UBS downgrades three of the ASX iron ore miners

MARKETS WRAP

S&P 500 TECHNICALS

FEDERAL RESERVE WRAP

The 50 basis points hike was expected from the US Federal Reserve but it was not what the markets moved on. Shortly after the decision was handed down, equities and yields sank because of this next chart - the dot plot:

The dots for the 2023 column imply that rates will stay higher for longer. Most members now see the Fed funds rate range being between 5% and 5.25% at the end of next year. And at least two members see that rate going above 5.5% and staying there.

That's important for two reasons:

1. It kills the idea that the Federal Reserve plans to pivot next year.
2. It kills any thought that the Federal Reserve may cut rates next year. 

This was backed up by a quote from Fed Chair Jerome Powell at the press conference in which he said the worst pain would come from interest rates not being high enough to quell inflation or if they failed to act.

Of course, these are just projections but you know what markets are like and what the Fed's history is like with predicting peak rates. But in case you don't remember, let me show you this tweet:

THE CALENDAR 

Would you like more central bank action? You would! Well, good-o! How about the Bank of England later this evening and the European Central Bank rate decisions early tomorrow morning? That's all coming up right after *checks notes* Aussie jobs data.

THE CHART

If you've read the report over the last few months, I've been introducing you to the idea behind core and headline inflation - and importantly, the difference between the two. Today, I introduce to you the third kind of inflation. It's only done in the US and as you'll soon work out, the fact it's a US-only inflation measure will make some sense.

When inflation increased by 0.1% in the latest read yesterday, markets were reacting to the headline figure. Traders also closely eye core inflation which only increased by 0.2%. Core inflation is headline minus food and energy prices which change often (week-to-week even). 

Now, meet supercore inflation. That's headline inflation minus food, energy, shelter (i.e. reported rents) and used cars. Why is this important? Because motor vehicle prices (used and new) make up 10% of the headline figure. Car prices are also the second biggest element of US inflation behind housing - which includes rents and shelter. 

Conclusion? If you take out all the major offenders of inflation, you'll naturally get a soft read! The only problem is that everybody has to come face to face with all components of inflation at some point. So that makes this particular read very trivial. 

STOCKS TO WATCH

We know how you all love iron ore (and why wouldn't you, given the dividends the Big Three have paid out in the last few years!) but UBS thinks the attraction is running out for at least some of the major miners.

Specifically, BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO) are now rated SELL after being downgraded from neutral. Apart from expensive share prices (especially in the case of BHP), the broker notes a fragile macroeconomic backdrop, weak iron ore fundamentals and China's reopening challenge.

Ironically, BHP and Rio's price targets were increased by $5 a share a piece. Take that as you will.

At Mineral Resources (ASX: MIN), the rating is now a NEUTRAL instead of sell but the price target has also been hiked by more than $10/share to $93/share. Talk about punchy!

(For the record, Fortescue Metals (ASX: FMG) was already rated a SELL by the broker.)

TODAY'S TOP READ

Top YouTubers Make Million-Dollar Video-Rights Deals (WSJ): It used to be mineral rights and songwriting labels. Now, YouTube is coming into the fold as an alternative investment. And the fund managers are coming after the YouTubers with multi-year cash contracts.

Welcome to the brave new world. 

Hans Lee wrote today's report. Chris Conway will write the final Charts and Caffeine for 2022 tomorrow. The report returns in January.