JP Morgan: The ASX stocks that stand to benefit from a falling Australian dollar
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.
Note: Due to the change in clocks stateside, US markets now close at 8 am AEDT.
S&P 500 TECHNICALS
There's a little central bank speak on tap, but look out for Kiwi inflation expectations. Given the economies of Australia and New Zealand are relatively similar in a lot of ways, that figure could be very interesting and be a portend of things to come for Australia.
Today's chart is from Ian Harnett of Absolute Strategy (ex-UBS). It's really nerdy so bear with me. The US bond/equity yield ratio is a score between the yield on a US 10-year note (the benchmark) and the earnings yield on the S&P 500. A score greater than 1 is "overvalued" but a score of nearly four is historically very unusual.
The conclusion? Stay bearish. The bear market isn't over yet.
David Bailin, CIO at Citi Global Wealth has some stark warnings for investors. The Federal Reserve (and other central banks) have been famously too late to start hiking in this interest rate cycle. And Bailin fears the Fed will miss the boat yet again because it will only react when employment begins to fall. As is with other economies, the US labour market is ultra-tight. Last Friday's jobs report was the first increase in the unemployment rate in many months. But as is the case with central banks, they need a trend to start making moves. Will the trend come too hard, or too late for them to make an actual impact? Let's see...
STOCKS TO WATCH
Today's stocks to watch is a JP Morgan research note preview. Lead strategist Jason Steed and his team have crunched the numbers on the stocks that will perform best in a rising rate, lower Australian dollar environment - or as market participants will tell you - the current reality.
The note makes some inferences about what would happen to companies' EPS if the Australian dollar fell another 5 cents against the US dollar and vice versa. Here's what he found:
Gold stocks like Northern Star (ASX: NST) and Evolution Mining (ASX: EVN) will do well if the Australian dollar continues to fall. It could also be good news for the Big Four banks, with Steed expecting the big banks' EPS to grow by 10-15% in the next two years.
Hans Lee wrote today's report.
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Australia's most comprehensive markets wrap is back for 2023, with a fresh look and a new emphasis on getting you and your money ahead of the curve. Available each weekday morning at 8:30am AEDT. Written by Chris Conway, Kerry Sun, and Hans Lee.