Why the ASX miners have Chile on their minds

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 - 3,790 (-0.38%)
NASDAQ - 11,251 (unch)
CBOE VIX - 26.40
FTSE 100 - 7,040 (-1.63%)
STOXX 600 - 406.50 (-1.53%)
USD INDEX - 108.62
US10YR - 2.971%
WTI CRUDE - US$96.71/bbl

THE CALENDAR

Overnight, US producer price inflation shocked the market again. The print came in at 11.3% year-on-year, far outpacing last month’s 10.8% read.

Weekly jobless claims are also a small concern again stateside, with the number ticking back up to the 250,000 mark.

Today is all about Chinese GDP and retail sales, which hits the wires at 12pm. How will the world's second-largest economy recover from its COVID slump? Has economic growth been stunted too much or will a strong consumer save it? 

THE CHART

Feeling old yet?

This chart comes to us from Shane Oliver's latest piece on the website. A lot of economists and professionals like to compare this unprecedented era in markets to the 1970s. After all, something's gotta make it relatable to another time period in history right? But, as this chart shows us, the 1970s is just when inflation changes started to kick in. The actual seed for the 1970s inflationary scenario was actually sown 10 years earlier. 

Isn't it weird how history repeats itself? A decade of ultra-loose monetary policy following the GFC seems to have led to this moment we are in right now.

In the words of Karl Marx, history repeats itself - first as tragedy then as farce. Or as Vishnu Varathan at Mizuho Bank eloquently puts it:

This inflation report leaves no room for the Fed to dodge the issue of surging, rather than peaking inflation being the overriding policy priority.

STOCKS TO WATCH

Today's sector to watch is the miners - but in particular, we're going to take a focus on one of the commodities they produce. Doctor Copper.

Recently, the Chilean government proposed a reform package that would see taxes raised for copper producers, to be implemented at the beginning of 2024. In spirit at least, it looks similar to the Queensland government's approach to coal.

While the newly proposed system remains subject to changes, Goldman Sachs believes the likelihood of a royalty replacing the current mining profits tax is high. In their analysis, they believe the largest potential negative impact will be borne by BHP (ASX: BHP). After all, their exposures in Chile are two-fold (Spence and Escondida). Rio Tinto also owns a portion of Escondida, while South32 has a 45% interest in the Sierra Gorda project.

The EPS hits are estimated to be relatively small (10% for BHP, 5% for Rio Tinto by Goldmans' calculations). Having said this, as Morgan Stanley and Macquarie correctly point out, this is the kind of program that could halt investments in projects across the country. Project delays should also not be ruled out too if it goes ahead.

Just some food for thought...!

Speaking of great stocks to watch, my colleague Sara Allen did a great piece on dividends - and it provides some ideas for income investors looking to try a few ideas that aren't the banks or the miners. You're welcome.

Equities
The top fund manager dividend stock picks for FY23

THE QUOTE

The European Union (EU) has very few options for stabilising its energy supply. Nuclear remains curtailed because of aging power stations, and LNG imports are at maximum capacity. The only option in the short term is coal. Germany in particular has already re-started recently decommissioned plants.

If there's anybody who I back to chat commodities at the simple level, it's ANZ's Daniel Hynes. After the European continent kept leading the charge on renewables for so long, it's having to turn to coal as a short-term option to keep the home fires burning. Literally.

In fact, if things keep going the way they are and Russia keeps the continent on tenterhooks about its Nord Stream gas pipeline, the continent may run out of natural gas by the end of the year. Wow.

THE STAT

88,000: The number of jobs added last month in Australia, even as the participation rate went up. (Source: ABS)

TLDR: The Australian labour force is super strong. In fact, it's probably past "full employment" - and that means, the great resignation could be paving the way for the great pay rise. 

Wage growth is finally on the climb after a long downtrend.

Today's report was written by Hans Lee.

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Charts and Caffeine is Livewire's daily pre-market news and analysis wrap. Every day, Livewire's team of market journalists and editors get you across the overnight session and share their best insights to get you better set for the investing day...

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