Powell back in with a mandate to contain inflation. Rates rise, the US dollar rises and Gold and Technology stocks fall. Hopes for Chinese policy easing boosts iron ore stocks. We may have timed the bottom on that after all. Gold on the nose as inflation war begins. The CBA are telling us mortgage rates are going up and the housing market will peak. Chinese Tech on the nose again. Robinhood's shareholders going from rich to poor. BHP and Woodside sign the deal and the prices pop. Australian Tech having a bad day.
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Powell back in with a mandate to contain inflation. Rates rise, the US dollar rises and Gold and Technology stocks fall. Hopes for Chinese policy easing boosts iron ore stocks. We may have timed the bottom on that after all. Gold on the nose as inflation war begins. The CBA are telling us mortgage rates are going up and the housing market will peak. Chinese Tech on the nose again. Robinhood's shareholders going from rich to poor. BHP and Woodside sign the deal and the prices pop. Australian Tech having a bad day.
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*PLEASE NOTE: Transcripts are autogenerated and may contain errors.
Marcus Padley
00:07
Good morning, everybody, Tuesday 23rd of November and what the Lord gives with one hand he takes away the other and vice versa yesterday he took away 42 points today he has given back 45 points, I'll mark it up 45 That was just by Wall Street, which was up almost 330 points at one point closing on its lows up 17 And a very polarised market today. Let's put that down to the appointment of Jerome Powell as the Biden anointed Fed chair all that interviewing of Brainerd was little more than fitting him for Vice Chair of the Federal Reserve. So Powell gets back in and that's what the market wanted. It's good for the market better the angel you know, as I've said in the spy section today better the angel you know than the angel you don't continuity of policy is a good thing, not appointing Powell would possibly or could possibly have upset the markets. God forbid anyone ever upsets the financial markets.
01:11
So Powell it is now the way the markets interpreted that is to pop bond yields higher the US Dollar as well as gone up, it's gone up half a percent. And the feeling is that Biden and Powell between them are committed to stop inflation getting out of control. And on the back of that tapering will continue interest rate rises will appear, bond yields have ticked up and that kills technology stocks and our tech sector they absolutely belted AAPT down five and a half percent Wisetech Down 6.7% A lot of others down over 3%.
01:49
And in the US Dow Jones up 17 points but the NASDAQ down 1.26%. There's also by the way, a second leg down it seems for big Chinese tech stocks Alibaba saying that the Chinese consumer is not behaving themselves in their recent results, their share prices coming off. So technology on the nose over there and here as well. But the flip side of that is resources doing rather well bhp is up 4.1%.
02:19
Today Woodside up 3.4% And you've probably seen that they have signed the binding agreement to merge assets. They announced this earlier this year, obviously, but they have now signed a binding binding agreement. The Woodside CEO is effervescent about doubling the size of the company. It won't happen till the middle of next year. But it's been very well received and very nicely wrapped up in words by bhp and Woodside. So the share prices have ripped up today taking Rio higher as well up 3.6% And Fortescue Metals up 8%. And what's going on there is there is chatter about the Chinese easing policy. And if they do that takes a bit of the risk out of the Chinese economy and the iron ore price has gone up 3.7% yesterday 4.7% today Fortescue is 22% off the bottom in the last week, and we have had a trade in the ideas portfolio in BHP and Fortescue to try and catch this big low on the iron ore price and it looks like we might just have done it.
03:26
Well, you could have bought and I've put a list of iron ore stocks in the SPI section today you could have bought another one which is more geared is Mount Gibson MGX, they're up 3.9% today obviously could have bought RIO as well. Another one is CIA champion iron up 6.9% today so there are other plays. The main point of that trade in the ideas portfolio was to try and time the big low on the iron ore price, not the short term low but the big low. We seem to be doing okay in the short term. So happy about that. So various things going away of resources today also a strong sector day possibly on the interest rate rise idea are all the banks you've got CBA at 1.5%, Westpac, 1.3, NAB and 0.9 and Zed 2.1.
