This ASX sector is getting a 43% long-term earnings upgrade

Charts and Caffeine

Livewire Markets

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

  • S&P 500 - 3,719 (+1.97%)
  • NASDAQ - 11,494 (+1.97%)
  • CBOE VIX - 30.18
  • USD INDEX - 112.77
  • US 10YR - 3.735%
  • FTSE 100 - 7,005 (+0.30%)
  • STOXX 600 - 389.42 (+0.30%)
  • UK 10YR - 4.048%
  • GOLD - US$1659/oz
  • WTI CRUDE - US$81.99/bbl

THE CALENDAR

Late last night, the Bank of England initiated a temporary gilt (bond) buying program to calm what it called "a material risk to financial stability". The only problem? Everyone worked out very quickly what it really was. A central bank caught between a tax-cutting government and a market that refuses to believe its current policy path. 

But considering the UK is already facing record inflation, is the best idea really to buy bonds and add more money? Even if it is in a limited fashion for a temporary amount of time? The markets certainly didn't think so - as this next chart proves.

Picture as of 10pm, Wednesday 28th September. (Source: Investing.com)

Conclusion? The Bank of England may have just hit the accelerator on a policy mistake car that was already heading for a crash.

And now, to today's activities:

Source: Forex Factory

THE STAT

$114.8 billion: The difference between Treasury's estimates for Australia's debt bill and the actual result was the widest in history during FY22. That's great news for people who believe the Australian economy is on line for a soft landing. (Source: Treasury Department)

I picked this stat for two reasons - one is because it shows how resilient the Australian economy is compared to the rest of the world. And two, so I could do this tweet:

LOL.

THE CHARTS

Ouch. 

If you think this year has been wild and unprecedented, then you aren't imagining things. This chart (tweeted out by my friend Jonathan Pain) has been doing the rounds and it's absolutely remarkable. The drop this year far eclipses 2008, and any other time in recent history. Even more amazing is the fact that the bond market makes up the overwhelming majority of this. And if you'd like proof of that, Deutsche Bank has you covered:

Source: Deutsche Bank

STOCKS TO WATCH

Yesterday, I started this section with a quote. Today, I'm starting it with a chart because it introduces the sector in which we'll be talking about:

That's right. It's coal day on Charts and Caffeine, and the team at Macquarie Commodities has outdone themselves with adjustments to its price projections for the prices of thermal coal across the world. They now expect the seaborne thermal coal market to have a deficit 2.5x larger than they first thought - and that means higher prices in the immediate future. Having said this, they do expect medium-term prices to eventually fall:

We still expect thermal coal prices to structurally fall from 2024 as the market moves towards balance and small subsequent surpluses but have also lifted our long-term price forecast from $58/tonne to $80/tonne.

So what does that mean for the companies that deal in this area of the market? In short, raise the earnings forecasts!

  • BHP (ASX: BHP) moves up 4-6% through FY26
  • Whitehaven Coal (ASX: WHC) moves up 28% next year then moves up between 100 and 200% through FY27
  • New Hope Coal (ASX: NHC) moves up 34% in FY23, 163% in FY24, and peaks at 400%+ in FY25
  • Coronado (ASX: CRN) won't be as lucky, earnings just a 3-6% increase through FY27

Play accordingly.

TODAY'S TOP READ

Is the world's most watched bond yield signalling an economic implosion? (Livewire - David Berthon-Jones): Aequitas' co-CIO rolls out the charts and dishes out the investable ideas in this all-macro piece for the website. See! Bonds aren't boring!

Hans Lee wrote today's report.


GET THE WRAP

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Charts and Caffeine
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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).

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