ASX to rise, techs led Wall Street higher
On Wall Street, 10 of the 11 S&P 500 industry sectors were higher, led by information technology. Energy edged lower. The NYSE Fang + Index wa 4.03 per cent higher. The VIX held below 20.
Qualcomm and Advanced Micro Devices each leapt after Barclays upgraded their stocks to “overweight” from “equal-weight”. Qualcomm gained 6.6 per cent; ADM rose 9.2 per cent.
Western Digital jumped 8.7 per cent on a report that the memory chipmaker could merge with Japan’s Kioxia Holdings.
“We reiterate our call that we believe tech stocks will be up 20 per cent this year and are way oversold at current levels,” Wedbush Securities said in a note.
Strategists at BCA Research are less sure, arguing that “the macroeconomic backdrop cautions against turning bullish” on the tech sector.
“Although the tech sector is oversold relative to the S&P 500, this factor alone is not enough to buttress it. Moreover, while relative valuations are no longer extreme, they are also not cheap.
“Our US equity strategists have been underweight the IT sector within a US equity basket,” BCA also said. “Among tech stocks, they recommend an underweight in hardware and equipment and an overweight in software and services, as the former is relatively more exposed to consumer demand.”
Local: NAB December business conditions, confidence
Overseas data: January PMI services for Japan (Nikkei, Eurozone, UK and US); January PMI manufacturing for Japan, UK and US; US Richmond Fed index January
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ASX futures up 25 points or 0.34 per cent to 7426 near 8.20am AEDT
- AUD +0.9% to 70.28 US cents
- Bitcoin +2.1% to $US22,988 near 8.25am AEDT
- On Wall St: Dow +0.8% S&P 500 +1.2% Nasdaq +2%
- In New York: BHP -0.1% Rio +0.5% Atlassian -2%
- Tesla +7.7% Apple +2.4% Amazon +0.3% Netflix +4.4%
- In Europe: Stoxx 50 +0.8% FTSE +0.2% CAC +0.5% DAX +0.5%
- Spot gold +0.1% to $US1927.57 an ounce at 2.29pm New York time
- Brent crude +1% to $US88.47 a barrel
- 10-year yield: US 3.52% Australia 3.44% Germany 2.20%
- US prices as of 4.28pm in New York
Morgan Stanley: ”Our work shows further erosion in earnings, with the gap between our model and the forward estimates as wide as it’s ever been. The last two times our model was this far below consensus, the S&P 500 fell by 34 per cent and 49 per cent.
“Could our model be wrong? Of course, but given its track record, we don’t think it will be wrong directionally, particularly in view of the collection of leading series/models we’ve published that point to a similar outcome.
“It’s simply a matter of timing and magnitude…and we think the earnings recession is imminent. We find the shift in investor tone supportive of our call for new lows in the S&P 500, which will bring this bear market to a close later this quarter or early in 2Q.”
US earnings season
Bank of America’s view: “We are early in the season, but of the 11 instances of guidance [year to date], seven were below consensus versus two above, pushing the 1-month S&P 500 Guidance Ratio lower to 0.29x, the 10th percentile in our data history and note that since Reg-FD, the S&P 500 bottomed from a bear market only after the guidance ratio troughed.”
The bank also said earnings so far are tracking a 1 per cent miss on slashed expectations:
“52 S&P 500 companies (including early reporters) comprising 14 per cent of S&P 500 earnings have reported. 4Q EPS slid further, now tracking a 1 per cent miss vs. a historical average of 50bp beat post Week 1, and this is after a 7 per cent cut into the season where financials detracted most (6 per cent miss).
“2023E EPS was cut 1 per cent YTD to $US227 (+4 per cent YoY), now 10 per cent off of peak June expectations. 46 per cent of companies beat on sales and EPS, in line with the historical post-Week 1 average, but forward looking reads are less positive.”
Iron ore recap
Simandou may drive Australian iron ore volumes higher An Australian executive building an iron ore project in Guinea reckons demand for Australian ore may perversely rise if the Simandou province comes to fruition.
Analysis: Why Pilbara’s iron ore giants will grow faster than Simandou Guinea’s mining project is held up as the bogeyman that will bring Australia’s biggest export industry to its knees. But Brazil will have a bigger say in future prices.
China leaps ahead on unlocking huge African iron ore deposit Steel giant Baowu’s increased role in the Simandou project underlines China’s determination to reduce its dependency on Australian iron ore.
Politics behind China’s iron ore ambitions in Africa, says former exec In the 1970s, Japan turned to Brazil to reduce its reliance on Australian iron ore. Now history could be repeating itself as China looks to Africa.
These market-beating fundies see boom times for oil and gas Regal Resources’ 55 per cent return elevated it to the best Australian strategy in any category last year. This is how the top managers from Totus, 4D and Lazard beat the market.
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