04:15
Now driving that is possibly this piece of strategy research, you can probably find it in the press somewhere from the CBA strategist talking about house prices are going to fall and interest rates are going to rise now to be cynical for the CBA strategist to completely disregard the RBA. The RBA, of course is trying to convince us that interest rates aren't going to go up until 2024. And here you have a major bank strategist just discarding that completely have to say they're not alone. The bond market has discarded the RBA his opinions as well. They are forecasting interest rate rises, but it is sort of in the CBAs interest to try and get mortgage rates up and to lay the carpet out for that to push their margins higher and that's obviously good for the bank.
05:04
So interest rates can cut both ways for bank share prices, but at the moment it looks like higher interest rates, higher mortgage rates, they're already pushing their fixed rate mortgages up good for bank earnings and hence won't for one day at least the banks have gone up just to fill you in on some of the details of that CBA research because it is probably going to be rolled out by all the other major banks as well. They are saying that house prices in we'll use Sydney are going to go up 27% this year that's already in the bag really 6% next year and then fall 12% in 2023, and Melbourne up 17% this year 8% Next year and down 10% in 2023. And nationally up 25%. This this year, down 7% in 2023. So they are talking about a peak in the housing market.
05:57
He talks about an incredible boom phenomenal price rises but it's now losing steam, talks about natural fatigue in the housing market, higher borrowing costs. And there you go. The bank's marketing higher interest rates APRA as raw increase in the serviceability buffer, increased housing, market supply, auction activity peaking clearance rates dropping at the moment. I mean, the bank's got it completely wrong and they tried to predict house prices over the pandemic they said they'd fall 20%, they rose 27%. So what would they know I see it as a bit of a marketing document where the powers that be at the major banks are telling their structures to start painting the picture of higher interest rates and the CBA strategist is expecting whereas RBA official rates are now 0.1% The RBA is trying to convince everybody that they're going to stay at 0.1%.
06:53
The bond market says something completely different. And here we have the CBA strategist saying that interest rates are going from 0.1% to 1.25% by the third quarter of 2023. So that's five interest rate rises as opposed to none, which is what the RBA is trying to say. And the justification for that is an expectation that inflation driven by wage inflation. But you could you could pick on anything at the moment beer inflation going out for a meal inflation plus the petrol prices shot up to almost $2. But the strategists feeling that the RBA is wrong is based on a pickup in inflation to the top of their target range at around 3% over the next couple of years. Pay your money take your choice banks trying to tell us we're going to be paying more for a mortgage that's if you've got one of course.
07:43
Rising interest rates What's that good for good for a couple of stocks challenger maybe we should buy some challenger be very slow moving trade though. Some of the insurance stocks particularly QBE is known to do very well out of higher interest rates because they own so many US bonds. A rise in the US bond yield is as good as a profit upgrade for Qb and not so good for the housing market. You would suggest I've put a list of housing related stocks in the Marcus SPI section today.
08:12
So a bit going on there domestic rates supposed to go up and powers appointment getting the Americans thinking that rates are going up quicker in the US than they previously expected as well. The other thing driving the market today or driving strategy today is riving. Right? Sorry, rising COVID cases in Europe. It's now a regular news wire excuse for anything that goes down. Fauci is warned that time is running short to prevent a dangerous surge in COVID cases in the US, Germany is the main problem though Angela Merkel saying they will need tighter restrictions talking about mandatory vaccinations. French cases are at a three month high. Austria has imposed its fourth national lockdown; protests in various countries main impact, GDP downgrades will follow and it does seem to be a European rather than the rather than a US thing. And on the back of that the Euro is down quite sharply overnight fell 0.57%. That's a big move for currency against the US. That's with US dollar going up on the back of pals appointment and the Euro going down on the back of COVID. So holidays are getting cheaper in Europe. If you fancy a cruise on the sin you might leave it for a few months might get cheaper.
