Three of Morgan Stanley’s top materials sector picks

The Morning Wrap

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

  • DOW - 30962 (-0.56%)
  • S&P 500 - 3901 (-1.13%)
  • NASDAQ - 11,552 (-1.43%)
  • CBOE VIX - 26.27 (0.42%)
  • US 10YR - 3.453%
  • USD INDEX - 109.72
  • FTSE 100 - 7,282 (+0.07%)
  • STOXX 600 - 414.78 (-0.65%)
  • UK 10YR - 3.165%
  • GOLD - US$1,677/oz (-1.9%)
  • WTI CRUDE - US$85.10/bbl (-3.8%)
  • DALIAN IRON ORE - US$100.58/T (-0.1%)

MAJOR HEADLINES

  • Dow sheds over 170 points as investors react to higher Treasury yields
  • US inflation increasingly less about pandemic and geopolitics and more about tight labour market
  • CEOs survey shows decreased plans for hiring, capital investment
  • Some of China's biggest state-run banks have cut deposit rates for first time since 2015
  • PBOC pauses monetary easing, partially rolls policy loan, keeps rate unchanged
  • China targeting growth of around 5.5% in 2022, but economists don't even think 3% is achievable anymore
  • China's exporters warn of hard times ahead as softer overseas markets force job cuts, lower-value goods
  • UK consumer confidence declined into negative territory for the first time since 2020
  • Narrowing CPI-PPI spread may offer some optimism for stocks
  • Dividends/buybacks and gas boom drive US energy stocks higher in the face of retreating crude prices 

CALENDAR

There is plenty on the docket for next week so I'll keep it to the most important stuff. 

AU: RBA meeting minutes, Tuesday at 11:30 am, AEST - the market will be on the lookout for any clues as to the likely pace and quantum of rate hikes

US: Fed decision, Thursday at 4:00 am, AEST - this is the big one for markets. How has the recent hot inflation print changed the Fed's thinking, if at all? We will find out, whilst the press conference should make for interesting reading as well. Last time Powell spoke at Jackson Hole, he upset the apple cart. We also get Flash Services PMI on Friday at 11:45 pm, AEST

Everyone else: We also get interest rate decisions and policy statements from the BOJ, Swiss National Bank and Bank of England - all on Thursday. We also get European and German manufacturing and services PMI numbers on Friday.  

TECHNICALLY SPEAKING

Short and sweet this week with regard to the ASX 200 chart. When I covered it last week, the price was 6836. As of yesterday's close, it was 6843. A whopping seven-point move in a week. So there's nothing new to add from last week. The path of least resistance remains to the downside and a visit to the 6600 and 6400 levels the higher probability outcomes. The only positive is that the longer the price action hovers in the 6800-7000 range and consolidates, the less likely the market will break lower. For now however, the market is in no-man's-land. 

Given the brevity of coverage on the ASX 200, I thought we could play a game of 'name that stock'. The chart below is one of the best-looking charts in the market right now - a nice, clean, well-supported uptrend. If you think you know what it is, share your guess in the comments below. 

Staying with the technical bent, I wanted to share with you the following chart, which came from an article on MarketWatch, accompanied by the headline "Why the stock-market selloff could get ugly if S&P 500 falls below 3,900". And it's not hard to see why. The 3900 level has acted as support and resistance on multiple occasions over the past two year, clearly it is an important turning point in the market. If it gives way, the next supports are around 3700, and then 3650. 

THE CHART

Staying in the US, one of the burning questions analysts have been asking is whether or not the probabilities of a recession have already been priced into the market. To help out, Oxford Economics created the following graphic. It shows that, historically, the peak to mid-June trough decline for the S&P 500 of 24% is in line with 'mild' US recessions over the past 15 years. For context, the average drop for a mild recession was 34%, whilst severe slumps like 1973 and 2001, saw declines of 43%. 

STOCKS TO WATCH

This morning’s stocks to watch comes to you courtesy of the Morgan Stanley research department which has run the ruler over the materials sector. They continue to like the space, which they believe will benefit from inflation, whilst valuations are cheap. The breakdown for a few different commodities are as follows;

THERMAL COAL – Preferred stock in the space is Whitehaven (ASX: WHC) after a bumper August report, with 30% upside to the $11.20 target price

ALUMINIUM – South32 (ASX: S32) and Rio Tinto (ASX: RIO). Aluminium is trading in the 50% percentile of the cost curve which is a historically significant rebound point according to Morgan Stanley. There are also EU supply pressures whilst inventory is low.

GOLD – MS doesn’t think gold is ready for its day in the sun just yet, with rising rates in focus. There is some value starting to emerge, with Newcrest (ASX: NCMand Northern Star (ASX: NST) at the top of the list.

Elsewhere, Fortescue (ASX: FMGlooks expensive, whilst Mineral Resources (ASX: MIN) has been downgraded to EQUAL-WEIGHT following its strong performance – up almost 50% since March. 

FRIDAY FUN

Keep this in your back pocket the next time you sit down with the kids to play a 'friendly' game of monopoly (as if there is such a thing). Aside from being banker, it might be the best thing to give you an edge. 

Today's report was written by Chris Conway


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.

6 stocks mentioned

1 contributor mentioned

The Morning Wrap
Markets Wrap
Livewire Markets

Livewire and Market Index's pre-opening bell news and analysis wrap. Available weekday mornings and written by Kerry Sun.

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.

Comments

Sign In or Join Free to comment