Fed minutes provide cheer for the bulls + Macquarie runs the ruler over iron ore miners

Charts and Caffeine

Livewire Markets

MARKETS WRAP

S&P 500 chart of the overnight session - Nice rally post the Fed minutes release
Futures prices as at 8 am, AEDT

MAJOR HEADLINES

  • U.S. stocks rise after Fed minutes show most officials expect slower pace of rate hikes ahead
  • Fed eyes slower interest rate hikes as the threat of recession grows
  • Fed's Mester says lowering inflation remains Fed's main goal
  • Fed's George says ample US savings could mean higher interest rates needed to cool spending
  • Poll suggests BoE to hike rates by 50 bp in December
  • Eurozone flash PMIs beat expectations but remain in contraction
  • Rising Covid infections trigger tighter controls but Beijing still calling for 'targeted' measures
  • Nomura sees policy turning point, suggests China housing market poised for gradual recovery
  • China buys fewest chip-making machines in two years as US restrictions take effect
  • EU waters down proposed price cap on Russian oil by delaying full implementation and softening key shipping provisions
  • EU considering imposing $65-$70 a barrel price cap on Russian oil 

THE CALENDAR

Source: Forex Factory

The big news overnight was the Fed meeting minutes, the release of which saw US markets turn from slightly negative to slightly positive. 

Why were they well received? Because they showed that Fed officials have begun talking about smaller rate hikes coming 'soon'. 

“A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes stated. “The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important.”

As highlighted above, the minutes showed some officials expressing concerns about the impact of large rate increases on the economy and financial stability. A step down in the size or rate hikes has been largely anticipated by the market, with many analysts believing that the Fed will step down from four consecutive 75 basis point hikes, to a 50 basis point hike in December. Still, confirmation of this expectation from the meeting minutes was enough to light a bit of a fire under the bulls overnight, and see them carry the market higher into the close. 

THE GRAPHIC

Today's graphic comes from Morgan Stanley Research and their recent note entitled 'Australia Macro + 2023 Outlook: Peaking Considerations'. 

As can be seen, the team present their base, bull and bear cases for various indexes around the world, noting that EM/Asia is where they see the most upside on offer. 

THE CHART - STILL THE LUCKY COUNTRY (JUST A BIT LESS)

Today's chart comes from the same Morgan Stanley research, putting into perspective Australia's expected economic performance (as measured by GDP) compared to other developed markets. 

As noted, MS expects the Australian economy to slow sharply in 2023, as monetary tightening takes hold, the housing market acts as a key headwind for the economy, and the labour market weakens from 1Q23. All of that said, we're set to outperform most other developed market economies.  

THE TECHNICALS

Daily chart of the ASX 200

You have to give it to the bulls, they keep on coming. After a modest stall last week, they have kicked again and broken the index above 7200 - clearing the August highs and recent congestion zone in the process. There is another potential supply (resistance) point around 7300, but the way the bulls have been making mincemeat of resistance levels of late, it shouldn't pose too much of a worry. 

It's quite extraordinary to think that, despite all of the worries about inflation and global growth, we're closer to the top (7600) of the 12-month range, than we are to the bottom (6400). And the path of least resistance remains to the upside. 

STOCKS TO WATCH

Today's stocks to watch come from the good people over at Macquarie, who have recently run the ruler over our global iron ore miners. They note that steel margins are improving, whilst Aussie miners recently reported higher week-on-week shipments. 

The team also point to the fact that iron ore prices are back to US$90/t, reflecting the improved market sentiment following the announcement of measures to relax Covid controls in China. 

As for the team's pick of the litter, they can't go past the Big Australian - BHP Group (ASX: BHP), noting that the company boasts strong organic growth options. Macquarie also maintains its positive view in Mineral Resources (ASX: MIN), whilst Deterra Royalties (ASX: DRR) "offers low volatility exposure to iron-ore via its royalty derived from BHP’s production at Mining Area C".  As for Fortescue (ASX: FMG), Macquarie has an UNDERPERFORM rating following the AGM in Perth on Tuesday, where the company reiterated its FY23 guidance range of 187-192mt. 


Chris Conway wrote today's report.

GET THE WRAP

If you've enjoyed this edition, hit follow on this profile to know when we post new content and click the like button so we know what you enjoy reading.

If you have a chart and/or a stat that you would like to see featured in a future edition of the newsletter, drop us a note at content@livewiremarkets.com.

........
Livewire gives readers access to information and educational content provided by financial services professionals and companies ("Livewire Contributors"). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision, please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

1 contributor mentioned

Charts and Caffeine
Markets Wrap
Livewire Markets

Charts and Caffeine is Livewire's daily pre-market wrap. We get you across the overnight markets and share the best in global finance so you can start your day on the front foot. Written by Hans Lee (Mondays - Thursdays) and Chris Conway (Fridays).

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.