09:31
Another strategy issue at the moment is geopolitical risk. It's a new or rather an old one. The idea that Russia is readying invasion forces targeting Ukraine, France warns Russia and invasion would lead to great grave consequences. They might cancel us submarine contract or something anyway, injects a bit of uncertainty into the market. And that's about that strategy by the way since Powell was appointed the first time The S&P 500 is up 69.7% Probably a bit optimistic to expect his next four years to achieve the same sort of gain in the stock market. But you never know. I do wonder if Biden didn't quietly ask him can you really keep the markets going up for another four years? I imagine his answer was I'll do my best and as I say, S&P 500 touched a record high last night.
10:24
Alright Fed minutes due out tomorrow night. US markets closed on Thursday. I told you that before and half of Friday thanks to Thanksgiving big week for US holidays this week.
10:36
Okay on the portfolios at the weekend you'll see I published the DAF daft is it DAF dividends and franking portfolio I haven't felt the need to re engineer this we've done a good job in this income portfolio over the last few years anyway, it has mildly outperformed has outperformed in the last few months. I will do some tweaking over time, but in order to get it done get it published, I have adopted or re adopted the previous income portfolio as the DAF or dividends and franking portfolio it's up on the portfolio's tab on the website and we will run it from here as it is truth is I have been a bit time poor with all the changes over the last week or two and rather than drag it out and drag it out. I have published it and we'll address it day by day from here on.
11:27
Nothing much to note on the forever or FUFU portfolio at the moment bhp a big contributor today up 4.2% As I speak going to have to have a look at BET Makers they had a rather bland motherhood style AGM statement out yesterday and a down 5.5% since it's one of the few performers it was a bit of a higher risk inclusion. I left it in there from it being in before they do plough a bit of a niche type market which was why it stayed in there but the AGM didn't impress anybody we'll have a look at it.
12:06
Right other stuff on the ideas portfolio timing this iron ore bottom quite well. For the moment gold didn't like Powells announcement or Powells appointment they don't want the Fed fighting inflation so the gold price took a dive overnight we really should have taken the profit on those. Evolution Mining we're up 12% There in a very short period of time but I put a chart we bought a couple of gold stocks some Barbara as well. They're both down 3% or so today Northern Star down 3% as well. It's a bad day for gold but if you look on the chart you'll see the bottoming in the gold price that we bought into it's not super short term stuff let's let it run for a little bit longer. One of my holdings Poseidon nickel, you probably saw had a good drill result yesterday we now wait for the assay results I've put a chart of Poseidon nickel against the nickel price in the ideas section today. You'll see all they need to do is keep making progress towards restarting their mill which is slated for December next year. They've got a scoping study by the end of this year. They've got more drill results to put in feasibility study to publish live just make progress and the nickel price will do the rest as you'll see nickel price trend very firmly set in uptrend at the moment.
13:27
Two other quick things EBR systems Henry notes IPOs tomorrow one self interested member described as the next cochlea which sort of got my interest but do a bit more work than that market cap of 344 million IPOs at $1.08 See what how it goes tomorrow but you might check it out see if it's any good and I notice one of the media headlines today is consolidation in the Buy Now Pay Later sector and Z1P and Sezzle SZL in focus Henry owns Zed one p in the small cap portfolio he is getting a lesson in how you never buy a stock for corporate actually never buy a stock for a bid because it's low odds and because if anyone really wants to bid for it and it's struggling and in downtrend, there is no rush just let that share price evaporate. No point paying a premium before the damage is done. Let the damage happen and it's certainly happening in BNPL stocks have a look at the charts of Z1P and Sezzle, firmly in downtrend at the moment.
14:33
Alright, that's about that as I say it should be a quiet week this week. Henry's coming down to Melbourne for Thursday and Friday and then he's got next week off I'm actually off for a couple of days next week as well. We are running into Christmas have not had a holiday in a year. Don't worry the team will cover and I will probably have a look in in the morning on the portfolios and markets anyway right as I leave you Dow Futures up 41 market up 49 banks and resources solidly higher iron ore stocks in particular 40 skew up 8% tech stocks still getting belted.
15:09
You have a fabulous day and I will speak to you tomorrow.
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