The bulls are back, there's no place like home, and Wilsons swaps banks for battery minerals

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

• U.S. stocks slightly lower after Fed speakers suggest interest rates may top out higher
• UK Chancellor Hunt to announce fiscal consolidation worth ~£55B
• Japan exports softer than expect as imports surge amid weak yen
• Fed officials continue to back slower pace of tightening, reiterate fighting inflation is top priority
• ECB likely to slow pace of rate increase to 50 bps next month
• Republicans gain control of the House with a narrow majority and frustrate President Biden's agenda
• Xi's presence at G20 a signal he is more open to engaging with west
• China making plans to speed up Covid vaccinations
• PBOC bracing for higher inflation, indicating scope for monetary easing is limited
• Musk tells Twitter staff to go "extremely hardcore" or leave
• Germany warns EU ban on Russian oil could lead to supply bottlenecks, price increases
• OPEC, EIA, and IEA all see lower oil production next year, but diverge in demand outlook 

THE CALENDAR

There is not much on the data docket as we round out the week - and that is putting it politely. It's going to be a snooze fest into the weekend. 

THE CHART - BEARS GO BYE-BYE

It has been a long year in markets and while we've all had to acknowledge and accept the bears at times, we're bulls at heart. We all prefer to see markets going up rather than down. That is perhaps why I couldn't go past this chart and related commentary from Ophir Asset Management. The company recently posted the chart with the opening line, "the market just threw in the towel on downside protection."

Ophir goes on to point out that before the recent October US CPI print, the CBOE Equity Put/Call Ratio hit 1.3 - the highest it’s been since the GFC. 

In Ophir's words '"the ratio measures the amount of ‘put’ options over stocks (the right to sell a stock at a certain price) to ‘call’ options (the right to buy a stock at a certain price). Investors were massively bearish and clearly worried about bad news in that report. They were worried about the market tanking, taking out put protection. Oh, how wrong they were. The Put/Call ratio has since completely collapsed during this recent rally. The bulls are back in town."

THE GRAPHIC - AUSSIE, AUSSIE, AUSSIE

The graphic below comes from UBS Asset Management's Macro Monthly. In the UBS analysts words, it "shows the views of our Asset Allocation team on overall asset class attractiveness as of October 25, 2022. The coloured squares on the left provide our overall signal for global equities, rates, and credit. The rest of the ratings pertain to the relative attractiveness of certain regions within the asset classes of equities, rates, credit and currencies. Because the ACA does not include all asset classes, the net overall signal may be somewhat negative or positive."

It's nice to Australia ranking highly for equities attractiveness. It supports the sentiment of Tim Carleton from Auscap Asset Management, who was recently on record saying "Don’t get bearish, Australia. This is the best spot to invest over our lifetimes. I have no doubt about that.”

THE TECHNICALS

After a strong run off the September/October lows, it appears the ASX 200 has stalled a bit this week. That's OK, the bulls are probably a bit tired after their bullrun and are wanting some more stimulus to charge higher. The effect of the softer US CPI print has worn off and we must remember, it was still 7.7% annually - so we're hardly out of the woods yet. 

The 7200 level was respected as resistance on Monday and the index has merely trickled lower from that point throughout the week. With US markets down a touch overnight, that's unlikely to change today. All told, a bit of a nothing week from a technical standpoint, which is hardly surprising given the fireworks the week prior. 

Wilsons notes that post the recent bank reporting season, they are increasingly cautious on the banks. They see more headwinds for earnings than tailwinds.

Those headwinds include a possible peak in net interest margin forecasts, concerns about credit growth due to a slowing economy and housing cycle, and costs which have become a key risk.

With the freed-up cash, Wilsons are buying Mineral Resources (ASX: MIN), noting that MIN is "one of the highest-quality mining and mining services companies on the ASX". The move ends the portfolio underweight to resources Wilsons had been running with over the past few months.  Wilsons are also looking to increase exposure to battery minerals, which they believe has significant upside potential over the next few years. 

Chris Conway wrote today's report.

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