Dow surges 1200 points on better inflation print + Morgan Stanley goes for gold

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

MAJOR HEADLINES

• Dow surges 1200 points after lighter-than-expected U.S. inflation data
  
• U.S. stocks post biggest 1-day gain since 2020 after friendlier October inflation data
• The yield on the 10-year Treasury post biggest daily decline since 2009
  
• Control of Senate hinges on two states, and possible Georgia run-off
• US business leaders welcome a split Congress, heralding less extreme Washington
• Chicago Fed President Evans backs slowing down pace of tightening
• ECB to lend out more of its bonds to ease market squeeze
• BOJ Governor Kuroda lays out key debating points on future exit from stimulus
• RBA's Bullock sees end point nearing for tightening, but rates may rise a little further
• China tightens restrictions further as Covid outbreak grows

THE CALENDAR

There is not much on the data docket as we round out the week, and with all the excitement from last night's inflation print, that suits us fine. There is only so much we can take. 

THE CHART

I'm going glass half full today after last night's CPI print in the US. First things first, the numbers. 

October CPI rose just 0.4% for the month and 7.7% from a year ago, its lowest annual increase since January and a slowdown from the 8.2% annual pace in the prior month. the numbers were softer than the 0.6% and 7.9% expected by economists. Core CPI, excluding volatile food and energy costs, increased 0.3% for the month and 6.3% annually - also less than expected.

The reaction?

• Equities surged: Down up 1200 points, S&P 500 up 5.5%
• Treasury yields plunged - US 10-year fell around 30 bps to below 4% 
• The US dollar - a recent headwind for stocks - tumbled to its worst day since 2015
• US tech stocks rallied sharply - Nasdaq up more than 7%, Amazon up 12%.  
• Comment from Morgan Stanley: "Signs of deceleration will help Fed officials moderate the reduction in the pace of tightening" - and that, ladies and gentlemen, is the kicker. 

So, for today's charts, in light of last night's big rally, I'm zooming out and going positive. Whilst based on US data, the chart shows that since 1926, 20+ year equity holding periods produced positive returns, every. Single. Time. Pretty good strike rate. '20 years is a long time', you say?  10-year periods have a 95% strike rate, whilst five-year periods have an 88% strike rate. I'll take those odds. 

Last night's moves are a friendly reminder that anything can happen and you've got to be in it to win it. For a more Australian-centric view and data on this point, check out this interview with Dr Shane Oliver.

THE TECHNICALS

Last week I talked about the market stalling at 7K and rolling back into 6800, which was the intersection of a downtrend resistance line.  The bulls ultimately defended that level, have pushed back up to 7K and, with a powerful lead from Wall Street, will likely smash through that big round number today. 

It's the sort of move that technical analysts love, a big break higher on momentum and volume. It's the type of move that could sustain a new leg higher. All that said, as I have noted before, there are multiple layers of resistance above 7K, all the way up to 7200. But if ever there is going to be a chance for the market to really get going and push through, this is as good as any. 

NAB - Steady as she goes

There is a bit of ground to cover in today's stocks to watch. Firstly, the reaction to National Australia Bank's (ASX: NAB) results. 

Macquarie downgraded NAB from outperform to NEUTRAL but left the target price unchanged at $32.25. Macquarie called the result solid, helped by the Busines Bank and NZ franchise. Less impressive was interest rate leverage, which was below that delivered by peers, and could be a margin headwind heading into 1H FY23. Interestingly, Macquarie sees limited scope for a re-rating for the sector or NAB. 

Citi downgraded NAB from buy to NEUTRAL, and maintained a target price of $32.75, noting earnings and net interest margins (NIMs) were in line with their expectations. No other brokers changes their rating, with most neutral. Only Ord Minnett maintains an ACCUMULATE rating, with a $33.80 target price. 

Going for gold

The team over at Morgan Stanley has turned bullish on gold, noting in a recent update that a potential slowing in rate hikes and a peaking of the USD could light a fire under the gold price, and therefore gold stocks. 

Their pick of the bunch is Evolution Mining (ASX: EVN), noting that the circa 50% year-to-date decline is due to underperformance at Red Lake, where cost blowouts and production problems will likely abate and current guidance could therefore be conservative. 

Newcrest Mining (ASX: NCM) remains OVERWEIGHT, given its strong growth asset portfolio, whilst Northern Star (ASX: NST) is equal weight. 

Chris Conway wrote today's report.

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