Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Iron ore tumbles sending market lower
Weekly Insights, 13-17 September 2021.
Economics here and abroad…
Australia
After being the hottest sector for most of the year, the materials and mining companies continue to drag the market lower. On Friday it was all about iron ore with a 6 per cent fall in the iron ore price overnight sending Fortescue (ASX:FMG) 11 per cent lower and Rio Tinto (ASX:RIO) down close to 5 per cent. Iress (ASX:IRE) owner of the XPLAN system we use at Wattle Partners fell 11 per cent after Swedish private equity firm EQT pulled out of their takeover bid, however, given the state of markets I wouldn’t be surprised if someone else comes up with a bid. AMP (ASX:AMP) has reached a new low falling below $1 for the first time in its history as the recovery gets another step harder. Cimic’s (ASX:CIM) shares fell 2 per cent despite winning a $265 million contract for construction of the Western Sydney Airport. The story was similar over the five days with materials falling 3.7 per cent, the biggest detractor, and the more defensive healthcare and IT sectors up 1.7 and 2.2 per cent respectively. Altium (ASX:ALU) and Pilbara were the top performers over the five days with CSL (ASX:CSL) also gaining 2.5 per cent. Some older ‘blue chips’ are facing selling pressure with AGL (ASX:AGL) and Brambles (ASX:BXB) both down close to double figures on concerns for growth.
Overseas
US markets struggled last week, the first such fall with the Nasdaq and S&P500 both down 0.9 per cent. The Dow Jones outperformed by companies, falling 0.5 per cent as the energy sector benefitted from a stronger oil price. Last Friday marked the expiry day for options used to either leverage exposure to the market or protect portfolios, which typically sees greater levels of volatility. That said, 1 per cent moves are far from volatile. On Friday only healthcare was higher with the market seemingly struggling to find any positive catalysts after another strong year. On the positive side, there are limited negative catalysts and a wall of cash is building up on the sidelines as the end of the year nears. Over the week technology and energy outperformed, the latter gaining over 4 per cent with consumer cyclicals benefitted from a recovery in consumer confidence and a higher than expected retail sales result. The crackdown in Macau pushed the casino sector lower whilst Evergrande’s issues are putting a cap on commodity prices for the time being. Stay at home business outperformed on Friday, with Zoom (NASDAQ:ZM) and Netflix (NYSE:NFLX) rare gainers amid the worsening Delta outbreak.
Economics Ahead…
Tuesday
- US: NAHB Housing Market Index
- US: NY Fed Treasury Purchases 7 to 10 yrs
- Australia: RBA Meeting Minutes
Wednesday
- Australia: Westpac Leading Index
- Australia: RBA Bullock speech
Thursday
- US: Existing Home Sales
- US: EIA Gasoline Stocks change
- US: EIA Crude Oil Stocks change
- US: Fed Interest rate decision
- US: FOMC Economic Projections
- US: Fed Press Conference
- Australia: Manufacturing PMI
What we think…
What seems to be capturing media headlines is the collapse of the iron ore price which has boosted the economy during the pandemic and is the country’s major export. Having fallen some 18 per cent last week, the share prices of BHP, RIO and Fortescue Metals are starting to wane. The price now sits at US$107.21 a tonne and is 55 per cent below its high of US$237.57 a tonne hit just four months ago. Even though many had predicted a price pullback, the sheer magnitude of this fall has caught many investors off guard.
In other news Qantas (ASX:QAN) shares have started their climb back up, rising almost 4 per cent after the company scheduled its first international flight for mid-December restart. It looks like the market has well truly moved on from the pandemic and is looking to a post-Covid world when borders will re-open and air-travel will return to normal. For the month, Flight Centre (ASX:FLT) +31.08 per cent, Qantas (ASX:QAN) +27 per cent, Webjet (ASX:WEB) +22.82 per cent, Corporate Travel Management (ASX:CTD) +22.06 per cent.
Highlights for August
- Iress (ASX:IRE) owner of the XPLAN fell on Friday after Swedish private equity firm EQT pulled out of their takeover bid, however, given the state of markets I wouldn’t be surprised if someone else comes up with a bid.
- AMP (ASX:AMP) has reached a new low falling below $1 for the first time in its history as the recovery gets another step harder.
- Cimic’s (ASX:CIM) shares fell despite winning a $265 million contract for construction of the Western Sydney Airport. The story was similar over the five days with materials falling 3.7 per cent, the biggest detractor, and the more defensive healthcare and IT sectors up 1.7 and 2.2 per cent respectively.
- Altium (ASX:ALU) and Pilbara were the top performers over the five days with CSL (ASX:CSL) also gaining 2.5 per cent. Some older ‘blue chips’ are facing selling pressure with AGL (ASX:AGL) and Brambles (ASX:BXB) both down close to double figures on concerns for growth.
- Qantas (ASX:QAN) shares were flat despite announcing the resumption of international travel from Australia in December, beginning with the US, London and Singapore.
- Westpac (ASX:WBC) after announcing the new CEO of BT Financial Group, with Matthew Rady to take the reins of this business that remains on the selling block.
- In macroeconomic news, the OECD has called for an independent review of the Reserve Bank of Australia, questioning why they have consistently failed to meet their economic targets of stable inflation and low unemployment. Quite an interesting suggestion given Australia’s relative success by comparison to the rest of the world.
- RBA Governor Lowe shocked economists and traders last week, by betting on a rate hike to occur earlier than expected. Lowe outlined some confidence in the economic recovery once vaccination rates are higher but flagged growing concerns of the damage to small businesses as a potential risk. He highlighted the very different wage and inflation environment in Australia and reiterated that the cash rate will remain on hold at 0.1 per cent until at least 2024. Amid a growing chorus of ‘experts’ suggesting rates will increase in 2022 or 2023, he commented “these expectations are difficult to reconcile with the picture I just outlined and I find it difficult to understand why rate rises are being priced in 2022 and 2023”. The financials sector gained 0.4 per cent on the comments which are likely to support residential property for the foreseeable future.
