to US equity markets reported by its members.

Some new data from Jefferies suggests that not all stretched sentiment readings are contrarian sell signals. Here are the key takeaways:

• The NAAIM Index has only pushed through the 100 level 16 other times prior to the recent breach
• Unlike other sentiment indicators such as the AAII bull-bear spread, risk-on appetite in the NAAIM tends to be a positive signal
• Data shows that 90% of the time, 6-and-12 month returns are positive, with an average 12-month return of 13.5%
• The market tends to not only do well but cyclicals tend to see outsized rallies
• These instances have seen cyclicals beat defensives by over 200 bps on a six-month basis

Sectors to Watch: Kicking On

The market might still be working its way through a bit of a pullback. Even after the Nasdaq's 2.2% gain overnight. Here are some sectors worth keeping an eye out based on the performance of overnight peers and ETFs:

• Tech: Big tech experienced a sizeable bounce overnight after a slow start to 2024. Let's see if this translates to some strength for local names like Xero, NextDC etc.
• Biotech: The iShares Biotechnology ETF rallied 2.4% overnight to a 12-month high. The ETF is now up around 20% since early November. Resmed ADRs rallied 3.6% overnight.
• Uranium: Nothing too crazy happened with uranium overnight. I just wanted to explain why Boss Energy abruptly rallied 8.5% on Monday (while most other names were relatively choppy) – The stock received a double upgrade from Bank of America from Underperform to Buy with a $5.80 target price (from $3.90)
• Oil: Oil prices sold off overnight after Saudi Aramco lowered the price of light crude to Asian customers by US$2 a barrel, raising concerns that the market is oversupplied at a time where demand is also weakening. The weekly chart for oil is at a rather important crossroads. Is this the mother of all topping patterns or is it simply finding support at a long-term trendline?

A Gentle Reminder: Mining is Cyclical

Prices for battery metals like lithium, cobalt and nickel have more than halved in past twelve months after outsized gains in 2021-22. This might serve as a reminder about the cyclicality of the resource sector – Even under the most bullish narratives like renewables and EVs.

The past week has been a bit of a nail in the coffin for the industry as companies begin to hang up the gloves. Most notably:

• Panoramic Resources (ASX: PAN) on Monday said as a consequence of the decision to suspend operations at the Savannah Nickel Project, the majority of its ~140 on-site staff will be stood down, some with immediate effect.
• Core Lithium (ASX: CXO) will continue to process lithium from existing stockpiles but mining operations will be temporarily suspended to preserve cash. The company expects to record a sizeable impairment when it reports its first half FY24 results